Suggestions For Cutting The Deficit

With Obama producing a $3.8 trillion “budget” (the word is barely appropriate) with a $1.6 trillion deficit, and with 65% of voters saying that deficit reduction should be his highest priority, you’d think Obama could find a way to shave a few pennies here and there. You’d be wrong. Obama has no plan, no ability, and no will to reduce the deficit. So allow me to make some suggestions. . .

Non-Defense Discretionary Spending Cuts

• Cancel The “Stimulus”: The stimulus was a ridiculous idea from the get-go. It had nothing to do with “stimulating” the economy or it would have been spent in ways that at least had a chance to create jobs and stimulate the economy. Instead, it was just a give away to left-wing interest groups. Of the $787 billion allocated, $597 billion is supposedly still unspent. Throw away the checkbook immediately. Total Savings: $597 billion

• Cancel the TARP: The TARP was good money thrown after bad, given to people who didn’t need it, so they could pay out massive bonuses to people who didn’t deserve it. Of the $700 billion allocated, $200 billion was never spent. Another $92 billion has already been returned and another $364 billion is expected to be returned ($42 billion is considered lost). We should demand an immediate return of all TARP funds. Total Revenue Increase: $364 billion

Note: We should also put the kibosh to Obama’s plan to use the returned TARP money for other purposes. Though this doesn’t represent savings we can count, because it isn't set to be spent yet, it’s still a good idea.

• Cut Federal Employment & Salaries: The federal government employs approximately 2.73 million employees, who are paid $213 billion. I have direct experience with Club Fed and I can tell you that at least one-third of those employees could and should be terminated. If we cut the federal workforce by 10% (like a business might do in a recession) and cut pay 10% across the board for the rest, we could reduce the federal payroll by $40.6 billion. Total Savings: $40.6 billion

• Discretionary Spending “Freeze”: When Bush came to office, non-defense discretionary spending was $262 billion. Despite there being almost no inflation between 2000 and the present, discretionary spending increased to $420 billion before Bush left office. In Obama’s first year, it increased to $699 billion, in large part because of the $190 billion spent on the stimulus. Even without that, non-defense discretionary spending still increased to $509 billion. Leaving aside the stimulus, a 20% cut on that $509 billion would result in $408 billion, less than a 3% cut from Bush’s last budget just over a year ago. Yet, this would save another $101 billion. Total Savings: $101 billion

Defense Spending Cuts

At this point, without touching defense spending or entitlements, we could save $1.1 trillion, reducing Obama’s $1.6 trillion deficit to $500 billion. But we’re not done there. Look at defense:

• Defense: The 2010 Defense budget is $663.8 billion, with $130 billion going to overseas operations (including Afghanistan and Iraq) and the remaining $533.8 billion going to fund “base defense programs.” This represents a 4% increase for “in-country spending” over 2009. Simply freezing that portion of the budget at 2009 levels would save $20.5 billion, without even looking at programs the Defense Department doesn't want but Congress won't quit. Total Savings: $20.5 billion

Entitlement Reform & Economic Investment

Finally, let’s get a bit more speculative. Let’s talk about entitlement reform and energy independence.

• Entitlement Reform: CommentaramaCare: Without repeating the finer points of CommentaramaCare, we very conservatively calculated that the reforms proposed could save the government $245.7 billion per year just by bringing the cost of Medicare closer to the cost of private insurance. Total Savings: $245.7 billion

• Energy Independence: I wouldn’t normally suggest spending money to save money, but there is one area where this might work (though the reasons will need to wait for a future post): energy. Last year, the United States bought $470 billion in imported oil -- about half came from countries we don’t like, the rest came from places like Canada and Mexico. If we opened off-shore drilling and invested in the conversion from an oil-based economy to a natural gas-based economy, we could send about half of the money we spend in places like Saudi Arabia to places like Arkansas, Florida, California and the Dakotas instead. At a minimum, this would represent $235 billion in additional taxable sales in the United States. But let’s think like Keynes, because there is some truth to his theories. This $235 billion flowing through the economy could result in as much as $1.2 trillion in additional economic activity. If you take 28% of that in tax (the percentage of the U.S. economy that was taken in taxes last year), that would result in $329 billion in additional tax revenue. Total Increase Revenue: $329 billion

Conclusion

Totaling these amounts, we have $1.1 trillion in savings without touching defense spending or entitlements. We could get another $20.5 billion from the defense budget without a single cut. We could get another $245.7 billion from reforming our health care system. And we could get as much as $329 billion by buying our fossil fuels from domestic sources instead of the Middle East and Venezuela. This results in a total potential reduction to the budget of $1.7 trillion dollars. In other words, we could eliminate Obama’s deficit and achieve a $100 billion surplus instead. And none of these cuts would be all that painful to the economy or the ability of the federal government to carry on working.

Yet, Obama can’t find a single one of these? What does that tell you about the sincerity of his pledge to reduce the deficit?