To cut budget, few big targets except entitlements

The battle continues to cut the size of government budgets and, as a result, the size of government itself.

In Maine, the proposed cuts come under the cover of tax reform. In Washington, the struggle comes more openly.

The federal government is now operating under a rule called “sequestration.” That effectively places a cap on federal spending and requires that for every increase there must be an offsetting decrease or tax increase. It’s like an informal balanced budget amendment.

But it turns out there may be much less room for budget cuts than we might think.

Scott Lilly, senior fellow at Washington’s Center for American Progress, has provided a sound explanation and the following review is based on his work.

The budget has three pieces. One is composed of “mandatory programs.” which obligate the government to make previously agreed payments. Most are payments to retirees, mainly for Social Security and Medicare. These expenditures are larger in total than what the federal government spends on all the rest of the budget.

That remainder consists of defense and non-defense spending, about equally divided between the two. Together they amount to only about one-third of all spending. Because these are supposed to be “discretionary,” they may be decreased or increased.

In other words, only about one dollar of every three spent by the federal government is subject to the budget balancing game.

Few expect defense spending cuts. In fact, many in Congress seek to increase it. Their ploy is to shift some of the increase into accounts outside the budget itself, so it simply doesn’t count in the balancing game. Of course, that blows up the whole point of trying to cut the size of government.

If defense spending is either untouched or stealthily increased, the balancing game has to be played in the remaining 16 percent of total federal government spending. That’s all of the non-defense, non-mandatory money there is in the budget.

On what do we spend that money? The top programs are veterans care, law enforcement, protecting health, fighting cheating in the mandatory programs and education. Foreign aid, the favorite target of many, accounts for far less than one percent of all spending.

The problem with the spending cap, especially in the non-defense, discretionary area, is that new problems can suddenly arise to absorb funds. Who could have foreseen the Ebola virus and the need for federal action to prevent its spread?

Many people and interests support cuts in federal spending so long as they are not in programs they consider vital or from which they benefit. The sum of all their demands cannot result in major savings. That may translate into increased support for more tax increases to support spending. That’s where Lilly’s analysis leads.

If the budget and government cutters have their way, the outlook is not for tax-based solutions, but for non-defense reductions, possibly pretty deep.

The obvious targets are the “mandatory” programs. They are only mandatory, because Congress says so, and Congress can change its collective mind. Benefits under both Social Security and Medicare could become rich targets if spending shifted to a massive military buildup.

Within the discretionary spending for purposes other than defense, both health protection and research and education could be targets. Although not really a big budget item, spending on environmental and consumer protection could be slashed.

Congress could raise taxes without leaving fingerprints. Just recently, it increased Medicare payments to doctors by increasing the contributions of higher income participants. There was no outcry against this tax increase on the wealthy.

The tax laws are riddled with “tax expenditures,” breaks that have to be covered by revenues from others or by cutting spending. For example, they make it possible to subsidize the oil industry, even if that means cutting education spending. Revenues could come from closing such loopholes.

The objective may go beyond blocking added expenses that are not covered by cuts or new revenues. Gov. LePage’s proposed “tax reform” was obviously intended partly to reduce the size of government not merely block increases.

Reductions in government revenues coupled with the prohibition on deficit spending, such as exists in Maine, lead inevitably to reductions in the scope and programs of government itself.

A key reason for capping government spending is the claim that taxes are too high. No matter that, compared with almost all other major economies, taxes in the U.S. are not high.

But people have grown accustomed to resisting government taking their money for common purposes, which they consider not essential for their personal well-being.

Gordon L. Weil

About Gordon L. Weil

Gordon L. Weil is a former local, state, national and international organization official. He is an author and newspaper columnist.