Wednesday, March 16, 2011

Budget Cutting A Highly Politicized Process

The U.S. Congress is now confronting a $14 trillion national debt that just keeps growing. Congress is charged with, at a minimum, ceasing its deficit spending.

However, even if Congress manages to balance its budget and stops adding to the debt, such fiscal discipline will do nothing to to decrease the debt itself.

There's an old adage that goes like this: The best way to get out of a hole is to first stop digging.

Yet, that only keeps you from going deeper into the hole. It does not extricate you from that hole.

That's the problem the U.S. is now facing. Even if Congress stops its profligate deficit spending, its fiscal problems are already baked into the cake. There is no plan, and likely no possibility, of reducing the debt. But even worse, there seems to be no near-term plan to stop adding to it.

Due to the weak economy, tax revenues have dropped considerably. There are fewer people working and paying taxes, while more are collecting unemployment and food stamps. Meanwhile, the extension of the Bush tax cuts will only depress the revenue side of the ledger even further.

Our government doesn't just have a spending problem; it also has a revenue problem.

The extension of tax cuts and unemployment benefits, plus the 2 percent payroll (Social Security) tax cut this year, have added almost $400 billion to this year's deficit, according to the CBO.

In a bid to reign in the federal government's massive $1.5 trillion deficit, Republicans in Congress are promising a slew of tax cuts, including ending President Obama's high-speed rail program, gutting the Environmental Protection Agency (EPA), and even cutting $74 million from the FBI's budget.

But that's not all.

There are also planned cuts to rather small budget items, such as food assistance for poor mothers and their children; the Head Start pre-school program; the National Institutes of Health; teacher funding; and financial aid for college students.

However, eliminating these and other popular targets — like the National Endowment for the Arts ($161.3 million), the EPA ($10.3 billion), NASA ($18.4 billion), and even foreign aid ($36.7 billion) — is just tinkering at the margins and won't make any meaningful difference in our long term fiscal position.

Given that the federal budget is $3.7 trillion, one percent of that equals $37 billion. What this means is that each of these budget expenditures amounts to less than one percent of the budget. In relative terms, it's just chicken scratch.

For blatantly political reasons, Republicans have left some very expensive sacred cows untouched, such as more than $5 billion spent every year on ethanol subsidies that neither help the environment nor save energy; $3.5 billion for an extra engine for the F-35 fighter jet that the Pentagon doesn't want; and $6.2 billion in tax credits for oil and gas companies flush in record profits.

In fact, earlier this month, 236 House Republicans and 13 Democrats voted down a motion to end taxpayer-funded subsidies for Big Oil. Ending those subsidies would have saved tens of billions of dollars over the next decade.

So much for fiscal responsibility.

As The Guardian reports, the three big US oil companies (ExxonMobil, Chevron and ConocoPhillips) together made nearly $60 billion after costs and taxes — a doubling of profits in 2010 compared with the previous year.

According to the CALPIRG, the government gives $19 billion in subsidies to the oil and gas industry.

How can anyone reasonably argue that these giant oil companies need taxpayer subsidies?

The truth is, all of the above programs have so far escaped cutbacks for political reasons.

Part of the F-35 engine is made in the district of House Majority Leader Eric Cantor (R-Va.) and another part in House Speaker John Boehner's district.

Despite this, Boehner promises, "You are going to see more spending cuts come out of this Congress than any Congress in the history of this country."

However, members of Congress don't typically vote against military spending for fear of being labelled soft on defense, or not supporting the troops, or not taking terrorism seriously.

For these reasons, defense spending has doubled over the last ten years, according to Ashton Carter, the Defense Department's undersecretary for acquisitions.

This must be reversed. Significant cuts must be made to the military, domestic security and intelligence budgets. In addition, war funding and nuclear weapons programs must also be curbed.

These items account for 66% of discretionary spending, according to the National Priorities Project. Major cuts cannot be avoided. To do so would be recklessly irresponsible and will prove ruinous to this nation.

