Taking the Deficit Challenge by Cancelling Stimulus Spending...
A month ago, we called on those who oppose tax increases to take the spending challenge, showing us how to stabilize the debt only through spending cuts, and those who oppose spending cuts to show us how to stabilize the debt through tax increases. We think it will be quite difficult to get our fiscal house in order without addressing both sides of the budget. But the truth is, we also think it is time to start getting specific on policy ideas -- and are willing to listen to whatever idea anyone has to help the dismal fiscal situation.
A frequent commenter of ours (Big Bureaucracy), for example, proposed a 10-15 percent cut in government bureaucracy. After that, we received another suggestion:
Privatize General Motors. Stop the spending on the recovery act (stimulus package) - whatever is left. Funds from repaid TARP should go back to closing the deficit, not spent on something else.
Let’s see how much these would save…
Privatize GM: After the government converted about $40 billion in GM stock into a 60.8 percent ownership stake in the company, GM now owes the government a total of $5.7 billion. But privatizing the 60.8 percent ownership stake now, when GM still faces weak finances and an uncertain future, would actually increase costs to the government -- given that an ownership sale now would only recoup a fraction of the billions originally invested. And since the CBO calculates everything on a risk-adjusted net present value basis, baseline forecasts already assume the present value of owning GM and that the government will not hold onto the company indefinitely. So unfortunately, this is probably not a money saver.
Stop spending Recovery Act (ARRA) funds: Wednesday was the one-year anniversary of the ARRA, a large package of tax cuts and spending increases expected to cost $862 billion over 10-years. So far, based on our tracking at Stimulus.org, a bit over $300 billion has gone out. Back of the envelope math suggests that stopping stimulus spending tomorrow would save about $550 billion (although the actual number would vary for a number of reasons). A more realistic policy would be to cancel all stimulus spending which has not yet been obligated; we estimate this would save about $230 billion. If you were to also repeal the tax credits made available for 2010 -- including what has already been issued -- this might save another $75 billion or so.
These estimates exclude interest savings, but the also do not account for the drop in demand and output which might occur is stimulus is withdrawn too early.
Don’t spend any more TARP funds: TARP was originally given $700 billion in budget authority – meaning that the Treasury had the ability to spend up to $700 billion if it as deemed necessary given financial market conditions. Currently, about $400 billion remains available.
However, stopping all of TARP’s equity purchases, transfers, and investments doesn’t equate 1-for-1 with savings and deficit reduction (as we’ve noted here and here).
When TARP was created, it was scored on what we refer to as a risk-adjusted present value basis. The calculation itself is quite complicated (see here for a more detailed explanation), but it essentially aims to estimate the net cost of any TARP spending to the deficit, based on the likelihood the loans and investments will be paid/bought back.
In the January baseline, the CBO estimated a roughly 25 percent subsidy rate for all investments made so far. So that means the $300 billion disbursed so far have increased the deficit by around $75 billion. Now compared to spending all of the remaining $400 billion in funds, not spending any would save about $100 billion -- assuming CBO's 25 percent subsidy rate. However, in its baseline, CBO already assumes that $350 billion of that will never be spent. In other words, current deficit measures assume that only $50 billion more in TARP will go out, total. So technically, the budgetary savings of rescinding that would be $25 billion.
| Ten-year Savings | |
| Rescind all ARRA spending and tax cuts immediately | $550 |
| Rescind all unobligated ARRA spending | $230 |
| Repeal ARRA tax credits for 2010 | $75 |
| Don't spend anymore TARP funds | $25 |
In the face of $14 trillion of deficits over the next decade (according to our “current policy” baseline), ending stimulus spending would make only a small dent. There also is a legitimate concern that withdrawing stimulus too quickly could send the economy into a "double-dip" recession.
That said, while these do not come close to solving the problem, they provide significant savings.
We continue to applaud our contestants for doing what to many policymakers are unwilling to do: come up with specific spending cuts and tax increases to begin bringing the debt under control.
As always, we welcome all additional suggestions; and will try to provide estimated budgetary savings for them, if we can.
Feel free to offer your own in the comment queue below.
Big Bureaucracy
Together we are moving in the right direction. So far we cut $60 billion by reducing the federal government by 15 %. Now we saved $550 billion over 10 years from ARRA.
