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Can You Eliminate the Deficit with Spending Cuts Alone? - No!

My Esoteric spent 20+ years as a DoD Cost and Economic Analyst as well as a program manager of the Air Force Total Cost of Ownership MIS.

The Right-Wing Promise

THE PREVIOUS INCARNATION OF THIS HUB STARTED OUT - The 2012 deficit is expected to be around $900 billion (it ended up being $1,087 billion), if the tax cuts for the top 5% of income earners expire. This doesn't seem likely now but let's assume for the moment that they do; it makes reducing the deficit a little easier.

The Right-wing took control of the House of Representatives in November 2010 (and the Senate in 2014), partly on the promise of making sure the rich keep their tax cuts and that the deficit will be eliminated through spending and tax cuts. This hub is considering the spending cut side of their plan.

Today, this hub would start with "The 2017 deficit is expected to be around $503 billion, now that the middle class tax cuts were made permanent and the top rates were increased to 39.5% and the impact of the Affordable Care Act are starting to accrue.

But first, a quick word on how tax cuts can help "reduce" a deficit.

  • Common sense says that if you cut taxes, federal tax receipts will go down.
  • The Republican theory is that tax cuts will automatically spur growth therefore increasing federal tax receipts.
  • The problem with the Republican theory is sometimes they are correct, sometimes they are not.
  • If you review my hub regarding Tax Cuts (see link) you will find the Republicans are only correct if the tax cuts are preceded by economic growth!
  • In all cases since 1954, when there was a tax cut subsequent to a weak economy, federal receipts actually went down for around the next five years.
  • Today, in 2010, we have a weak economy.
  • Today, in 2016, we have a more robust, but not strong economy ... for all sorts of reasons
  • So right off the bat, the Republican plan (which, in 2016, is still to cut taxes and cut spending to balance the budget) will probably fail because chances are very high, that any tax cut will not increase revenues but instead it will decrease them as the Democrats claim and potentially push the economy back into recession.

OK, now to spending cuts. Every year around the end of January, the President submits a budget for the upcoming fiscal year (starting October 1) It contains projections of Income and Outlays. With a few minor exceptions Outlays are broken down into two groups: Discretionary and Mandatory. Discretionary has two major categories: Security-related and non-Security related. Once the President submits the budget to Congress, Congress spends the next eight months arguing about it. In a perfect world, they would pass the budget for the President's signature near the end of September to be effective Oct 1. In my memory, I think that has happened twice and I am old. (Sometimes it can be very long indeed. I think the fiscal year was 2003, which began October 2002, I was running a program in the Air Force and it wasn't until the middle January 2003 before Congress passed an Omnibus Appropriations bill to fund the Defense Department. It was touch and go in keeping my program solvent and the contractors on-board.)

The only part of the budget that is available for spending cuts, in the short term, is the Discretionary portion. The Mandatory budget is untouchable for any given year or set of years. It takes major, and politically treacherous, policy changes to impact things like Medicare and Social Security. As you will shortly find out, there is very little room for maneuver when you are limited to just the Discretionary budget.

The Budget Baseline

TABLE 1 PRESENTS THE 2016 FEDERAL BUDGET BROKEN DOWN BY MAJOR FUNCTION. Comparisons are made with similar budgets from certain points in history:

  • 2008 is the last budget that totally belongs to President Bush but reflects the fact that the economy was on the brink of a probable depression. The budget was prepared in 2007 and presented to Congress in 2008. The full devastation of the economic free-fall wasn't actually known until late Jan 2009
  • 2010 is the first Obama budget that was not based on planning by the Bush administration. (The 2009 budget is actually a combination of Bush's original planning and on-the-fly changes by Obama to cope with the crisis.)
  • 2015 represents actuals
  • 2016 is what was approved for this fiscal year, of which we are in the process of executing

Last vote was when hub was complete through Dept of Environmental Protection Agency. The hub is now complete through the last Agency.

AGENCY 2016 Est (2015 $ B)2015 (2015 $ B)2010 ($ 2015 B) [Obama's 1st Full Budget]2008 (2015 $ B) [Bush's Last Full Budget]

SECURITY RELATED

 

 

 

 

DEFENSE

$ 576.3

$ 562.5

$ 726.7

$ 654.1

DEFENSE CIVIL PROGRAMS

$ 63.7

$ 63.0

$ 58.9

$50.4

HOMELAND SECURITY

$ 51.8

$ 42.6

$ 48.5

$ 44.7

VETERANS AFFAIRS

$177.6

$ 159.2

$ 118.0

$ 93.2

STATE & OTHER INTERNATIONAL PGMS

$ 47.0

$ 47.4

$ 47.8

$ 31.7

NON-SECURITY RELATED

 

 

 

 

