Morning Bell: Obama’s Net Spending Cut Promise

Earlier this week the Treasury Department released its 2008 Financial Report of the U.S. Government. According to the report, while government revenues stayed relatively flat, increasing only 1%, the government’s net operating cost more than tripled from the prior fiscal year. The report warns: “In both the near and long term, [funding Social Security, Medicare and Medicaid] programs will account for a large and growing portion of total government spending. The projected long-term costs are much greater than the resources that will be available to pay for them, particularly as health care costs continue to rise and the population continues to age.”

Lost in the recent talk of $1 trillion stimulus spending by the next administration is a promise President-elect Barack Obama made to the American people on Oct. 7 in the midst of the presidential campaign. Speaking in front of a live national audience, Obama said: “So we’re going to have to make some investments, but we’ve also got to make spending cuts. And what I’ve proposed, you’ll hear Sen. McCain say, well, he’s proposing a whole bunch of new spending, but actually I’m cutting more than I’m spending so that it will be a net spending cut.” Obama is hardly the first president to promise to rein in spending, but very few have actually kept their promise to the American people. We sincerely hope Obama can change that practice. To that end, Heritage offers the following guidelines to help him:

• Take the Promise Seriously: Lawmakers are already using the recession as an excuse to dust off old spending wish lists and dubiously call them “stimulus” bills. With the 2009 projected budget deficit already approaching $1 trillion, additional “stimulus” spending would be unaffordable, not to mention ineffective in rescuing the economy. In this rush to expand government, cooler heads must prevail. Setting priorities are more important than ever, and the promise of a net spending cut must stand in the way of an unaffordable spending hike.

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• Define ‘Net Spending Cut’: Campaign promises are often based on slippery rhetoric and accounting, so it is important to define “net spending cut” precisely and publicly. Obama should simply define “net spending cut” as what it means in layman’s terms to the millions of Americans who heard the pledge: Washington spending fewer total nominal dollars next year than this year. Any redefinition would justifiably be seen by many voters as nothing more than another misleading campaign promise.

• Cut Farm Subsidies: The first place to look for spending offsets should be farm subsidies — America’s largest corporate welfare program. Taxpayers spend $25 billion annually on farm subsidies, the majority of which are granted to commercial farmers, who also report an average income of $200,000 and an average net worth of $2 million. More than 90% of all farm subsidies go to growers of just five crops: wheat, cotton, corn, soybeans and rice. Just as producers of fruits, vegetables, beef and poultry currently thrive without subsidies, so can other farmers.

• Reform Entitlement Programs: Entitlements currently consume 60% of the federal budget and they are growing almost 7% annually on autopilot. The simple fact is that if Obama delivers on his promise to reduce spending, he must tackle these programs. With the first of 77 million baby boomers entering retirement, he must reform Social Security, Medicare and Medicaid before they overwhelm the federal budget.

• Use PAYGO to Prevent Expensive New Entitlements: The 110th Congress reinstated Pay-As-You-Go (PAYGO) rules requiring new entitlement expansions or tax cuts to be deficit-neutral. They have since ignored it. Obama pledged to make PAYGO a centerpiece of his budget agenda. For PAYGO truly to help government live within its means — and for Obama to fulfill his promise of a net spending cut — he must use it as a tool to offset expansions of entitlement programs with equal reductions in existing entitlements. This is more responsible than dismissing PAYGO whenever it becomes an inconvenient impediment to new spending.

When announcing the nomination of Peter Orszag to head the Office of Management and Budget, Obama expanded on his fiscal discipline pledge by stating that “budget reform is not an option. It’s a necessity.” He said federal budgeting would require “tough choices.” “There are just going to be some programs that simply don’t work and we’ve got to eliminate them,” he added. Heritage looks forward to helping Obama keep his net spending cut promise.

Quick Hits:

• Telecom lobbyists are salivating over Obama’s promise to spend billions bringing high-speed Internet to all Americans.
• New information about corporate funding of Rep. Charlie Rangel’s (D-NY) trips to luxurious Caribbean island resorts raises questions about whether the trips violate the ethics rules passed by Democrats after they regained Congress.
• Despite the United Auto Workers’ claims to need billions of taxpayer dollars for a bailout, the union still has not sold its championship-caliber Black Lake Golf Club.
• Technology companies are gearing up to fight Big Labor’s second priority after the auto bailout: elimination of the secret ballot in union organizing elections.
• The secretary of Housing and Urban Development says the centerpiece of the federal government’s effort to help struggling homeowners has been a failure.