The flip side of tax reform: Federal spending reform

The flip side of tax reform: Federal spending reform
© Greg Nash

Fiscal conservatives across America reacted nearly in lockstep to the recently passed federal budget bill: they groaned that congressional Republicans had “given away the store.” And  President TrumpDonald John TrumpAverage tax refunds down double-digits, IRS data shows White House warns Maduro as Venezuela orders partial closure of border with Colombia Trump administration directs 1,000 more troops to Mexican border MORE nearly vetoed it for that reason, but backed off to protect a substantial increase in military funding.

The bill added up to an additional $1.3 trillion in federal discretionary spending over 10 years — $300 billion in the first two years, including $165 billion for the military and $90 billion for disaster relief to the states. With the sequester squeezing military spending for years, much of that spending increase was necessary.

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But that doesn’t mean that the spending increases could not be offset with spending cuts elsewhere. With deficits again approaching the previously unprecedented trillion dollars annually of the disastrous Obama administration years, congressional Republican majorities need to remember that they were elected to stop these runaway big government blowouts, not perpetuate them.

 

Can we do better? Yes, but it will take fundamental change in the spending and budget practices of Washington, not unlike the fundamental tax cuts and tax system modifications brought by the tax reform bill of last year:

  • We might start with repeal of the Budget and Impoundment Act of 1974, with its arbitrary 10-year time horizon, exemption of so-called mandatory spending from annual appropriation control of Congress and the empowerment of the bean counters of the Congressional Budget Office (CBO). 
  • We must insist that each appropriation have a current-year authorization, forcing the authorizing committees of both chambers to take the tough votes that folks back home expect of them. No more free rides for Legal Services, the National Endowment for the Arts, Public Radio and TV and crony capitalists, which amount to over $300 billion per year of the $1.3 trillion of discretionary spending (military and domestic).
  • We must show that we can shrink the size of Washington by eliminating federal functions and departments such as Education (returning that responsibility to the states), and reducing the civil service workforce through attrition (leave baby boomer retirement slots vacant).
  • We must maintain the vigorous repeal of federal regulations that cripple businesses and entrepreneurs. The Competitive Enterprise Institute’s Wayne Crews has confirmed that federal regulations cost Americans $1.9 trillion in 2017, nearly $15,000 per U.S. household and approximately 10 percent of GDP, a horrendous burden on our economy.
  • And we should begin selling federal assets, using the proceeds exclusively to pay down the national debt.

But to really cut spending, Congress must address entitlements. Expanding state authority over Medicaid through block grants of federal funding to the states would save $1 trillion to $2 trillion over 10 years, the CBO projects.

The states have demonstrated that they can run Medicaid far better than the current system, with experiments in Indiana and Rhode Island showing they can vastly benefit the poor, empowering them with actual access to health care, long a fundamental problem with current Medicaid.  Liberal Republicans need to learn about the problems with Medicaid, so they can explain to voters how this reform would greatly benefit the poor.

Block grants to the states, with work requirements, should be expanded — with similar savings and vastly improved performance for the poor — to food stamps, dozens of ineffective federal job training programs, and SSI (assistance to the aged, blind and disabled). Indeed, the same reforms can and should be expanded to more than 100 federal and state welfare programs for which taxpayers spend at least $1 trillion a year.

The results would be the same as for the first major block grant reform of the old, New Deal, Aid to Families with Dependent Children (AFDC) program in 1996. Under full state control, over two-thirds of dependents on that program went back to work, increasing their incomes by 25 percent, on average, while taxpayer costs for the program declined by half, based on prior estimates.

Republicans should go on to slash corporate welfare, to save at least another $30 billion a year, abolishing outright programs such as the EXIM Bank and the Overseas Private Investment Corporation (OPIC).  

All of these reforms would provide trillions of dollars in spending reductions, several times the $1.3 trillion omnibus spending blowout, and Republicans wouldn’t have to worry about Democrats. They would please taxpayers and thus could expand their Senate majority in the midterms by at least a half-dozen seats and keep their House majority, so they can continue to work with President Trump on major federal reforms.  

Lewis K. Uhler is founder and chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). He was a contemporary and collaborator with President Ronald Reagan and economist Milton Friedman.  

Peter Ferrara is a senior fellow with the Heartland Institute and NTLF and teaches economics at King’s College in New York. He served in the White House Office of Policy Development under President Reagan, and as associate deputy U.S. attorney general under President George H.W.  Bush.