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A Scalpel Versus a Hatchet: Comparing Competing Budget Strategies

SOURCE: AP/Carolyn Kaster

The competing budget proposals should first and foremost be evaluated on whether they help the economy grow. President Obama’s budget proposes investments that will form the foundation of economic growth now and in the future.

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President Barack Obama’s budget sets up a choice between the scalpel and the hatchet.

The Obama administration is proposing surgical cuts to federal government programs it believes provide a low return on investment. In contrast, House Republicans want to take an across-the-board hack at everything from infrastructure to scientific research to childhood nutrition programs. How this choice plays out will have profound consequences for our economic recovery and the future of American competitiveness.

Let’s start with a point that gets lost in the spending cut conversation: There is little hope for deficit reduction—no matter the size of spending cuts—without economic growth that adds to federal revenues.

The competing budget proposals from the president for fiscal year 2012, which begins in October, and the House Republicans’ continuing resolution for the remaining seven months of FY2011, which in turn will inform their own budget proposals for FY2012, should first and foremost be evaluated on whether they help the economy grow. President Obama’s budget proposes to increase funding for infrastructure by $35 billion, for research and development by $3 billion, and for education by $14.2 billion (covering the Education Department and Head Start). Investments like these form the foundation of economic growth, now and in the future.

Yet where Obama proposes increases, House Republicans propose cuts: $8.1 billion in cuts from infrastructure, $5.5 billion from R&D, and $5.1 billion from education, not including $26.7 billion in cuts to Pell grants for low-income college students. This shortsightedness threatens our still fragile economic recovery. Indeed, Republicans should look at what’s happening in the United Kingdom, where harsh “austerity measures” may be triggering a relapse into recession.

The American people are also still hurting from the economic downturn. Unemployment is at 9 percent and millions more Americans live in poverty than before the Great Recession. Republicans are nonetheless proposing deep cuts in assistance for housing, child care, childhood nutrition, and other safety net programs. These cuts will hurt the most vulnerable Americans and put even more pressure on cash-strapped state and local governments, which also stand to lose funding for law enforcement under the House Republican plan.

We need to be smarter than this. The federal deficit must be brought down, but indiscriminate cuts are not the answer. Instead, we should take a careful look at spending programs, tax expenditures for special interests, and government operations to see what’s working, what’s not, and where we can save money without jeopardizing economic growth and American competitiveness.

That’s CAP’s Doing What Works philosophy, which is embedded in key parts of the President Obama’s proposal. The Department of Education’s budget, for example, would eliminate 13 ineffective programs and consolidate 38 others into 11 new programs (mirroring CAP recommendations last year) while boosting investments in flexible, performance-based approaches. More funding would also be devoted to evaluating the returns on education spending achieved by states and local school districts, providing crucial data for smart budgeting.

The administration intends to use such information to help implement “pay for success bonds,” a public-private financing innovation that will ensure taxpayers only pay for social programs that meet performance targets and generate good outcomes. The White House plans to test these bonds in seven areas, including education, job training, and juvenile justice, as CAP’s Gadi Dechter wrote in yesterday’s Baltimore Sun.

Resources are likewise refocused under the Obama plan at the Department of Agriculture, which receives a $3.2 billion overall cut. Subsidies for wealthy farmers are eliminated and applied to encourage clean, renewable energies that promise to spur job growth in rural America.

Tax expenditures—spending through the tax code—should be evaluated in the same way as direct outlays. An ambitious effort to eliminate or reform inefficient and misguided tax expenditures, many of which are giveaways to special interests, could produce savings in the hundreds of billions a year.

The president takes a modest but important step in this direction. He proposes to eliminate tax expenditures for oil and gas companies and apply the savings to clean energy technologies critical for America’s future competitiveness. The House Republican plan, notably, does not touch these corporate subsidies.

Boosting government productivity and cutting operational waste will yield still more savings. The administration believes it can save tens of billions by adopting cloud computing and other information technology improvements, cracking down on improper payments in programs such as Medicare, and reforming procurement practices. Indeed, the federal government could save between $25 billion and $54 billion a year—or roughly $400 billion over 10 years—just by improving the way it buys goods and services, according to a CAP report in November.

To be sure, not all of the choices are so easy. The administration is proposing painful cuts it views as undesirable but necessary, such as reductions in heating assistance to low-income Americans. And the administration must still develop a plan to consolidate business and trade-oriented agencies, as promised in President Obama’s State of the Union address and recommended by CAP.

As the White House and Congress debate their respective budget proposals, they should aim for smart reductions and savings that will cement our economic recovery, boost our prospects for the future, and bring down the deficit. It’s time to take out the scalpel and get to work.

Reece Rushing is Director of Government Reform at the Center for American Progress and a team leader of the Center’s Doing What Works project.

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