Monday, October 17, 2005

$50 billion or $3 billion?

Brad DeLong reports on Dingbat Kabuki!, and finds that after reading the article I referenced earlier:
if you read to the end of the article – and if you understand budget concepts and reporting conventions – you can see that Weisman's announcement that the House Leadership has changed course and wants a new "cut... $50 billion from the fiscal 2006 budget" is... strange. It seems that Speaker "Hastert... announce[d] that... cuts to entitlement programs such as Medicaid, food stamps and farm supports would be raised from $35 billion to $50 billion." So its a $15 billion change in direction – not $50. And it's not in the fiscal year 2006 budget. The original $35 that has been topped-off to $50 are cumulative "entitlement cuts over five years" – originally $7 and now $10 in each of the next five years.

So we're not talking about a $50 billion cut relative to baseline in entitlement spending for fiscal year 2006. We're talking about a $3 billion cut.

But everyone – well, everyone except those of us who actually care about responsible fiscal policy – happy to sell this a $50 billion cut?
Federal Budget Deficit
As someone interested in responsible fiscal policy, I'm obliged not to sell this as a $50 billion cut. It's much worse. It's a small cut in programs for the working poor that's being sold as a giant cut. Why? Because we need giant cuts in spending or substantial increases in revenue – taxes, to those of us who don't understand federal budget concepts and reporting conventions.

The illustration at the right fascinates me because it shows how responsible fiscal policy can result in rapid shifts from deficit to surplus, and how much more rapidly we can return to the exact same trend line of deficits. In truth, $50 billion isn't that big a shift as the deficit approaches a half trillion dollars.

As Prof. DeLong notes "$3 billion is 0.6% of the $500 billion annual deficit (excluding the Social Security surplus), is 0.04% of the $8 trillion gross federal debt." If Congress is serious about this, they'll have a serious conversation about all the consequences of their actions. Dicking around with $3 billion, or even $50 billion, isn't going to solve the very serious and very real deficit problem. If cut based on actual analysis, that cut could at least be harmless. But cutting it from health insurance assistance and food assistance is pretty foolhardy any way you slice it.

According to the feds, the average family gets $200/month from food stamps – $86/person.
In 2000, it served 17.2 million people a month and cost $17.1 billion. The whole $3 billion won't come out of food stamps, of course, but that money could help move about 35 million people out of danger of undernourishment, or provide as much as $14/person/month. This for people who, if able-bodied, must be working and bringing in less than $1306/month (net, $1700/month gross) to a three person household. My calculations say that's about $7.06/hour, almost $2/hr. more than the minimum wage.

We won't make up $500 billion by leaving the poorest Americans hungrier or sicker. We won't get there by nickle and diming poverty programs. To cut that much out of the deficit means messing with defense spending or it means raising taxes. Both are colossally unpopular.

So let's split the difference. Stop all scheduled tax cuts. Re-establish the rules that required a super-majority vote to raise spending without identifying an offset (the "pay-go" rule). That won't decrease the existing deficit, but it will reduce the acceleration of debt predicted in the figure above. Then talk seriously about how to raise taxes in ways that won't hurt anyone unfairly. Talk about how to cut spending without hurting citizens who need a hand.

Maybe we could cut the retarded Missile Defense program, saving billions a year. Maybe scale back the Future Combat System, since it has drifted from a pie in the sky program to put our fighting forces eons ahead of any imaginable enemy to a program so mired in it's own failures that most of it will never be operational, the rest will be evolutionary improvements, not revolutionary. That's $450 billion that could have been better spent, I suspect.

Of course, examples abound, and not just in uniform. But given that people put military spending at about 50% of discretionary spending (no Medicare, no Social Security), if you want to cut a fifth of the current budget, you need to look at buildings with 5 sides.

Similar logic explains why, if you want to increase revenue, you won't look at the poorest Americans, or even the middle class.

"Franklin D. Roosevelt, a Poor Man's Friend" by Willie Eason from the album Sacred Steel Guitar (5:59).