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How much spending could we really cut?

Over the past two years, Congress has added $2.7 trillion to the national debt, including a record $1.4 trillion deficit for fiscal year (FY) 2009 and a $1.3 trillion deficit for FY 2010. If Congress does nothing and simply continues existing taxing and spending policies, federal deficits will grow, reaching a projected $2 trillion deficit in just 10 years—and even that assumes a return to peace and prosperity.

America cannot live with such deficits interminably. Deficits mortgage the livelihoods of future generations of Americans and ultimately put U.S. economic growth, stability, and reliability at risk.

Soaring spending drives these dangerous deficits. By 2020, federal spending is set to soar to 26 percent of the gross domestic product (GDP), after having averaged 20 percent after World War II. Revenues will likely return to their post–World War II average of 18 percent of GDP by 2020, even if the 2001 and 2003 tax cuts are made permanent.[3] Thus, given current spending and taxing policies, spending is clearly the variable that drives up the deficits.[4] To reduce deficits, Congress must cut spending.

The costs of federal entitlement programs—Social Security, Medicare, and Medicaid—and interest on the national debt will drive future deficits, and Congress must promptly and carefully decide how best to reduce those costs. However, entitlement reforms will take time, and spending cuts cannot wait. Congress needs to start cutting spending now.

Table 1 sets forth $343 billion in available spending cuts for the new Congress to consider when it takes up the federal budget for FY 2012. Many of the cuts fall into six areas:

  • Empowering state and local governments. Congress should focus the federal government on performing a few duties well and allow the state and local governments, which are closer to the people, to creatively address local needs in areas such as transportation, justice, job training, and economic development.
  • Consolidating duplicative programs. Past Congresses have repeatedly piled duplicative programs on top of preexisting programs, increasing administrative costs and creating a bureaucratic maze that confuses people seeking assistance.
  • Privatization. Many current government functions could be performed more efficiently by the private sector.
  • Targeting programs more precisely. Corporate welfare programs benefit those who do not need assistance in the American free enterprise system. Other programs often fail to enforce their own eligibility requirements.
  • Eliminating outdated and ineffective programs. Congress often allows the federal government to run the same programs for decades, despite many studies showing their ineffectiveness.
  • Eliminating waste, fraud, and abuse. Taxpayers will never trust the federal government to reform major entitlements if they believe that the savings will go toward “bridges to nowhere,” vacant government buildings, and Grateful Dead archives.

Read the entire report on Heritage.org

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