What Can We Cut to Balance the Budget?
In 2011, federal government spending significantly outweighed revenue. While the federal government spent $3.8 trillion, it collected only $2.2 trillion from various taxes, licenses, and fees. Professor Antony Davies breaks federal spending into five basic components. He further divides it into mandatory spending, which is an amount of spending automatically built into every budget by law, and discretionary spending, which must be approved by Congress every year.
Mandatory spending includes spending on entitlements—that is, on Social Security, Medicare, and Medicaid—net interest, and other things, such as food stamps, student loans, unemployment benefits and more. While many advocates of social welfare programs complain that economists look primarily to Social Security and Medicare for budget cuts, it’s clear why they do. Professor Davies shows that even if the government eliminated everything government does with the exception of social programs and the interest on the debt, we still wouldn’t be able to balance the budget.
Over the next decade, the U.S. government will face difficult choices. Weighing specific cuts is not enough, because there are no specific cuts that will enable government to balance the budget. Professor Davies says, “Nothing less than a redesign will solve this problem.” That redesign, he says, should begin by determining what the proper role of government is.
Government Spending 101 [articles]: A series of introductory articles from the Mercatus Center on government spending
The Federal Budget [infographic]: The CBO breaks down the federal budget and revenues
Public Choice Theory and the Politics of Instant Gratification [article]: A public choice theory perspective on why budgets grow
John Locke and the “Treatises on Government” [article]: An explanation of John Locke’s view on the proper role of government
In 2011 the federal government spent $3.8 trillion. We can break federal spending down into five parts. Entitlements include Social Security and Medicare and Medicaid payments to the sick and elderly. Net interest is the interest the government pays on its debt minus the interest it receives. Other spending includes food stamps, unemployment benefits, and child nutrition and tax credits, supplemental income for the disabled, also student loans. These three items make up what is called mandatory spending. This is an amount of spending that is automatically built into every budget by law.
Defense spending includes spending on the military, plus foreign military aid, plus veteran services. Everything else includes everything we normally think of when we think of government, with the exception of defense and entitlements. It includes the departments of agriculture, commerce, education, plus many independent agencies. Defense and everything else comprise what is called discretionary spending. Discretionary spending must be approved by Congress each year, while mandatory spending is automatic unless Congress votes to alter it.
Now let’s compare the federal government spending to its income.
In 2011 the federal government collected a total of $2.2 trillion from various taxes, licenses, and fees. Now advocates of social welfare programs complain that economists look primarily to Social Security and Medicare when seeking budget cuts. Here we see why. If we were to eliminate the entirety of government with the exception of social programs and the interest on the debt, we still wouldn’t be able to balance the budget.
For the next decade, the government will face tough choices. The wrong way to deal with these choices is to weigh specific cuts, because there are no specific cuts that will solve the problem. Nothing less than a redesign of government will solve this problem. And that redesign should begin with the question: What is the proper role of government?