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Tuesday, January 8, 2013

A Sensible Bipartisan Approach To Cut Spending Before Sequestration Hits: It's As Easy As ABC!

By Christopher J. Stockwell

In the scenario presented below, sequestration and fiscal cliff ramifications are fully avoided. Effective programs are minimally impacted. Wasteful programs see more dramatic cuts. Government begins to be right-sized in a sensible manner. The recovery begins. Here's how to do it. It's as easy as ABC.
Let’s look at our federal budget for 2012. Government revenues (e.g., taxes and other income generating sources) were $2.6 trillion. Our 2012 budget was $3.7 trillion. This means that we spent $1.1 trillion more than we took in. That's how bad things have become.
A Sensible Approach for Reducing Expenditures
We must lower the amount that government spends. The 2011 Budget Control Act (BCA), enacted after the August 2011 debt ceiling and subsequent Supercommittee failures mandates that at least $1.233 trillion be cut from the budget over the next 10 years. If we don't agree to a plan for budget reductions of $1.2 trillion, cuts will automatically take effect.
"Sequestration" means an across-the-board cut in all programs (other than federally mandated programs such as Social Security, which must be dealt with, but will not be resolved in the weeks ahead. Sequestration means making all government programs smaller (from 7.6-9.6 reductions; see sequestration explained, Washington Post). Sounds great to some of you on the far right, but that is actually a very bad thing. It means that better run, more efficient and effective programs are cut indiscriminately at essentially the same levels as poorly administered, ineffective, less uselful programs.

Reducing the size of the federal government in a rational, sensible fashion should be the principle focus of conversation in Washington DC. Now that the easy part is done (raising taxes on those earning $400,000 or greater, and not on anyone else - not that that will solve the problem), Washington needs to get to the more serious work of good governance.
Here's a simple way for the President to lead the effort to reduce the size of government in a rational way that will be agreeable to both sides. Put simply, the President should order his department Secretaries (e.g., Department of Defense, Energy, Treasury, EPA, etc.) to designate each program within the department with one of three priority ratings:
- "A" priority programs (receive the lowest required percentage reduction - if any - in their budget)
- "B" priority programs (receive a higher percentage reduction than "A" priority programs)
- "C" priority programs (lowest priority programs receiving the steepest reductions)
In this scenario, each department program must be given an A/B/C priority designation. The A, B, and C "buckets" of programs must be (in total) proportionally equal in total size (funding dollars). In other words, one-third of the DOE programs from a funding perspective would be designated "A" priorities, while one-third would be designated "B" priorities, and a final one-third, "C" priorities. The president must direct his department secretaries to "make it happen."
The president can make adjustments as he sees fit, overturning department secretary recommendations as he sees fit (as could a Republican President, had he won the election). And when he does, the political theatre will be truly wonderful, and entirely productive for America.
Should he adjust "A" priority program funding upward (e.g., a 2% increase in funding, for instance), he will then need to make proportional adjustments from "B" or "C" priority programs further downward to meet budget reduction requirements.
Again, President Obama must reduce government expenditures by at least $1.233 trillion - he has no other choice. He might, however, propose to reduce the size of government even further, perhaps because he sees as many Centrists do that it is the right thing to do for future generations, or perhaps because he is forced to play this hand through negotiations with the House. He might for instance agree to 10 year reductions of $2 trillion. Think that's painful? Look to the EU to see real pain.
Regardless, President Obama in this scenario must (1) determine the total amount of cuts through negotiations with Congress ($1.233 trillion? $2 trillion?); (2) generate the ABC priority list given to him by his department secretaries, and (3) provide guidance on the percentage changes for A, B, and C priority groups to the Office of Management and Budget. OMB would then determine the exact budget reduction amounts that A, B, and C programs would receive (assuming each class of program is actually reduced). Once the percentage reductions are determined, the President will require the A, B, and C priority programs within the respective departments to alter their budgets by the percentage amount identified for the coming fiscal year for each program. This will be very painful for the federal government, but necessary (and is done at the state and local levels quite frequently).
This method enables the department Secretaries themselves to right-size their organizations to the realities of the day.  It is a simple and effective way to reduce the size of government based on the knowledge and expertise of the various department leaders, themselves. They know best where the fat - the inefficiencies, the ineffective programs, the areas of systemic dysfunction, the programs best handled by the states themselves, and so on.
Once we devise a bipartisan approach for tackling the harder part of real debt reduction - reducing spending - the markets will react highly favorably, leading to further revenue increases from improved corporate performance, expanded employment, and personal wealth generation, further reducing budget deficits. More job creation will take place as companies finally invest trillions of dollars that have been kept on the sidelines during this period of great political and economic uncertainty. Corporate America will expand their markets, introduce new product lines, refurbish existing plants and build new ones while purchasing more equipment, systems and services. The markets, long dormant, will soar, improving retirement savings, enabling Americans to better fund our retirements that will help us take the necessary steps in restructuring entitlement programs such as Medicare and Social Security on even middle class Americans, while minimizing impact on the less advantaged.
Don't want to take these actions? Well, look then across the ocean to Europe, fool! 
President Obama won the election. It is his right to decide in this scenario what are the final A, B, and C program buckets. Not everyone will like what the President Obama decides upon, based on the advice of his department secretaries. THAT is what elections SHOULD be about. It's as easy as A, B, C. Want to get America out of this mess? Want progress on cutting government and making it more effective? Want to spur growth, and bring America out of recession and on the road to actual prosperity? This is the beginning.  Farther right Republicans and left Democrats, quit bickering! If you like this idea pass it around some.
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