The federal government is projected to collect $27.9 trillion in taxes over the next ten years. President Bush has proposed a $726 billion tax relief package that would drop that total to "only" $27.2 trillion. While that amount seems sufficient to satisfy Washington's spending appetite, a group of Senators is opposing any tax cut larger than $350 billion. These Senators have described all proposals that would tax less than $27.6 trillion over the next decade as "unaffordable."
Some of those Senators argue that painful budget deficits and economic hardships await Washington if it fails to collect the extra $400 billion. Budget deficits, however, depend as much on government spending as they do on revenues.
Increasing the tax cut from $350 billion back up to the $726 billion level passed by the House of Representatives would not increase the budget deficit if spending restraint offsets the additional tax relief. Offsetting the rest of the tax cut would require that Congress cut just $376 billion out of the $27 trillion (or 1.4 percent) they are scheduled to spend over the next decade. Eliminating the following wasteful spending could do that:
PROPOSAL[1] |
Savings in $millions | |
2004 |
2004-2013 | |
Eliminate federal spending that the U.S. Treasury's auditors cannot even account for; known as "unreconciled transactions" |
$17,100 |
$171,000 |
Fix Medicare payment errors |
12,100 |
121,000 |
Fix housing payment errors |
3,300 |
33,000 |
Fix other payment errors identified by OMB |
2,500 |
25,000 |
Fix food stamp payment errors |
1,300 |
13,000 |
Drop the wealthiest communities from Community Development Block Grants |
12 |
5,332 |
Consolidate the Defense Department's retail and grocery stores into a single chain |
231 |
5,081 |
End Amtrak subsidies for the most unprofitable routes |
278 |
3,241 |
Exclude repeatedly-flooded properties from federal flood insurance bailouts |
0 |
2,481 |
Consolidate and encourage efficiencies in military exchanges |
53 |
1,745 |
Merge Defense Department and Veterans' Affairs drug purchases |
38 |
1,732 |
Limit annual fixed and countercyclical farm subsidy payments to a combined $75,000 per person |
156 |
1,654 |
Merge many of the veterans' facilities with low demand |
0 |
1,642 |
Sell the Southeastern Power Administration |
0 |
1,060 |
Total: |
37,068 |
386,968 |
The $387 billion saved would be enough to expand the tax package to the House-passed level of $726 billion, plus an additional $11 billion for any contingencies. But why stop there? Congress could set aside an additional $100 billion for pro-growth tax relief by enacting the following proposals.
PROPOSAL |
Savings in $millions | |
2004 |
2004-2013 | |
Improve and modernize the CPI to better reflect true inflation |
$3,000 |
$30,000 |
Repeal the Davis-Bacon and Service Contract Acts |
1,100 |
20,000 |
Defund the "New Starts" transit program |
239 | 13,628 |
Defund "High-Priority" highway projects |
190 | 13,044 |
Close down the Small Business Administration |
1,000 | 10,000 |
Eliminate the Export-Income Bank, OPIC, and the Trade and Development Agency |
72 | 5,307 |
Privatize the Institute of Museum Services & Library Services |
133 | 2,600 |
Eliminate the Advanced Technology Program |
24 | 1,705 |
Eliminate the Market Access Program |
6 | 1,635 |
Eliminate the Neighborhood Reinvestment Corporation |
107 | 1,177 |
Eliminate the Manufacturing Extension Partnerships |
17 | 1,073 |
Eliminate the Foreign Market Development Program |
24 | 335 |
Total: |
5,912 | 100,504 |
It is important to remember that the revenue loss from the President's tax proposal will likely be much less than the $726 billion static estimate. Increased economic growth will likely recover anywhere from 25 to 60 percent of the revenue loss. If Congress still insists on projecting a $726 billion revenue loss, and offsetting all costs beyond $350 billion, the opportunities for spending offsets are numerous. All that is needed is the will to act.
Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
