New Taxes Not Just Spending Cuts Needed to Avoid Fiscal Cliff

In the coming months the same president and largely the same Congress will try to fix the same problem: How to bring the $1.1 trillion federal deficit and $11.3 trillion public debt under control.

More immediately, they need to avoid the brutal automatic cuts and tax increases that will take place in January unless President Barack Obama and congressional Republicans can reach some sort of deal.

Although Republicans and Democrats persist in making it seem like bringing spending in line with revenue is some form of particle physics, there’s no mystery to the calculations, Bloomberg Businessweek reports in its Nov. 12 issue.

The money will come out of the nation’s $2 trillion entitlement programs. It will come out of the Defense Department’s $680 billion budget. And it will come from tax increases. There will be plenty of arguing over what to cut.

There’s no arguing where the money is, except in Washington. Even after the failed 2011 debt negotiations set the country on course to this fiscal cliff, Republicans insist that the savings can be found elsewhere, no military cuts or tax increases necessary.

Discretionary Spending

Paul Ryan, a Republican who’s still the chairman of the House Budget Committee -- he lost the vice presidency Nov. 6 but won an eighth congressional term with 55 percent of the vote in his Wisconsin district -- has proposed, over the next 10 years, to cut in half the “nonsecurity discretionary spending” that makes up the rest of the federal budget.

“That sounds OK until you start to look at what’s there,” says Philip Joyce, a professor at the University of Maryland School of Public Policy who spent five years with the Congressional Budget Office. “You’re talking Commerce, you’re talking NOAA, the weather service, the Economic Development Administration,” he says. “They do real things.”

Outside the Capitol, nonsecurity discretionary spending is what people think of as “the government.”

It includes the Treasury Department, the Department of Justice, the Environmental Protection Agency, the Federal Bureau of Investigation, and the Federal Emergency Management Agency.

Necessary Services

These are services that are mostly necessary and desirable even by the standards of many small-government Republicans. They’re cheap, too. In 2011 this spending cost $371 billion, 10 percent of the total federal budget.

In a primary debate last November, Texas Governor Rick Perry remembered two departments he’d eliminate as president: commerce and education. Together last year, that duo cost $74 billion -- 2 percent of federal outlays, and 6 percent of the deficit.

The Corporation for Public Broadcasting, which Republican presidential nominee Mitt Romney said he’d cut out of the budget, requested less than $500 million this year, a comically small slice of the problem.

Let’s make the calculation easy, and cut it all -- the whole federal government aside from the Pentagon and entitlement programs such as Social Security and Medicare.

Fire every one of the 2.8 million federal employees, close the buildings they work in, and eliminate the government services they provide -- and budget-cutters wouldn’t even get one-third of the way toward eliminating the annual federal deficit.

Waste, Abuse

What’s more, because the projected growth in costs over the next decades comes almost entirely from entitlements, the amount that goes to the rest of government will become an even smaller part of the problem in the future.

Getting rid of inefficiency in government agencies is hard.

“There is no line-item in these departments that reads ‘waste, fraud and abuse,’” says Joyce.

Almost all 20th century presidents have attempted to reorganize agencies or make them more efficient; yet entropy keeps winning.

That isn’t to say it’s not worth doing. It’s just a matter of priorities -- and of recognizing that the conversation about whether to shrink the Department of Education isn’t the same as the one about how to shrink the federal debt.

To contact the reporter on this story: Brendan Greeley in Washington at bgreeley2@bloomberg.net

To contact the editor responsible for this story: Wes Kosova in Washington at wkosova@bloomberg.net

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