PARADIGM SIZE OF GOVERNMENT

gil eisner 11/6/15

The purpose of this Paradigm Paper is to evaluate what shrinking the size of government really mean in societal and fiscal terms.

The reason for this analysis is that reduction in the size of the federal government has been a long standing stated objective by sectors of the public, political parties and politicians.  The basic political assumption is that government size is a direct function of spending (the budget).

In this paper we will examine the present Federal budget and the Congressional Budget Office’s projected budget for the year 2025. We will use those two benchmark budgets to determine what spending adjustments could be made over this ten year period to effect a 20% reduction to the budget.  It is assumed that a corresponding reduction would be realized in the size of government. We have to consider the impact of those adjustments in light of population growth and their demographics.

Before using the data we need to define some budget terms. The budget can be presented in two ways, actual dollars or as a % of GROSS NATIONAL PRODUCT (GNP).  The data used in this paper is a dollar budget. Budget spending categories are set as mandatory, discretionary, and interest. Within the mandatory category are such items as Social Security, Disability Aid, Medicare, Medicaid, SNAP, Supplemental Security income, VA, Tax Credits, Unemployment Compensation, Federal & Military Retirement, etc.  The discretionary category contains defense spending and non-defense items which provide relatively low level funding for numerous support programs. See data set.

Examining the data set provides a wealth of information and in order to effect the 20% reduction in spending we have to employ a Willie Sutton approach and go “where the money is.”  But before we do that, we need to define an operational framework in which we examine where we can make cuts and the resultant impact of a 20% reduction. For example, privatizing social security and thereby taking it off budget would immediately reduce the budget 20%. That action would dramatically impact the growth period between 2015 and 2025 where Social Security is predicted to grow some 83% to 1.3 trillion $.  Remember the 1.3 trillion is the budget allocation for the year 2025. The effect of that action would impact 47 million of the 65+ population immediately and 63 million in year 2025. This obviously is not a practical approach. The following are possible suggestions for obtaining a 20% reduction in the budget:

• Cut mandatory programs which represent more than 3% of the budget.
• Cut discretionary programs.
• Change recipient qualifying criteria for various programs.
• Adjust contributions to reduce budget deficits.

Contribution adjustment does nothing to reduce the budget but merely offsets deficits.  When speaking to program cuts, we will only look at budget programs areas which represent more than 3% of the 2015 budget.  Reducing mandatory program spending without eliminating the programs would result in 37% cuts in the following:  Social Security, Disability, Medicare, Medicaid and Government Retirement Programs.  Reducing discretionary program spending only would result in a 62.7% cut in defense and non defense programs.  If you want to consider reducing both mandatory and discretionary programs to achieve the 20% cut, all programs representing over 3% of the 2015 budget would result in an “across the board” cut of 23%.  There is one other approach which is extremely complex and that is to manipulate the programs by changing the eligibility criteria, employ “means” testing, limit the scope of the programs, and/or eliminate automatic program increases.

One could conclude that in this paradigm it would appear there are only two options to affect a reduction of a 20% in the size of government and that is by cutting the government’s social contracts programs and/or reducing defense spending. Either of which would be a major problem in the context of population demographics, expected increases in life expectancy, and world conditions.  For example the current 65+ population of 47 million is anticipated to grow to over 64 million by 2025 a 34% increase. The life expectancy for a 65 year old in 2025 is approximately 20 years.  As a consequence, the high cost of social contract programs (SS, SSI, Medicare and Medicaid) will continue to grow by the aging demographics and improvements in longevity.  Defense cuts are unlikely in light of the world situation, ISIS and security.  Other discretionary budget cuts would impact the most vulnerable recipients in various aid and safety net programs.

The House and Senate propose to do just that in their Budget Committee plans for 2025, over the ten year period (2016-2025) they propose to cut some $3 trillion.  A 69% cut!

It appears that shrinking the size of the government by budget changes cannot be accomplished without substantial impact on social contract programs.

BUDGET DATA SET

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* These entries represent the percentage of the budget for the indicated years.  In the analysis some entries were so low they would not effect the analysis and therefore were not entered.

gil eisner 10-5-15     DOLLARBILLBRIGADE™