Friday, August 5, 2011

Mr President - No Animals Were Hurt, No Poor Children Went Hungry, No Needy Retirees Lost Their Social Security With These Budget Cuts

Earlier this week we reviewed the reality on how the debt ceiling agreement reached by the political class was totally inadequate when it comes to solving our debt problem. Yesterday, we reviewed how much waste and mismanagement there is inherent in Federal government operations, showing how much government spending can be cut without undue harm to most Americans. As promised, today we will actually begin identifying the specific cost reduction areas that the Federal government must take in order to not drive the nation off of the financial cliff of disaster.

Many of the suggested spending cuts listed below have been developed by Americans who are far smarter than me. Trust me when I tell you that the spending cuts below have been well researched and analyzed by those suggesting the cuts. I will provide sources for those expenditures that were not my ideas.

The approach is to estimate as accurately as possible how much Federal government spending can be cut in the next ten years. Some of those cuts are one time cuts, e.g. the termination of a failed military project. Some of the cuts are annual, recurring costs that would go on forever, year in and year out, unless they are terminated. Thus, their estimated ten year savings are shown. Some of the cuts are from making government more efficient, e.g. collecting missing tax revenue. I am assuming that this type of cost savings cannot be realized all at once, that it takes up to four years to make an operation efficient. Once the efficiency is gained, the full savings can be claimed over the remaining six years of the ten year window.

Let's start the cutting with an excellent piece of work from Nicole Tichon of the U.S. Public Public Interest Research Group and Andrew Moylan of the National Taxpayers Union, "Toward Common Ground: Bridging The Political Divide To Reduce Spending." An interesting sidebar to their work is that the U.S Public Interest Group is a liberal leaning organization while the National Taxpayers Union is a conservative leaning organization. However, unlike the political class, these two diverse groups have come to together with this analysis and performed a great service for the country.

1) Toward Common Ground - Non-Military Cuts

  • Eliminate the Oversees Private Investment Corporation - this organization subsidizes the foreign operations of large multinational companies. Let the companies subsidize themselves. 10 year savings - $385 million
  • Eliminate the Market Access Program - this organization uses taxpayer money to market U.S. agricultural products abroad. Given the strength of the farming industry in this country today, let the farming industry market itself. 10 year savings - $2.5 billion
  • Eliminate subsidies to trade associations for marketing abroad - let the corporate trade associations market themselves. 10 year savings - $437 million
  • Eliminate subsidies to large agribusiness corporations - 10 year savings - $88.7 billion
  • Eliminate tax credits for ethanol production - let ethanol producers subsidize themselves. 10 year savings - $56.6 billion
  • Eliminate insurance subsidies for repeatedly flooded homes - definition of stupidity: doing the same thing over and over and expecting different results. Stop the stupidity. 10 year savings - $1.8 billion
  • Eliminate ultra deep water natural gas and petroleum research program - let the mega oil companies fund their own research. 10 year savings - $395 million
  • Reduce Federal government funding for public timber sales that lose money - 10 year savings - $698 million
  • Sell Southeastern Power Administration and related assets - the Federal government should not be in the power business. 10 year savings - $1.2 billion
  • Reduce the 55,500 unit backlog of unused and underused government buildings by 50%. Why keep an asset if you are not going to use it? 10 year savings - $48 billion
  • Better align Medicare payments to teaching hospitals with actual costs, as identified by the Congressional Budget Office. Paying only for the actual costs is a good thing. 10 year savings - $43.6 billion
  • Recalibrate Medicare reimbursement rates in high cost regions of the country, as identified by a Congressional Budget Office analysis. 10 year savings - $24.9 billion
  • Eliminate overpayments for Federal housing subsidies. We discussed this wasteful process in yesterday's post, based on a Washington Post report. 10 year savings - $952 million
  • Eliminate the Leveraging Educational Assistance Partnership - even President Obama wants to see this program terminated since it has fulfilled its objectives already. 10 year savings - $272 million
  • Eliminate the National Drug Intelligence Center for bad performance and a scandal ridden past. 10 year savings - $223 million

