Memo to Congress

Dear Congressional Republicans,

I hear that you’re having difficulties in figuring out how to pay for the $100-$200 billion in new government spending that the President has effectively committed you to come up with. Apparently the President hasn’t offered any suggestions to help you, which is probably what prompted Senator Burns (R-MT) to plead with the administration to “at least give us some idea [of how to cover the cost]”.

To help you out, I’d like to provide the following quick and easy guide to the options for paying for $200 billion in new spending over the next couple of years.

1. Cut domestic discretionary spending. According to the latest White House budget estimates, domestic discretionary programs will cost about $390 billion in 2006 and 2007. So cutting this spending by about 25% would do the trick. Put another way, you would need to cut non-defense discretionary spending back to where it was seven years ago (1998), when the economy was about 70% of the size of today’s economy, and when there were 20 million fewer people in the US.

   I’m sure that eliminating fully one-quarter of the federal spending on education, highways, food safety, national parks, science and technology research, environmental protection, and agricultural subsidies will be quite popular. Perhaps people would even let you know just how popular such cuts are in the 2006 election!

2. Cut defense spending. Since the White House has requested $451bn for defense and security spending in 2006 before supplemental appropriations are taken into account, and will request an additional $50bn in 2006 and $80bn in 2007 (according to CBO estimates), defense spending would need to be reduced by about 15-20% to pay for Katrina. This would push defense spending all the way back to… well, to 2003 levels, when total defense spending was around $400bn.
3. Cut mandatory spending. Since Social Security spending for 2006 and 2007 is legally and politically off the table, other forms of mandatory spending (e.g. Medicare, Medicaid, veterans benefits, etc) would need to be cut from a projected $800bn in 2006 by about 10%. Again, this might prove popular, especially with senior citizens; we would find out in 2006!
4. Undo some of the Bush tax cuts. The CBO has estimated that the various Bush tax cuts will cost about $165bn in 2006 and $187bn in 2007, so reversing about half of these tax cuts for two years would cover the cost of the Katrina reconstruction. According to the Tax Policy Center you could accomplish that by keeping the Bush tax cuts in place for 95% of Americans, and restoring tax rates to 2000 levels for the 5% of US households with the highest income (roughly those earning over $150,000 per year).
5. Increase the deficit. You could simply choose to add the $200bn tab to the massive, multi-trillion dollar bill that the Bush administration is already passing on to today’s children as a direct result of its fiscal choices. I can’t imagine that a Republican Congress would ever choose to do this, though.

I hope it is helpful to have the options spelled out for you, since you seem to be needing some guidance.

Which alternative will you choose? Let me guess…

Best regards,
Kash