August 24, 2006

Laffey-Chafee III: Debating the Budget

Carroll Andrew Morse

Lots of budget numbers were thrown around in Wednesday’s debate. Let’s put them in one place and try to sort out how everything fits together…

1. How much is the overall Federal budget?

As Senator Chafee noted, the overall budget is in the vicinity of 2.5 trillion -- that’s $2,500,000,000,000 – and growing.

2. What’s the basic breakdown of that spending?

Using the Office of Management and the Budget’s 2005 numbers...

Entitlement Spending$1,300,000,000,00053%
Defense Spending$490,000,000,00020%
Discretionary Non-Defense Spending $470,000,000,00019%
Interest on the Debt $180,000,000,0007%.

3. How much of a dent can you make by cutting out pork?

Mayor Laffey quoted a figure of $27 billion dollars. That figure, I suspect, comes from the Citizens Against Government Waste numbers. That’s not chump change, but neither will it cancel out the growth in entitlements. Note also that about half of the CAGW number is defense related.

4. What about corporate welfare?

There seems to be less agreement on what exactly constitutes corportate welfare. Mayor Laffey claimed there was $125-$150 billion of corporate welfare that could be cut. That’s an estimate towards the high end. Here’s three others I found…

  • Ed Feulner (Chairman of the Heritage Foundation): $60 billion
  • Cato Institute (America’s favorite Libertarian think-tank): $93 billion
  • Public Citizen (“Nader’s Raiders”): $125 billion
Cato breaks their estimate down by category, showing the defense spending accounts for only a small percentage. My hunch is that the Public Citizen figure includes a bunch of defense spending as “corporate welfare” that the others don’t.

5. Isn’t this all dwarfed by the cost of the Iraq war?

No. Senator Chafee has used the figure of a billion dollars a week, roughly $50 billion per year. That seems a reasonable estimate, maybe even a little bit low, since the entire Defense budget is about $150 billion per-year higher now than it was in 2002. $50 billion is certainly larger than most pork estimates, but not an order of magnitude larger. And it’s still just about 4% of entitlement spending.

6. What about the revenue side?

Since the Bush tax-cuts, revenues have grown to about $300 billion more per year (consistent with the 12-15% increase in revenue that Mayor Laffey quotes, on top of a base of just under $2T) compared to before the tax cuts. I know that some people have a hard time accepting that revenues could go up after a tax cut, but 'dose is 'da numbahs. $300 billion is big money, enough to pay for a year’s worth of pork, corporate welfare, and the Iraq war and leave plenty left over but still only about 1/4 of the entitlement budget. That's how big the entitlements problem is. It’s not clear that even if we became a country of vegetarian (i.e. non-pork eating) pacifists (i.e. no defense budget) that tax cuts can grow revenues faster than entitlement obligations will eat them under the current structure.

The points here are…

  1. Senator Chafee can’t dismiss $27 billion in pork as being fiscally irrelevant while saying he thinks the cost of the Iraq war is a consideration so big that it prohibits considering tax cuts (even under flawed static assumptions).
  2. Cutting everything that Mayor Laffey has included as pork or corporate welfare would likely involve some cutting of defense programs.
  3. You can see significant revenue increases after a tax cut.
  4. Entitlement spending dwarfs everything else in the budget.
  5. (Most important point) We have to reconsider the fundamental design of a system that demands that people forever be paying higher and higher taxes for stagnant or declining benefits. There is a design flaw in such a system that needs to be remedied.