2) Toward Common Ground - Military Cuts

  • Implement military acquisition reforms as identified by the bipartisan Defense Acquisition Panel - the efficiencies have already been identified by Congress. Assume a four year phase in of the efficiencies. 10 year savings - $286.9 billion
  • Eliminate Department of Homeland Security contracts already identified as wasteful - Self explanatory. 10 year savings - $34.4 billion
  • End orders for obsolete spare parts and supplies for all parts of the Pentagon - Why we are ordering obsolete parts in the first place is a mystery. Assume a four year phase in of the efficiency. 10 year savings - $392.1 billion
  • Cancel the production of the V-22 Osprey aircraft due to under performance, cost overruns, and missed schedules. 10 year savings - $6.2 billion
  • Cancel the F-35 Joint Strike Fighter, replacing it with more advanced, less expensive, and more reliable alternatives - Also, cost targets have been significantly exceeded. 10 year savings - $22.5 billion
  • End spending for high risk satellites and replace them with lower cost and more reliable alternatives. Also, cost and schedule overruns have made this project even less attractive. 10 year savings - $5 billion
  • Align nuclear arsenal with current needs and threats - supported by a wide cast of politicians, defense secretaries, and military experts. 10 year savings - $56.8 billion
  • Cancel the outdated and unneeded Expeditionary Fighting Vehicle. Enough said. 10 year savings - $16.3 billion
  • Make military repair processes more efficient by moving to a more centralized repair process, as identified by the Congressional Budget Office - 10 year savings - $1 billion
The above summarizes the findings and recommendations of Ms. Tichon and Mr.  Moylan. Again, their report is online with full details and sources, they are to be commended for their contribution to the issue of reducing government spending. The above ten year cuts that they have identified comes out to $1,091,862,000,000 i.e. over $1 TRILLION.

Please note that their report only shows savings of about $600 billion. However, their window of savings was only for the next four years, our window estimates savings over a ten year span and that is why we have tried to keep the integrity of their analysis intact while extrapolating out to the ten year window.

Okay, not a bad start. Let me throw in a few of my own estimates.

3) Tax Evasion and Tax Loopholes

  • According to a March, 2008 issue of Money magazine, the IRS estimates that it misses out on about $197 billion a year from fraudulent tax actions of individual American citizens. Lets assume that the IRS, with a highly focused effort, can eventually cut that tax loss in half but it will take four years to get to that 50% reduction and efficiency. 10 year savings/increase in legal tax collection - $837.2 billion
  • We have reported in past blogs that credible sources estimate that government entitlement programs, Social Security, Medicare, and medicaid, lose up top $200 billion a year to crime and inefficiencies. Let's assume that this amount of lost revenue can be reduced, with a concentrated effort, by 50% within four years. 10 year savings - $850 billion
  • Government earmarks are nothing more than politicians allocating taxpayer money to their favorite campaign donors for their re-elections, they generally serve no grand purpose or useful purpose for the American taxpayer. Most estimates for annual earmarks are in the $16 billion to $20 billion range. By eliminating all earmarks as outlined in Step 44 of  "Love My Country, Loathe My Government," 10 year savings conservatively could be estimated at about $160 billion.
  • President Obama wants to eliminate tax loopholes that oil companies enjoy. 10 year savings - $30 billion
  • President Obama wants to eliminate the tax breaks he instituted for corporate jets. 10 year savings - $3 billion
Thus, with some needed focus and hard work, just the above four improvements and efficiencies would result in savings of almost $1.9 TRILLION. Combining these savings with the Common Ground savings above gets us to just under $3 TRILLION.

