NCPA - National Center for Policy Analysis


February 14, 2006

In his 2007 budget, President Bush proposes some minor economies whose political cost probably isn't worth the savings. In the short run, these economies don't matter much. In the long run, the spending challenges require fundamental reforms, not pocketing nickels and dimes, says Robert Robb of the Arizona Republic.

So, what would a really serious effort to control federal spending look like? It would begin by attacking corporate welfare, for both substantive and political reasons, says Robb:

  • Federal corporate subsidies are estimated to be around $90 billion a year; these subsidies create economic inefficiencies by distorting consumer and investor decisions. Starting with corporate welfare would make it easier to cut politically popular programs.
  • The next easiest place to save serious money is federal grants to state and local governments. Since 1990, the cost of such subventions has more than tripled. They now constitute nearly 17 percent of the federal budget, compared with 11 percent in 1990.
  • The real economies, however, need to be made in Social Security, Medicare and Medicaid. Over this half-century, the federal cost of these programs is expected to rise from about 8.5 percent of gross domestic product (GDP) to nearly 19 percent, or almost what the entire federal government consumes in national output today.

Simply put, there's no level or distribution of taxation possible to pay this bill that will not severely damage the economy. The programs have to be reformed so they cost less, says Robb.

What needs to be done is well-known. Federal assistance for retirement income and health care has to be made more a function of income. Middle-class and upper-income workers are going to have to save more while they work to provide more for themselves in retirement. Federal costs for Medicaid need to be capped in exchange for greater state control of the program, says Robb.

Source: Robert Robb, "Why pretend, Republicans? With lax spending control, ruling party undermines its political control," Arizona Republic, February 10, 2006.


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