Now let's start line by line with the Department's budgets starting with the Department of Education. Cut the budget for all new programmes that started under Obama. In the 2011 budget this will be as follows ( I assume we already took the away the 4 billion for the Race to the Top and other Recovery Act presents for the Department). So the following are just new programmes from the proposed 2011 budget;
Race to the Top -1.3 billion (2011 budget)
Investing in innovation - 500 million
Effective teaching and learning: literacy - 450 million
Effective teaching and learning: science, technology, engineering, and mathematics - 300 million
Effective teaching and learning for a well-rounded education - 265 million
College pathways and accelerated learning - 100 million
Effective teachers and leaders State grants - 2.5 billion
Teacher and leader innovation fund - 950 million
Teacher and leader pathways - 405 million
Expanding educational options - 490 million
Successful, safe, and healthy students - 410 million
These are all new programs that did not exist in 2009 and 2010.
Here is the link to the Department of Education http://www2.ed.gov/about/overview/budget/budget11/summary/appendix1.pdf
I am not even cutting old programmes - let just not create new ones in 2011 (7.1 billion worth).
It is not the business of the federal government to run education since it has been always the job of the States.
There is no reason to create this new programmes. Education should increase productivity with the programmes already in place.
Greetings! Ellie from http://www.bigbureaucracy.com/
PS. GM got to go. How much we can get for it now that Toyota is in the mud?
Big Bureaucracy
".................compared to spending all of the remaining $400 billion in funds, not spending any would save about $100 billion............................"
I am a simple person. Lets say you don't have money and a broker tells you to borrow $400 and promise to invest it so you can have back $300 and subsidize him with $100 so he can lend somebody $50. What would you do? Let's say this is a logical state of affairs in the twisted and complicated realm of the political economy. I'll take it. Let's not spend any more of the TARP funds. That will have a great "announcement effect".
Greetings! Ellie from http://www.bigbureaucracy.com/
Preposterous
This whole blog is pathetic. Dancing around. Pathetic, weak, almost boring.
You get nothing done, have no fresh ideas. Sad and frustrating..
We could fix the entire system, turn it around in a year, begin the process and build the economy at the same time as we cut the budget. I keep thinking that you are not looking in the right places and then remind myself that you have ten times, a hundred perhaps, more resources than I.
So, I know that you know the real solution. I get the feeling that you can't even approach the subject intelligently because you are part of the current establishment that automatically rules out intelligent proposals...actually the only reasonable proposals...if they fall outside the accepted parameters in Washington.
I saw the Peterson-Pew thing. Some very good things were discussed, and if you had simply hooked up two or three, we would have a reasonable proposal we could sell in six months.
Consequently, when I read the above it makes me sick to my stomach. Because I know that the best of the people in the forefront of the deficit situation are merely posturing.
It is nothing short of insulting to anyone with a brain reading your "solutions." I am not challenging what you said. It is accurate as far as I know and as far as it goes. But it really doesn't begin to address the problem. David Walker, as good as he is at what he does, will not lay out the formula. You will not address the formula. We all know what it is.
You'll have to take a couple of important steps first.
First you need intellectual honesty. You do not have it. Next you need courage. You don't even have an idea of what that looks like.
I am being a little abrasive but it is a very important issue...the most important and one I have been addressing in print since the days I voted for Ross Perot to try to bring some attention to it. That took courage, believe me. What if he had won?
People don't succeed who dance around the fringes. I know that some of you think you are being aggressive. I am post-David Walker, believe me. The problem is that, because you know you cannot get it done, you cannot make the dramatic example. If you tell people you are going to cut Social Security, the rest of the message flies out the window. If you tell people that you are going to recommend re-establishing normal tax rates, the whole population, from hicks to hedonists, gets up and leaves.
I am using those as examples of why you cannot communicate properly. You have everything loaded, but you know that you have no ignition. So you might as well give the full solution. Lay it all out. You'll save yourselves a lot of time and frustration. .
FIXING MEDICARE AND SOCIAL SECURITY
If we extend Medicare to everyone we will largely solve our health care problem. We can pay for this, and social security, with a new, limited Value Added Tax (or a variation a Gross Receipts Tax) that would exempt food, rent and health care products and services.
At the same time we can slow the growth of Medicare spending by using best practices (simple lists will help), electronic records, and doing more experimentation with cost cutting measures. See Dr. Atul Gawande's writings on these subjects.
Social Security can be limited by increasing the retirement age of full benefits by a couple of years and means testing.
This will be politically palatable to people and businesses because, while prices might go up 20-30%, they will no longer pay payroll taxes (FICA and Medicare--totalling about 18%). This money will be added to people's salaries. Also the deductions from their pay for group health insurance will stop unless they elect to get "Medigap" insurance.
Big Bureaucracy
The health industry is running high inflation - if we continue to pay their high costs we'll be just raising taxes to feed the inflation.
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