The US spends more on its military budget than all of the other nations on earth combined. Clearly, there is plenty of fat to be cut.

For example, the Pentagon wastes $185 billion ordering obsolete military equipment, and $34 billion in Homeland Security contracts have been plagued with waste, abuse and mismanagement going back to 2001, according to CALPIRG.

The last farm bill passed by Congress cost $286 billion. It was filled with an array of loans, price supports, subsidized insurance, disaster aid and money-for-nothing handouts. According to TIME, the top 10% of subsidized farmers collect nearly three-quarters of the subsidies, for an average of almost $35,000 per year. The bottom 80% average just $700.

And, since the vast majority of the cash goes to five row crops—corn, soybeans, wheat, cotton and rice—more than 60% of our farmers receive no subsidies.

The program is a mess, filled with graft, cronyism and corruption. The Government Accountability Office report identified $1.1 billion of subsidies whose recipients were no longer breathing.

Yes, the farm lobby is powerful indeed.

The key is giving gutless politicians enough political cover to vote against the lobbyists and special interests that fund them. That cover may have already been granted.

Last fall, two disparate organizations, the National Taxpayer Union (NTU) and the U.S. Public Interest Research Group (PIRG), joined together to propose $600 billion in federal budget cuts over the next 5 years.

Though not typically aligned, the groups highlighted 31 specific examples of wasteful government spending they say can be eliminated.

In the report, Toward Common Ground: Bridging the Political Divide to Reduce Spending, the 31 examples fall into the categories of ending wasteful subsidies, improving contract and asset acquisition, improving program execution and government operations, ending wasteful or outdated military programs and systems, and aligning military spending with current needs.

Andrew Moylan, director of Government Affairs at the NTU, who co-wrote the report, says the contracting process should be reformed "so that we don’t order as many as 50 percent too many spare parts for defense purposes.”

The National Taxpayer’s Union’s goal from its outset has been “helping to protect every single American's right to keep what they've earned,” according to the group’s Web site.

U.S. PIRG, for its part, states that “tax and budgeting decisions are the most concrete way that government declares its public priorities and balances between competing values.”

Some of the cuts suggested in the report include:

• Eliminate the Overseas Private Investment Corporation, which subsidizes investment abroad. Savings by 2015: $154 million.

• Eliminate subsidies to big agribusiness. Savings by 2015: $35.4 billion.

• Eliminate refundable tax credits for ethanol. Savings by 2015: $22.6 billion.

• Eliminate ultradeepwater natural gas and petroleum research program. Savings by 2015: $158 million.

• Eliminate Department of Homeland Security contracts already identified as wasteful. Savings by 2015: $34.3 billion.

• End orders for obsolete spare parts and supplies for the Defense Logistics Agency, Army, Navy, and Air Force. Savings by 2015: $35.5 billion.

• Remove the ceiling on the collection of overpayments from the Supplemental Security Income program. Savings by 2015: $580 million.

• Better align Medicare payments to teaching hospitals with actual costs. Savings by 2015: $20.5 billion.

• Recalibrate Medicare reimbursement rates in high-cost regions. Savings by 2015: $11.7 billion.

• Return unallocated funds from the Troubled Asset Relief Program (TARP). Savings by 2015: $15 billion.

• Cancel F-35 Joint Strike Fighter and replace with more advanced, cheap and reliable alternatives. Savings by 2015: $22.5 billion.

• End spending for high risk satellites and replace them with lower-cost alternatives. Savings by 2015: $5 billion.

• Align nuclear arsenal with current needs and threats. Savings by 2015: $56.7 billion.

• Cancel the outdated, unreliable and unneeded Expeditionary Fighting Vehicle. Savings by 2015: $16.3 billion.

The bottom line is that cutting small programs for ideological reasons really won't affect the bottom line.

Yanking money from the most needy and vulnerable individuals in our society should only come as a last resort, after all the huge industries — protected by high-paid super lobbyists — have all their taxpayer-funded subsidies / corporate welfare ended once and for all.

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