Cutting the Federal Budget To Prevent U.S. Bankruptcy, Part XII: Freezing the Rest of the Budget for Three Years

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by Jim Grichar (aka Exx-Gman) by Jim Grichar

(Author's note: I ask readers for their indulgence because of my extensive use of the b-lingo – bureaucrat-lingo – and the detail I used in presenting my arguments. I do this to reduce bureaucratic counter-arguments – which I expect to receive – to the absurdity that they invariably are.)

For those who did not read Parts I–XI of this series, total actual cuts in proposed spending (what I call the "Cut-o-meter") now amount to $656 billion. Those cuts came from Defense, NASA, HUD, the Education Department, the Agriculture Department, Transportation Department, Interior, Commerce, Energy, Health and Human Services, Homeland Security, Justice, State, Treasury and other agencies.

The final budget proposal I shall make is to freeze the rest of the federal budget – that is, allow no increases, but only decreases if possible, in the remaining $1.663 trillion being spent this year, fiscal year 2004. To fund increases in any of the so-called entitlement programs, such as social security and its related programs, government civilian and military pensions, matching spending cuts in other programs would have to be made. Those collecting on these retirement programs should not, repeat not, be given cost of living adjustments for the three years of the budget freeze. Thus, there should be no increase in this subtotal – the $1.663 billion – for three years.

By fiscal year 2008, with the proposed cuts implemented, federal spending would be about $1.663 trillion, admittedly still a monstrously large amount. It would represent an actual nominal cut of nearly 28.3% from estimated actual spending in this fiscal year, 2004. This sharply reduced level would give the Congress time to finish off the welfare-warfare state without bankrupting the nation or throwing it into a serious depression.

First, it would give Congress the ability to grandfather existing recipients into Social Security and Medicare while abolishing it for all younger people, allowing them to save for their own medical expenses and retirements and doing a much better job of it than social security or Medicare has done.

It would further demonstrate that economic life does not depend on the state, paving the way for further budget cuts and wholesale abolishment of most federal departments and agencies.

It would permit making permanent the tax cuts that are set to expire in fiscal year 2011, especially that provision regarding total abolition of the monstrous estate and gift taxes, taxes that do nothing more than destroy family wealth, break up families, and insure that most individuals are nothing more than serfs of the state. Imagine the businesses that would continue to thrive well after the initial founders' passing on! Families would have the incentive and capability of providing for their own medical care and retirement benefits, all without interference from the federal government.

While my budget proposal might seem draconian to some, it, or a similar amount of cuts in other parts of the budget, is probably the only way the U.S. government and economy can escape bankruptcy and an eventual sharp decline in everyone's living standards, including those who currently benefit from the welfare-warfare state.

And last, but not least, the U.S. economy would boom! Freeing all that capital from government control and wasteful spending would lead to a big leap in U.S. real economic growth, give existing citizens an incentive to work instead of feed at the state's trough – thus limiting illegal immigration, and taking away one of the big incentives for illegal immigrants – getting a free ride via Medicaid, federal housing benefits, and probably food stamps, too.

States would experience a fiscal renaissance since they would no longer have to fork out matching funds to implement Medicaid and other similar matching grant programs mandated at the federal level. California might even escape bankruptcy and experience an economic revival.

All this would enable further significant cuts in taxes along with cuts in federal spending, the paying down of the federal debt, and even more real economic growth. This additional growth would go a long way to eliminate the concern regarding job losses due to imports as it would sharply reduce the cost of labor to firms. Thus, the government would not have to interfere in free trade, allowing Americans to buy what they want from whom they want, because the trade deficit would be sharply reduced.

Many economists will probably shudder in horror over this plan, suggesting that such a cutback in spending could throw the U.S. economy into a recession or depression. While I would agree that in the very short run (1–2 years at most), the economy might experience very slow growth, over the longer run the freeing up of capital for more productive private sector uses instead of state-sponsored waste would more than offset that decline in spending. In other words, private spending – still much larger than government spending – would grow much faster and offset the decline in government spending. And private spending, unlike government spending, provides the seeds for further growth in income and living standards and faster growth in gross domestic product.

Some candidate willing to speak such truths to the public and adopt a program similar to the one I have suggested might stand a good chance of attracting enough voters with such an honest, and necessary, program for U.S. survival. A strong showing by such a candidate, even without a victory, would shake the bloated beltway crowd to its knees.

The warfare-welfare state is finished. Now is the time to say so to voters.

Jim Grichar (aka Exx-Gman) [send him mail], formerly an economist with the federal government, writes to “un-spin” the federal government’s attempt to con the public. He teaches economics part-time at a community college and provides economic consulting services to the private sector.

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