Friday, February 4, 2011

Budget Proposals - Reckless Plans, Real Consequences

House Republicans have proposed $32 billion in spending cuts for FY 2011, on balance it would mean a $40 billion cut for non-security agencies.  If enacted, these would be deep cuts, likely to be highly disruptive to the government’s ability to deliver services in 2012, but there are other proposals out there that make the House Republican plan appear timid by comparison. The Republican Study Committee has proposed a plan that will cut $100 billion in FY 2011.  Meanwhile, Senator Rand Paul has offered up a plan that would cut $500 billion.

Some of the line items from these two proposals:
-  Cut the Department of Education budget by 83% (Rand Paul)
-  Elimination of the Department of Energy (Rand Paul)
-  Elimination of the Department of Housing and Urban Development (Rand Paul)
-  Cut the Department of State Budget by 71% (Rand Paul)
-  Hire one new federal employee for every two that retire until at least a 15% reduction in the federal workforce is achieved (Republican Study Committee)
-  Eliminate Amtrak subsidies (Rand Paul and Republican Study Committee)
-  Eliminate the subsidy to the Washington Metropolitan Transit Authority (Republican Study Committee)
-  Eliminate Corporation for Public Broadcasting subsidy (Republican Study Group)

These are pretty extreme proposals.  I don’t say “extreme” to suggest they are irrelevant, but when you take a chainsaw to the federal programs like this it’s a big deal.  As a corollary, if Congressional Democrats came out and said the State Department budget needs increased by 71% in FY 2011, that would also be extreme.  In considering the extreme nature of the proposals, there are two mutually exclusive dimensions to consider.

The first dimension is the more philosophical question of the proper role and scope of the federal government.  This is an important debate, and the short blips that both the Rand Paul plan and the Republican Study Committee plan provide regarding their proposed cuts aren’t on their face objectionable.  If anything, they help stake out the philosophical baseline they bring to any budget debate as it relates to the role of government.  Let’s debate the role of government, or rather let’s continue that debate.  It is a worthy endeavor.

The second dimension, and the one I take issue with, is the practical question of how these proposed cuts would be operationalized.  What would it really mean to eliminate the Department of Energy?  How many people would be out of work at a time we are already facing 9% unemployment?  What would happen to metro fares if the WMATA subsidy was eliminated?  Would the cost of providing transportation benefits to employees raise to a point untenable to be maintained?  What impact would the increased price have on the thousands of federal workers who use the WMATA system every day?  What happens to America’s diplomatic capacity if the State Department budget takes a 71% haircut?  I don’t mean these questions to be snarky, but legitimately the impact of “here one year, gone the next” cuts like this would be nothing short of cataclysmic.

Could the private sector, charities, and the etheral market forces adjust?  Would Amtrak and WMATA learn to run profitably without subsidies?  That depends on who you ask, but what is obvious is that even if the market can adjust, it won’t happen neatly at the end of September 2011 when FY 2012 starts.  It will likely take years, but the plans don’t account for the transition.  There’s no plan for October 1, 2011.

This is dangerous legislating.  It makes for a great headline and some shallow credibility about “being serious about deficits,” but operationally it’s reckless, negligent, and cataclysmic.  In our effort to get a budget deficit under control in the long term, some hard decisions will need made.  Many federal programs will need to learn to do more with less, some may need eliminated entirely, but the proposals advanced by Rand Paul and the Republican Study Committee aren’t serious.  They are proposals rooted in ideological preferences, not practical considerations of the consequences.  

Thankfully, the odds either the Rand Paul or the Republican Study Committee plan gains much traction are low if the remarks from Republican leaders are any indication (though apparently tax increases, Social Security, Medicare, and defense seem largely off the table), but that doesn’t excuse the plans’ advocates for being reckless with their responsibility to govern, and it doesn’t mean the cuts House Republicans are proposing won’t have uncertain, but real consequences for Americans.

UPDATE: From an avid reader, DOE employed 16,207 federal employees and 91, 294 contract employees in FY2009.


Colin said...

I agree that most of the GOP proposals are unserious. $40 billion in non-defense cuts is about 7% of the non-defense discretionary budget (this is what counts as "deep" cuts???) -- how pathetic. Rand Paul, meanwhile, is quickly revealing himself to be one of the few serious people in Washington willing to grapple with the realities of our current fiscal situation. What's truly sad is that even if Paul's proposed cuts were to be enacted that it would only eliminate one-third of this year's deficit.

As for your point about WMATA, which you raised several times, the simple answer is that WMATA would have to raise prices so that revenue=costs. That's pretty straightforward. Why should tax dollars from people who don't use the Metro be used to subsidize the people who do (and, for the record, I also favor drivers paying for highway construction and maintenance costs as much as possible through tolls and car specific taxes rather than from general taxes)? It is not at all obvious why funding the subway is a function of government. Indeed, it's worth noting that the NYC subway system has its roots in private companies such as the Interborough Rapid Transit Company, Brooklyn Rapid Transit Company, and Brooklyn-Manhattan Transit Corporation. The city also had private bus services.

More generally, the only "reckless, negligent, and cataclysmic" legislating going on in Washington is the out of control spending which gave us the current surging debt and deficit.

