CHRONIC OVERSPENDING, LARGE DEFICITS BRING RISK OF FINANCIAL CRISIS
July 1, 2004
The federal government is headed towards a financial crisis as a result of overspending, large deficits, and huge future cost increases in Social Security and Medicare, cautions Chris Edwards of the Cato Institute.
Edwards says mismanagement scandals occurring in many federal agencies, such as the Department of Energy and the National Aeronautics and Space Administration, have exacerbated the problem. He concludes the $2.3 trillion federal government has simply become too large for Congress to competently oversee.
Edwards recommends the following reforms:
- Congress should phase in program cuts of $300 billion over the next 5 years such that the budget would be balanced by 2009 with Bush's tax cuts in place.
- Business subsidies should be terminated and commercial activities should be privatized.
- The $400 billion in federal grants to the states and municipalities, distributed through a complex array of 716 programs, should be scaled back.
The need for spending cuts is important today because of the large fiscal imbalances that loom from projected growth in entitlement costs. In addition, spending cuts would not just balance the budget, but they would also increase individual freedom and expand the economy, explains Edwards.
Source: Chris Edwards, "Downsizing the Federal Government," Cato Institute, June 2004.
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