If the 2010 election produced any conservative mandates, they are to create jobs and to rein in soaring spending and deficits. Republicans should begin implementing this agenda by extending the 2001 and 2003 tax cuts and paring back a government that now spends a staggering $30,000 per household annually.
Despite liberal claims to the contrary, rising spending — not declining revenues — drives America’s long-term deficits. Once the economy recovers, revenues are projected to return to their historical average of 18 percent of the economy — even if all tax cuts are extended. Federal spending — rising from its historical average of 20 percent of the economy to a projected 26 percent by the end of the decade — is the moving variable.
Nearly all of this new spending will come from Social Security, Medicare, Medicaid, and interest on the debt. Combined and adjusted for inflation, these annual expenditures will rise from $1.6 trillion to $3 trillion over this decade. Therefore, budget reform must include putting Social Security and Medicare on a fixed long-term budget with a capped growth rate.
Yet major entitlement reforms would be phased in slowly. In the meantime, Congress should enact government-wide spending caps that gradually return spending to 20 percent or less of GDP.
After a $727 billion spending increase since 2007, there is no shortage of programs to cut to meet that 20 percent target. The 112th Congress should target programs based on their economic impact, their cost, and the feasibility of reforming them. It should build credibility with the public by including cuts in the federal government’s spending on itself, unpopular earmarks, and even traditional conservative spending programs. Conservatives could begin with the following twelve projects:
One. Freeze and reform federal pay. Before Washington asks Americans to tighten their belts, it must tighten its own. While some federal employees are undercompensated, the average federal employee receives 30 to 40 percent more in total compensation than the equivalent private-sector worker; all this extra pay adds up to $47 billion. Lawmakers should freeze federal pay until it can be fundamentally reformed.
Similarly, Congress should cut its own budget and salaries to 2008 levels, pare back the surging federal travel budget (not every federal conference has to be in Maui), suspend acquisition of federal office space, competitively outsource more federal work, and require federal employees to fly coach domestically.
Two. Ban earmarks. These symbols of waste and corruption cannot be salvaged. Taxpayers will never accept Social Security and Medicare reforms if they believe the savings will go toward bridges to nowhere. Beyond costing $20 billion annually — a non-trivial sum, even if it’s just under 1 percent of the federal budget — earmarks encourage lawmakers to vote for budget-busting bills and divert their attention from higher priorities.
Republicans should not leave unelected Washington bureaucrats to distribute federal dollars to fund local projects in place of earmarks. Rather, grants can be distributed by formula to state and local governments, which are in a much better position than Washington, D.C., to decide where to put their streetlights.
Three. Ban corporate welfare. Even before bailing out Wall Street, Washington spent more on corporate welfare than on homeland security. The public will not trust conservatives to reform middle- and lower-income entitlement programs unless they are also willing to stop granting special favors to their friends in business. A free market means that businesses rise and fall on their own, without politicians’ picking winners and losers.