NCPA - National Center for Policy Analysis

Are Politicians Serious about Spending Cuts?

January 17, 2011

The United States fell from sixth to eighth place -- behind Canada -- in the Heritage Foundation/Wall Street Journal's 2010 Index of Economic Freedom.  Now, in the just-released 2011 Index, the United States is in ninth place.  The biggest reason for the continued slide?  Spending as a percentage of gross domestic product (GDP), says John Stossel.

The debt picture is dismal, too.  We are heading into Greece's territory.  Are we doomed?  Not necessarily.  Economist David R. Henderson points out that our neighbors to the north faced a similar crisis.

  • In 1994, the debt that Canada owed to investors was 67 percent of GDP.
  • Today, it's less than 30 percent.
  • What did Canada do? It cut spending from 17.5 percent of GDP to 11.3 percent.
  • While Canada raised taxes slightly, spending was cut six to seven times more.

These supposedly painful cuts didn't cause terrible pain.  In fact, there was much more gain than pain.  Unemployment dropped, the economy boomed and the Canadian dollar -- then worth about 71 cents U.S. -- today is about equal to the American dollar.

If Canada can do it, we can, too.  But the signs aren't good, says Stossel.

New Speaker John Boehner, leader of the Republicans who now control the House, says he wants to cut spending.  But when NBC anchorman Brian Williams asked him to name a program "we could do without," he said, "I don't think I have one off the top of my head."

The Republicans say they'll start by cutting $100 billion, but let's put that in perspective.  The budget is close to $4 trillion.  So $100 billion is just 2.5 percent.  That's shooting too low, says Stossel.

Even if the Republicans managed to cut all discretionary nonsecurity spending (which is not what they plan), the deficit would still be $747 billion.  (The deficit is now projected to be $1.267 trillion.)

If they are serious about cutting government, they will ax entire programs, departments and missions, says Stossel.

Source: John Stossel, "Are Politicians Serious about Spending Cuts?" Washington Examiner, January 12, 2011.


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