Furthermore, the reluctance on the part of the Democrats to offer any ideas on deficit reduction beyond raising taxes on the rich is a vivid illustration of how unserious they are. Not only do they lack ideas but they are marshalling an army of lobbyists to ward off these spending cuts (the party of no?).

As I see it we've got a Democratic party that is willing to man the barricades against spending cuts despite the gargantuan deficit, a Republican party whose promised bold cuts are actually rather tepid and one senator whose proposals are commensurate with the challenge we face. How utterly disappointing.

Jason said...

Colin, you fail to address the crux of my post. How do you, in a practical sense, responsibly excise $100 (or $500 billion) from the federal budget in one year?

We disagree on the role of government, and its scope. It stands to reason we would then disagree about an optimum level of funding. That's not my point. My point is removing $100 billion in funding in a single year is cataclysmic for countless government programs. How do you do it responsibly?

Actions have consequences. If Sen. Paul's proposal was enacted, the 100,000+ people who receive a paycheck from Dept of Energy funding, would find themselves on the unemployment rolls on October 1, 2011. Is that responsible governance?

Colin said...

How do you, in a practical sense, responsibly excise $100 (or $500 billion) from the federal budget in one year?

I think it is pretty simple. You say "Hey folks, have any of you read a newspaper in the past year?
If so, then you know we are broke. So PBS, you need to find funding elsewhere. Israel, time to get off the US teat. Metro, you need to raise fares or find more corporate sponsorship money or something. Education Department, you need to eliminate programs." Etc. etc.

It's bizarre to me that cutbacks and layoffs that are the norm in the private sector are viewed as near apocalyptic when their very prospect is raised with regard to the public sector. Why should they be exempt?

Look, I'm sorry that some people will have to lose their jobs, but that's not the fault of Rand Paul, that's the fault of a $1.5 trillion deficit. Attacking Rand Paul is simply shooting the messenger.

You ask if what Paul proposes is responsible governing -- it is the definition of responsible governing. Irresponsible governing would be continuing down the current fiscal path and essentially fiddling while Rome burns -- which seems to be the preferred approach of most Democrats and some Republicans.

But hey, if anyone else has better ideas of how to trim $500 billion from the deficit -- or hell, even $250 billion -- I'm all ears.

Jason said...

We are running a deficit, but we aren't broke. The 52 week high on U.S. 10-year bonds is 4.01% and that was back in April 2010. We can borrow money at low cost, and the bond market isn't clamoring for this kind of austerity.

Also, asking PBS to find alternative funding, asking WMATA to raise more revenue, asking the Dept of Ed to cut programs are reasonable requests, but it's unreasonable to make such requests at a time they already have budgeted and spent money.

Third, cutbacks and layoffs are not, in an of themselves, cataclysmic. But the expediency and severity that Sen. Paul and others have suggested is irresponsible.

Finally, if Sen. Paul was serious in his efforts to get the deficit under control, I would have expected some consideration on ways to increase revenues as well.

You will find nothing in my blog post to suggest we don't need to make cuts. Hell, I tweeted yesterday about liberals specifying cuts they can make to the budget. If you want to rail against Congress's ability to tackle the deficit that's fine. Nothing in my blog suggests that's objectionable. But you still haven't adequately explained how, in a practical sense, you cut the federal budget by $100 billion dollars, and you haven't even broached the subject of how private industry will respond to mitigate the social cost these cuts will have.

Colin said...

The fact that we can still borrow money isn't terribly reassuring. So can Japan, but that doesn't mean their debt burden is any less of a concern. I don't advocate slashing spending because of the bond market, I advocate it because the current spending levels are insane and rapidly driving us towards a debt that is 100% of GDP. Consider that this year's deficit is almost the exact same as President Clinton's entire proposed 1995 budget. This is money that has to be paid back, and the current path is unsustainable. Again, recall that even if Paul's cuts were implemented -- which surely will not occur -- we would still have a deficit of $1 trillion. This is not a time for half-measures.

As for PBS, WMATA, etc -- again, this happens all the time in the private sector. Assumptions and budgets change. It's called bowing to reality. Why should the public sector be exempt?

With regard to Paul's reluctance to propose tax increases, the problem is not with revenue. If you are familiar with Hauser's law you know that tax revenue as a percentage of GDP has only exceeded 20% once since the end of WWII -- at the peak of the dot com bubble in 1999 -- and has generally averaged around 19% of GDP despite significant fluctuations in tax rates. With revenues currently around 18% of GDP -- and will likely trend higher as the recovery takes hold -- this suggests there isn't a great deal of additional revenue to be wrung from the economy.

I don't understand your point about cutting spending in a "practical sense." Practically, you cut money. You eliminate entire programs and departments. You lay off thousands of people. That's how it's done. As for the social cost, I don't pretend for a second that the private sector will step into the breach. Much of what is cut will not be replaced. PBS will have to cancel some shows. The Department of Education will have eliminate programs. WMATA will have to raise fares.

I saw Derek Thompson's piece yesterday and was rather unimpressed. He says that we should cut spending in certain areas to free up spending elsewhere. No, we need to cut spending so that we can begin to get some kind of control on the deficit.