What Happened to the President's Spending Cuts?

Yesterday, on the heels of President Obama signing a $1.1 trillion "minibus" CRFB released a paper on the importance of controlling discretionary spending growth. The paper showed that, while fiscal conservatives tend to worry about mandatory spending, discretionary spending has actually been growing faster over the last decade. It also devotes a small box to discussing President Obama's proposed spending cuts -- which this blog will discuss in more detail. As we explain:

In his 2010 budget request, President Obama proposed terminating or cutting about 75 discretionary spending programs to achieve $11.5 billion in savings. Proposals ranged from as large as $3 billion for the F-22 Fighter Aircraft – which most experts deem no longer necessary - to as small as $1 million for the Christopher Columbus Fellowship Foundation – which the Administration found spent 80% of its funds on overhead.

We first discussed and analyzed these proposed cuts in our Analysis of the President's FY 2010 Budget back in May. There, we pointed out that administrations have historically faced opposition in Congress in trying to enact cuts and eliminations. As we wrote:

Despite proposing more cuts than the Obama Administration, President Bush saw limited success in eliminating or cutting government programs. For its FY2006 Budget, coming off a large electoral victory with a unified Congress and few spending pledges, the Bush Administration succeeded in achieving around 40% of its proposed cuts and saving roughly $6.5 billion. In the next two years, Congress enacted less than 15% of the Administration’s proposed cuts, for savings of less than $2 billion a year.   

We haven't yet reviewed all of President's requested cuts (we plan to in the next month or so), but we did try to look at the President's top ten proposed cuts to see if they were included in the appropriations bills he has signed. We excluded defense spending because it has not been passed yet. We also excluded two proposed "corps of engineers" cuts, since they came out of difficult-to-trace earmark spending.

Of the top ten programs remaining, we found that only two were enacted as requested. Another three were partially enacted. Yet five of the proposed cuts were ignored altogether -- including four which received funding increases.

Out of the $1.78 billion in proposed savings from these ten items, in fact, Congress only enacted $560 million -- less than one third. And that doesn't even include the $200 million in increased spending for areas the President recommended cutting. That would put the net cut at closer to $360 million.

 

Here is a chart of the spending cuts (numbers in millions). We intend to expand it to include all the President's proposed cuts the coming months:

Program
Agency FY2009 Levels FY2010 Proposed Level Actual FY2010 Funding Level
Health Care Facilities and Construction  HHS $310 $0  $338
Surface Transportation Priorities  Transportation $161 $0  $293
Water Infrastructure Earmarks  HHS $145 $0  $162
Agricultural Research Service Buildings and Facilities  Agriculture $47 -$50  $71
SCAAP   Justice $400 $0  $330
Nuclear Power 2010  Energy $178 $20  $105
Election Assistance Commission Grants  Financial Services $106 $52  $75
Safe and Drug Free Schools  Education $295 $0  $0
Yucca Mountain  Energy $288 $197  $197
Even Start  Education $66 $0  $66

 

If Congress cannot even enact these small cuts, we worry about its ability to control discretionary spending on the whole. We thus urge Congress to enact some type of enforcement mechanism, such as caps, to keep Congress from bowing to the temptation to overspend. As we explain:

Just holding discretionary spending growth to inflation – with strong enforceable spending caps – would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses...caps would prevent the situation from further deteriorating, something which would almost certainly occur under the current process...controlling discretionary spending alone cannot be enough to avert the coming debt crisis...But discretionary controls can make a far bigger difference than most policymakers realize, and more importantly, they can send a signal that we are serious about getting our burgeoning debt under control.

Spending cuts

Contrary to popular faith, every recession in the past 50 years has been preceded by a period of reduced federal deficit growth. Every recovery has coincided with increased deficit growth.

The reason is clear.  A growing economy requires a growing supply of money, and deficit spending is the government's method for adding money to our economy.

More examples of popular faith:

1. "Our children and grandchildren will pay the debt."  Wrong.  
2. "The debt is unsustainable."  Wrong.  
3. "Deficits cause inflation." Wrong for the size deficits we have had to date. Probably wrong even for deficits of triple that size.
4. "A trade deficit is harmful to America."  Wrong
5. "The federal government can't afford to pay for universal health care." Wrong
6. "The federal government could go bankrupt."  Wrong
7. "A federal surplus is better than a federal deficit."  Wrong
8. "Banks need deposits before they lend." Wrong
9. "The U.S. would be in trouble were China and other bond holders decide not to lend to us any more." Wrong
10. Without an increase in taxes or a decrease in benefits, Social Security will go bankrupt." Wrong

If you understand the above, you are ahead of 99% of the media the politicians and economists. 

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com

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