The Corner

Death by No Spending Cuts

John Podesta has a piece in Politico this morning where he makes the case that restoring fiscal discipline exclusively by cutting spending is unthinkable. He writes:

Cuts this severe — even if they are the ones we ourselves have chosen — would eviscerate the foundation for future growth and do lasting harm to the health of the American middle class.

He starts the article with this statement:

If the federal government collected a dime for every time someone said, “All we have to do to balance the budget is cut spending,” we wouldn’t have a deficit problem. 

If I collected a dime for every time someone said, “Spending cuts only can’t balance the budget,” I would be able to pay down my mortgage and I would be a very wealthy woman right now.

This piece is so political that it is probably not worth going through it in detail, but it saddens me to see that, in the current economic context, and considering the disastrous financial situation our country is facing right now, politics is still what drives the conversation.

To be sure, Podesta is right to complain about the lack of concrete spending-cut proposals on the Republican side. A few members have come up with plans, but the party has yet to rally behind any one of these proposals. I am certainly looking forward to reading the new “Contract With America” that they will unveil on Thursday. Also, Republicans are responsible for a large share of today’s spending (and by government spending, I mean government spending, not lack of revenue or the difference between what the government would have collected if taxes were at their 2001 levels). Playing the blame game now is useless and counterproductive.

However, the unwillingness of Democrats to think about the spending problem that our nation faces in a rational non-political way is quite disconcerting. Let’s not forget how much spending this administration has added to the taxpayers’ tab. Whether one argues that it was justified doesn’t change the fact that now we have a much larger government than we had when President Obama took office.

There are three major issues/behaviors that put this country in its current state of fiscal irresponsibility.  We have overspent; we have made excuses for our overspending; and we have lied about our overspending. That means that solutions should meet the following criteria: We must focus on cutting spending rather than on cutting the deficit, refuse to allow for political carve-outs (every part of the budget should be on the table), and fix the budget gimmicks that allow for overspending.

This paper by John Garen looks at the 2000 and 2008 federal budgets to understand how and where spending rose and is projected to rise, and how spending might be checked in order that future budgets might resemble the 2000 or the 2008 budget. Since President Clinton left office, the federal government has grown by almost $2 trillion. Podesta was part of the party in charge back then, and I doubt he would say that the 2000 levels of government spending “would eviscerate the foundation for future growth and do lasting harm to the health of the American middle class.” This paper also demonstrates that it is doable.

Obviously, some people argue that the United States can try fill the budget gap by raising taxes. However, as Harvard University’s Jeff Miron shows, macroeconomic and microeconomic analysis suggests that taxes slow economic growth, thereby limiting the scope for revenue gains. So if tax increases cannot restore fiscal balance, then the United States must slow the path of expenditure and cut spending once and for all.

Finally, contrary to what Podesta claims, cutting spending is possible and won’t destroy the country. Think of Canada. In 1995, their federal spending was reduced by 10 percent over two years and federal employment was slashed 14 percent. By 1998, the government was in surplus and the national debt was reduced by $650 billion.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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