4) Additional Military Savings

  • A 2010 Newsweek by Fareed Zakaria described how much larger and how much more bloated the Pentagon has become over the past few decades, the same time frame when private sector companies were reducing layers of management and the number of higher paid executives in their employment. For example, there are now about 1,000 generals and admirals, up 115 or 13% from fifteen years ago. In 1960, there were 78 assistant deputy secretaries of defense, in 2011 there are 530. This growth in bureaucracy has to be reduced. Let's assume that the number of generals and admirals is reduced back to their 1996 levels and the number of assistant deputy secretaries of defense is reduced by 50%, which would still put it at more than three times the number of 1960. Let's further assume that reducing this amount of upper management would also eliminate the staff jobs that support each admiral, general, and assistant deputy secretary. 10 year savings estimate, assuming the average salary and benefits of each eliminated position was $100,000 a year - $3.8 billion.
  • My latest research shows that the U.S. has about 84,000 troops stationed in Europe, about 30,000 troops stationed in South Korea, about 25,000 troops stationed in Japan, and about 46,000 troops still hanging out in Iraq. These troops were deployed in a different time to confront threats that no longer exist. They need to be brought home and reoriented to fight today's threats. Bringing them home would save significant deployment costs and allow us to stop recruiting new soldiers, both actions of which would save money. Since the Obama administration has publicly stated that it costs $1,000,000 a year for each soldier in a combat zone, let's assume it takes far less than that to deploy a soldier in a noncombat zone. If that per soldier cost is $200,000 a year that could be saved by bringing them home the 185,000 troops listed above, the 10 year savings of bringing them home (in a four year phased approach) and downsizing the recruiting effort would be about $314 billion.
  • Although estimates vary, most estimates for the war in Afghanistan average out to about $100 billion a year, or about $8 billion a month. Since we are supposed to be out of that country by 2014, lets assume that a phased withdrawal would reduce current Federal government spending by $250  billion over the next four years.
Just these three savings initiatives would reduce spending by about $537.8 billion, bringing our running total to about $3.5 TRILLION.

The Cato Institute is a libertarian thinking organization that has done an extensive analysis and estimate of how to cut non-essential government services. Their results are listed at the website, Some of their common sense spending cuts include the following:

5) Eliminate the Department Of Education - In any measure of education attainment, U.S. kids usually fare very poorly when compared to the education received by kids in other countries. Usually the U.S. is bested by a dozen or more countries when it comes to comparing standardized test results. The Department of Education has been around for about thirty years and has done nothing to change this low performance.

Cato suggests that this ill performing government entity be terminated, its responsibilities become the responsibility of the states to educate their own kids and the American taxpayer can save the annual $107 billion cost of the department. I would put a twist to this termination recommendation.

I would phase out the department over a four year period but would send the department's budget as block grants to the states during that four year phase out. The states could use the block grants to improve the teaching ability of their own state's teachers, improve their technology infrastructure, improve their curriculums, and improve their universities' education curriculum.

At the end of four years, the states would be in a much better position to educate our kids, heaven knows the Federal Department of Education has not done anything worthwhile. 10 year savings - $909.5 billion.

6) Much like the Department of Education, the Federal government's Department of Energy has done nothing to get us to a coherent national energy strategy and policy and has not funded any breakthrough energy technologies. Terminate the entity and let the private market research and development new energy technologies. 10 year savings according to Cato - $382.8 billion.

7) Cato has done similar analyses on just about every other Federal organization, some of which we have already touched on. In order to avoid double counting, I will not go into their agriculture subsidy reductions and military spending reductions, given what we have already identified. However, they have identified 10 year savings of $21.2  billion from the Commerce Department and if you conservatively accept only half of their Department of Transportation cuts, you get another 10 year savings of  $424.4 billion.

Total savings from just this small, four department subsample of Cato's cuts comes out to $1.738 billion, bringing our running total of savings to about $5.3 TRILLION.

Social Security

Two government spending reduction steps from "Love My Country, Loathe My Government" include the raising of the retirement age to 70, with hardship exceptions for any American worth less than $1 million, and the termination of Social Security payments for anyone who is worth over $3 million. However, estimating what these savings might generate is difficult since Census and other data sources do not line up with this criteria. However, with some educated guesses, we can get a broad estimate of what the savings would be.

8) Raising the retirement age to 70 - A Huffington Post article from last year reviewed some analysis done by the Spectem Group, a Chicago consulting company. They estimated that 7.8 million U.S. households have a net worth of over $1 million, excluding the value of their primary residence. This 7.8 million estimate comes out to about 7% of the U.S. population.

