Where to Cut Government Spending

February 27, 2014

Over half of the federal government's spending in 2013 went toward transferring wealth through subsidies and benefit programs, says Chris Edwards, director of tax policy studies at the Cato Institute.

Last year, the federal government spent $3.9 trillion.

  • Of that, $1.98 trillion, or 51 percent, went toward wealth transfers (whether in the form of subsidies or government benefits such as Social Security, Medicare, food stamps, unemployment insurance and farm subsidies). This is the fastest-growing federal spending activity, growing at an average yearly rate of 6.7 percent.
  • Fifteen percent, or $571 billion, was spent to purchase goods and services. These purchases run anywhere from defense equipment to paperclips.
  • $510 billion went toward state aid, which comes in the form of health care programs, education and highway funding, and housing money.
  • $414 billion was paid in interest on the federal debt, accounting for 11 percent of last year's spending.
  • Federal employees -- 3.7 million of them -- were compensated to the tune of $407 billion. Defense workers are responsible for 60 percent of compensation costs.

Edwards suggests ways that the government could cut spending, as Americans' standards of living and economic growth will suffer if today's budget deficits continue. Transfers and aid to the states should be the biggest source of cuts.

  • Transfer payments are not free: every dollar of spending that goes toward one person has to come from taxes on another person. Moreover, they discourage both taxpayers and aid recipients from being productive, hurting the economy even further. Social Security also suppresses savings and encourages early retirement. It should be privatized, which would encourage working and saving and increase growth.
  • Federal aid to states only encourages states to overspend while inflating bureaucracy. Eliminating aid programs would lead to more transparent, responsible and frugal government.
  • A look at government purchases reveals a massive amount of waste. Low-priority weapons systems should be cut, and activities that could be done by the private sector should be transferred out of government hands.
  • The average wage and benefits for federal workers in 2012 was $114,976 -- 74 percent more than that of average private-sector worker, who received only $65,917. Cutting down on pension benefits would lead to major savings, as federal benefits are especially massive compared to those in the private sector.

Source: Chris Edwards, "How to Spend $3.9 Trillion," Cato Institute, February 2014.

 

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