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How To Cut A Cool $1 Trillion


Editorials

HOW TO CUT A COOL $1 TRILLION

Everybody has a list. The libertarian Cato Institute. The centrist Democratic Progressive Policy Institute. The conservative Heritage Foundation. The bipartisan Entitlement Commission. And soon John R. Kasich (R-Ohio), House Budget Committee chairman, will have a list. At a time when people are being driven stark mad by their Apr. 17 tax preparations, let's muse about cutting government spending.

Here is BUSINESS WEEK's list of things to cut--and not to cut--to balance the budget. The goal is a high-growth, low-inflation economy supported by a simplified tax code. That means not messing around with the tax code in the name of child or corporate welfare. Yes, we would love a flat tax.

But until we get there, get the ax. The goal is to cut $1 trillion over five years, give or take a few billion. First, our bias. We freely admit we think it's O.K. to subsidize U.S. exports as long as foreigners subsidize theirs. But not a minute longer. We also believe that government spending--in moderation--on basic research and new technology can pay off big. Remember who built the Internet.

So with that, here's the easy part--change the statistics. Even before Alan Greenspan suggested it, BUSINESS WEEK said the consumer price index overstated inflation. Rejiggering the CPI to cut inflation by one percentage point would save $150 billion in cost-of-living adjustments over five years. This is a no-brainer. Shifting people in Medicare and Medicaid from fee-for-service to HMOs would save $400 billion over five years. At $550 billion, we're halfway there.

The rest are finer slices of the salami. The government can save about $40 billion over five years by fee-basing the Federal Aviation Administration; $40 billion in reducing agricultural subsidies; $10 billion in selling the Rural Electrification Administration and federal power administrations; $40 billion by privatizing veterans' medical care and reducing transfer payments to federal retirees; $50 billion by cutting defense spending on big-ticket items; $10 billion in cutting welfare; $5 billion in selling the Tennessee Valley Authority and ending the Small Business Administration; $1.5 billion by dumping strategic petroleum and helium reserves; $1.5 billion by ending below-market timber, grazing, and mineral sales; $30 billion by shrinking the bureaucracy; $50 billion by selling federal property; $10 billion by killing the Farmers Home Administration; $20 billion by cutting retraining programs; $10 billion in Housing & Urban Development spending cuts; $30 billion from selling part of the government's loan portfolio; $15 billion by reducing mass-transit subsidies.

That comes to a tidy sum of $913 billion. Savings on lower government debt service plus higher government revenues, thanks to greater economic growth, easily push BUSINESS WEEK's list over the top. Oh yes, one other thing. It doesn't make much sense to try to cut the budget deficit and reduce taxes at the same time. The average family will gain much more from the lower interest rates that come from deficit reduction than it will from a $10-a-week giveback from the federal government.


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