Opinion: Columnists

'Fiscal cliff' deal needs spending cuts

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WASHINGTON -- Finally, a plan to avoid the "fiscal cliff" that includes spending cuts.

On Monday, Republican House Speaker John Boehner proposed cutting $900 billion in entitlement spending and $300 billion in discretionary spending over the next decade. Boehner also suggested $800 billion over the next decade in higher taxes, but importantly not through higher tax rates.

Even the scheduled, dreaded budget cuts due on Jan. 1 will not cause spending to decline in real terms -- it will continue to grow steadily even if we go off the cliff. That's because congressional spending cuts for a given year are not subtracted from the prior year's spending, but from a budget projection that grows on autopilot. And entitlement programs such as Medicare, Medicaid and Social Security will grow without interruption. That explains how Congress can claim to cut spending over 10 years, yet produce a series of budgets in which spending increases.

But there are many options for real budget cuts.

Though the Senate has not passed a budget in more than three years, the House has passed one. It cuts $5 trillion over the next 10 years and reduces outlays to 20 percent of GDP by 2015. The House proposes cuts to food stamps and farm programs, as well as the sale of some federal assets and a merger of America's 49 job training programs.

Separately, the Republican Study Committee, headed by Chairman Jim Jordan, R-Ohio, has put forward detailed plans that would cut spending further than in the House budget and balance the budget in five years without raising taxes. These proposals deserve serious consideration. The proposed RSC budget sets discretionary spending at $931 billion in fiscal year 2013, slightly less than the amount in the fiscal 2008 budget, $933 billion.

To get there, the RSC budget eliminates funding for several programs whose functions need not be provided by government, such as the Corporation for Public Broadcasting (savings: $4 billion over 10 years), the National Endowment for the Arts ($2 billion saved), and the Economic Development Administration and the Legal Services Corp. ($4 billion saved). The National Labor Relations Board would be merged into the Department of Justice.

The RSC budget contains lists of agriculture subsidies that are ripe for elimination, adding up to $55 billion over 10 years. It proposes privatizing Fannie Mae and Freddie Mac (savings: $43 billion) and ends the concept of too big to fail (savings: $32 billion). It suggests raising federal employees' pension contributions to private-sector levels.

Most importantly, the RSC tackles entitlement programs. Costs of Social Security and Medicare increase with people's life expectancies, and changes have to be made to keep the programs solvent. For those 55 and younger, the RSC proposes to gradually raise the Social Security retirement age to 70 and the Medicare eligibility age to 67.

Both the House budget and the RSC suggest transforming Medicare beginning in 2023 into a premium support program, with competing plans, like the Federal Employees Health Benefits Program. Seniors would choose from government-approved insurance programs, and wealthier seniors would pay more for coverage.

Finally, in the realm of the ridiculous, the Export-Import Bank recently asked for comments, due Dec. 18, on a proposed $100 million loan to fund Boeing exports to South Korea and China, and another $100 million loan, with comments due Dec. 14, to fund Boeing exports to the United Arab Emirates. Why can't Boeing handle the financing of its own exports?

Federal government outlays have grown to unprecedented levels over the past four years. As we approach the fiscal cliff, it's time to cut spending back to historical levels.

Examiner Columnist Diana Furchtgott-Roth (dfr@manhattan-institute.org), former chief economist at the U.S. Department of Labor, is a senior fellow at the Manhattan Institute for Policy Research.

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Diana Furchtgott-Roth

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The Washington Examiner