DEPT OF AGRICULTURE

$ 153.8

$ 139.1

$ 141.1

$ 100.0

DEPT OF COMMERCE*

$ 10.5

$ 9.0

$ 14.4

$ 8.5

DEPT OF EDUCATION

$ 79.1

$ 90.0

$ 102.2

$ 72.6

DEPT OF ENERGY

$ 27.4

$ 25.4

$ 33.5

$ 23.5

DEPT OF HEALTH & HUMAN SERVICES

$ 1,110.4

$ 1,027.5

$ 930.9

$ 770.5

DEPT OF HOUSING & URBAN DEVEL

$ 28.7

$ 35.5

$ 65.6

$ 54.0

DEPT OF INTERIOR

$14.0

$ 12.3

$ 14.4

$ 10.8

DEPT OF JUSTICE

$ 39.1

$ 26.9

$ 32.2

$ 29.2

DEPT OF LABOR

$ 43.5

$ 45.2

$ 188.6

$ 64.7

DEPT OF TRANSPORTATION

$ 77.8

$ 75.4

$ 84.7

$ 71.4

DEPT OF TREASURY

$ 540.4

$ 485.6

$ 484.4

$ 603.7

CORPS OF ENGINEERS

$ 6.7

$ 6.7

$ 10.8

$ 5.6

ENVIRONMENTAL PROTECTION AGENCY

$ 8.3

$ 7.0

$ 12.0

$ 8.7

GENERAL SERVICES ADMINISTRATION

- $ 0.7

- $ 0.9

$ 0.9

$ 0.4

NASA

$ 19.2

$ 18.3

$ 20.6

$ 19.6

NATIONAL SCIENCE FOUNDATION

$ 6.9

$ 6.8

$ 7.3

$ 6.4

SMALL BUSINESS ADMINISTRATION

- $ 0.4

- $ 0.7

$ 6.7

$ 0.6

SOCIAL SECURITY ADMINISTRATION (on + off budget)

$ 991.6

$ 944.1

$ 822.0

$ 723.6

-

OTHER AGENCIES

$116.5

$ 106.0

$ 73.1

$ 125.4

OFFSETTING RECEIPTS

- $ 252.7

- $ 257.6

- $ 292.0

- $ 305.6

 

----------

---------

-----------

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TOTAL DISCRITIONARY

$ 1,222.9

$ 1,168.6

$ 1,348.9

$ 1,248.4

MANDATORY SPENDING

$ 2,486.5

$ 2,296.6

$ 2,085.9

$ 1,754.4

NET INTEREST

$ 240.0

$ 223.2

$ 203.7

$ 278.1

DEFICIT

- $ 504.5

- $ 1,281.2

- $ 438.5

- $ 613.9

You Simply Can't Get There From Here

4/16/2012 UPDATE: To put a slightly different twist on the argument the Conservatives, even at this late date, continue to insist you can solve the debt and debit crisis simply by cutting back government spending. As I say many other ways in many other forums, that is just impossible and the table below shows why.

In this table, I took the projected 2013 deficit (notice that it is less than a trillion dollars) and then started eliminating or reducing departments to reduce that deficit to zero; I used the Department/Agency budgets from above so I am comparing somewhat different brands of apples, but they are still apples, nevertheless. The first three cuts are the Departments Conservatives love to hate, Energy, Commerce, and Education; gone, finito, their budgets are wiped out. The fourth item is the biggie, Welfare.

This item is the difference between what is spent on Social Security, Medicare, and Medicaid above and beyond what is received in taxes; what Conservatives consider government handouts. Those are gone as well, knocked down to zero, the rug pulled out from under all the down-and-out in America these monies use to provide moral-killing, initiative-destroying assistance. After that, I started eliminating Departments which I thought Conservatives would like to see turned over to the states or not bothered with at all.

As you can see, all of the Defense related expenditures are still there and a few military related, non-security agencies such as the Veterans Administration or law enforcement like the Department of Justice. Beyond that, you have exactly what the Conservatives would like to see, a much smaller government.

DEPARMENT TO ELIMINATE2012 BUDGETDEFICIT REMAINING IF DEPT IS ELIMINATED

(PROJECTED 2013 DEFICIT)

Billion $

$704 Billion

EDUCATION

1

706

COMMERCE

9

697

ENERGY

17

680

MANDATORY SOCIAL SECURITY/MEDCARE PAYMENTS NET OFFSETTING RECEIPTS

517

163

NATIONAL SCIENCE FOUNDATION

7

156

CORP FOR NATIONAL & COMMUNITY SERVICE

1

155

ENVIRONMENTAL PROTECTION AGENCY

10

145

OTHER AGENCIES

20

125

HOUSING AND URBAN AFFAIRS

42

83

AGRICULTURE

24

59

INTERIOR

12

47

NASA

19

28

SMALL BUSINESS ADMINISTRATION

1

27

LABOR

14

13

TREASURY ($13 OF $14B)

13

0