Fiscal Sanity Requires Courage

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WASHINGTON--New Jersey Governor Chris Christie came to Washington on Wednesday and called on political leaders to get serious about cutting spending. Christie, who said he would not run for president, spoke to a standing-room only crowd at the American Enterprise Institute, a center-right think-tank.

"It's time to do really big things," he said. He explained that this doesn't mean high speed rail, free broadband, or electric cars. It means cutting state and federal spending, especially entitlements, or benefits that are embedded in law and don't require annual appropriations.

Christie, working with a Democratic legislature, cut spending by $1 billion shortly after he assumed office last year, and kept spending flat in fiscal year 2011. Although he didn't raise tax rates, tax receipts for the first six months of the fiscal year are coming in 4.5% higher than predicted, according to the New Jersey Department of the Treasury.

Measured by the Christie standard, President Obama's $3.7 trillion budget request for fiscal year 2012, which will begin October 1, fails. It results in a $1.1 trillion deficit in 2012, down from the $1.6 billion gap the president projected for 2011. It suggests few cuts in discretionary spending and does not propose any cuts in entitlements, notably Medicare, the most worrisome driver of federal spending.

Borrowing to fund the deficits would drive debt held by the public, $5.8 trillion in 2008, to double by 2012 and triple by 2019.

Yet the president has emphasized verbally the need to cut spending. In his budget message, he states that "We took many steps to re-establish fiscal responsibility, from instituting a statutory pay-as-you-go rule for spending to going line by line through the budget looking for outdated, ineffective, or duplicative programs to cut or reform."

If President Obama believes that some spending cuts are needed, then why not get started immediately with outlays in fiscal year 2011, now almost five months old?

The House of Representatives, under new Republican leadership, has proposed a 2011 "continuing resolution" that would be $61 billion below 2010 spending, and $100 billion below the level requested by Obama a year ago in his 2011 budget request.

This new "continuing resolution" is a catch-all appropriation in lieu of the 12 separate money bills that the Congress traditionally, but not always, passes. For 2011, Congress sent not one of the twelve to the president and has kept the government running with short-term continuing resolutions, the latest of which expires March 4.

To keep the government funded and running beyond March 4, the Republican House and the Democratic Senate must write a compromise resolution that the president would sign.

The White House budget office said the other day that Obama would veto the Republican bill now on the House floor, knowing that the necessity for compromise with the Senate would prevent that bill from reaching the president's desk.

It's a good guess that whatever the president's Democratic colleagues in the Senate accept in House-Senate conference (after backstage consultation with the White House), Obama will sign.

Writing a new continuing resolution for 2011 gives the politicians, both the president and Congress, and opportunity to put their budget scalpels where their mouths are and make significant cuts.

This is not the much ballyhooed House Republican budget for 2012 in which conservatives hope to slash outlays even further. That GOP spending plan, an alternative to the president's, will be published in the coming weeks. By law, Congress has to submit a budget resolution by April 15-although the deadline often slips, and in 2011 Congress never submitted it.

As for the remainder of 2011, Republicans' proposed $62 billion cuts (from 2010 levels) include $5 billion from agriculture, $14 billion from defense, $24 billion from the Labor Department, $4 billion from the Environmental Protection Agency, $16 billion from transportation. Saving that much money from March 4 to September 30 would be a significant retrenchment, apart from entitlements.

Some programs would be cut that few Americans know exist, such as Exchanges with Historic Whaling Partners; Education for Native Hawaiians; Ready-to-Learn Television; and EPA targeted air-shed grants. Others might better be controlled by individual states, such as Housing Counseling Assistance, Assistance to Small Shipyards, and the National Writing Project.

Admittedly, these cost mere millions, small beer in a multi-trillion dollar budget, but former Congresses have allowed such programs to grow without limit.

While these proposed trims for 2011 in discretionary spending are an excellent start, more than any prior Congress has cut in recent decades, the real challenge, as Governor Christie observed, lies in cutting entitlements, chiefly Social Security, Medicare, and Medicaid. If Congress and the president fail to start doing that, America is on the path to fiscal ruin.

Republicans in Congress have yet to come out with proposals to reduce entitlements, even though House Budget Committee Chairman Paul Ryan published months ago his own detailed plans in his Roadmap for America, plans that the Congressional Budget Office agreed would lower the deficit.

The source of the problem: Most politicians don't propose spending cuts because they fear disapproval from the grassroots, at least from voters whose oxen are gored-seniors, farmers, anyone else who loses. That's why Congress has been loathe to take anything from anyone.

Yet, in New Jersey, a Democratic state, Christie's approval ratings have risen since he proposed cuts in entitlements. Earlier this month, a Quinnipiac University poll found that 52% of New Jersey voters approved of the governor, an increase of 6 points since December.

Christie told his AEI audience that even Jerseyans who dislike particular cuts have acknowledged that he is doing the right thing. "Our chance at greatness is to confront these issues...we will be rewarded for courage," he said.

That's what Republicans and even some Democrats should bet on-that the country as a whole is smart enough to recognize what fiscal sanity requires.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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