How To Cut Federal Spending

Heritage Foundation

Earlier this month, the Obama administration reported that the federal deficit hit a near-record $1.3 trillion for fiscal year 2010. That means the government had to borrow 37 cents out of every dollar it spent. If Congress continues existing taxing and spending policies, federal deficits will reach a projected $2 trillion deficit in just 10 years. America cannot survive such sustained deficits, and Americans know it. According to a poll conducted last week by The Hill, 52% of independent voters surveyed cited debt reduction as a priority, compared with only 39 percent who said additional federal spending to create jobs is more important.
Our nation's deficits are, in reality, a spending problem. Even if the 2001 and 2003 tax cuts are made permanent, revenues are set to return to their post-World War II average of 18% by 2020. Spending, on the other hand, continues to explode. After averaging 20% since World War II, federal spending is set to soar to 26% of the gross domestic product (GDP) by 2020. If Congress is to have any chance of cutting the deficit, spending must be cut. But how?

The lion's share of spending growth is due to the big three entitlement programs: Social Security, Medicare and Medicaid. Heritage has Solutions for each of these programs including: 1) transforming Social Security into a real insurance program that offers a safety net for poorer retirees; 2) transforming Medicare into a defined contribution system that would be capped and reviewed periodically; and 3) changing Medicaid from a open-ended entitlement into an insurance-based model of private coverage. But these are all long-term reforms that will take time to implement. What can the next Congress do as soon as they take office to prove to the American people that they are serious about cutting spending?

The Heritage Foundation's Brian Riedl has identified $343 billion in spending cuts that can be made for the fiscal year 2012 budget. You can see a table of all the cuts here. The bulk of the cuts fall into six areas:


* Empowering state and local governments. Congress should focus the federal government on performing a few duties well and allow the state and local governments, which are closer to the people, to creatively address local needs in areas such as transportation, justice, job training and economic development.

* Consolidating duplicative programs. Past Congresses have repeatedly piled duplicative programs on top of preexisting programs, increasing administrative costs and creating a bureaucratic maze that confuses people seeking assistance.

* Privatization. Many current government functions could be performed more efficiently by the private sector.

* Targeting programs more precisely. Corporate welfare programs benefit those who do not need assistance in the American free enterprise system. Other programs often fail to enforce their own eligibility requirements.

* Eliminating outdated and ineffective programs. Congress often allows the federal government to run the same programs for decades, despite many studies showing their ineffectiveness.

* Eliminating waste, fraud and abuse. Taxpayers will never trust the federal government to reform major entitlements if they believe that the savings will go toward "bridges to nowhere," vacant government buildings and Grateful Dead archives.


$343 billion in spending cuts will not balance our nation's $1.3 trillion budget deficit. But it would be great start to permanently shrinking the size and power of the federal government.