However, our criteria includes  the value the home when computing a household's net worth, so let's assume that about 14% of the U.S. housheolds have a net worth over a million dollars when you include the value of their home. Let's also assume that the proportion of millionaires in the 65-70 age bracket is the same as this national figure, 14%. By looking at the latest Census information, you can estimate that there are about 3.6 million households in the 65 top 70 age bracket.

Putting all of this information together along with the average monthly Social Security retirement check, you would save about $33 billion by raising the retirement age to 70 with a hardship exception, i.e. those households worth less than $1 million.

9) Excluding rich people from receiving a Social Security check - the reasoning behind this step is that if the Social Security system is running out of assets, it is best to protect those that truly need a Social Security check if it means that those worth millions are forced to forego their checks. The Spectem analysis referred to above estimated there are about 980,000 U.S. households worth over $5 million.

However, "Love My Country. Loathe My Government" put the cut off point at $3 million net worth. Thus, we need to make an assumption to get from the Spectem $5 million number to the $3 million number. For lack of a better approach, let's rather arbitrarily assume that there are  about 2,000,000 U.S. households (1.7%) that are worth over $3 million, twice the Spectem estimate of about 1 million households worth over $5 million.

If we assume that the same proportion exists in the over 65 age bracket as in the general population (1.7%), the Census data would suggest that there are about 200,000 households that are worth more than $3 million who would not receive a Social Security check. Putting all of this information together estimates that over the next ten years, Social Security spending would go down by about $26. 4 billion under this step.

Thus, these two changes to Social Security requirements would save us about $60 billion over the next ten years. I understand that these last two calculations involve a lot of assumptions  that probably have a relative wide degree of estimation error. However, the concepts are sound, raising the retirement age and defunding payments for the wealthiest Americans, which would save the Federal government tens of billions of dollars.

This last set of savings brings our grand total savings to about $5.4 TRILLION.

10) Medicare - I do not pretend to be an expert on how to reduce Medicare costs. However, it is one of the biggest out-of-control expenses we have to do deal with. In 2011, I believe Medicare costs will be about $500 billion dollars and will get to an annual cost of about a TRILLION within the next ten years. Some smart people will have to get this expense tamed.

Thus, for estimating purposes, let's conservatively and crudely assume that we can get reduce Medicare spending by 10%, somehow. Over ten years, this would would save us about $500 billion, which conservatively assumes that the current $500 billion annual Medicare spending does not rise, an assumption we know is false.

This hopeful and conservative reduction in Medicare expenses would bring our grand total savings close to $6 TRILLION. 

11) The number of Federal civilian employees has remained relatively steady over the decades, usually between 1.1 and 1.2 million. However, according  to a New York Times report, the Obama administration had increased that number to 1.43 million people within a year of taking office. Since we have not seen a corresponding value from the Federal government due to these extra employees, it should not be a problem to reduce Federal civilian employment back to the high end of that historical range or a reduction of about 230,000 employees.

If we assume that the wages and benefits cost of these 230,000 employees is $100,000 a year, the ten year savings from this force reduction would result in savings of $195 billion of the reduction was phased in over four years. This additional $195 billion gets our grand total of savings to over $6 TRILLION.

$6 TRILLION in savings does not include the savings that Cato has already identified from government departments and categories we did not include in this analysis. It does not include the hoped for additional savings from Medicare that smarter Americans than me might come up. It does not include savings that a focused IRS could recover from businesses that do not pay their income taxes.

I am not an expert in government budgets but others are. Their work and some of my estimates easily got us to over $6 TRILLION in about two hours worth of writing and calculating. This is about two and half times that the political class MIGHT eventually come up with.

Are these the best possible estimates? Probably not, but this approach at least provides a process for solving the national debt problem, the numbers can be fine tuned by the experts going forward.  However, I believe that the $6+ TRILLION grand total is probably pretty accurate, relative to reality.

And the best news, Mr. President: no poor children went hungry, no needy Social Security recipients lost their benefits, and no animals were hurt in the production of these cuts. All that is needed is the ability to solve a problem, the courage to execute those problem solutions, and the honesty to get Americans behind the solution. You and the political class have failed on all three of these positive traits so far, and that is the true deficit in this country.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

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