On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
- The Republicans Will Have To Cut Some Lemons
The Republicans Will Have To Cut Some Lemons
Now that Republicans have convinced American voters to give them another try, how do they reestablish their bona fides as the party of smaller government and less spending? While they will no doubt get a lot of advice in the coming weeks, they should try stealing a cost-cutting page from Southwest Airlines.
Last year Southwest Airlines announced with great fanfare that they would no longer serve lemons with drinks during flights. And by doing so, they would save $100,000 a year.
Now why would a major airline—or any huge company, for that matter—make such a big deal out of saving $100,000 a year? It sent an important message to its two key audiences: its customers and its own employees.
For customers Southwest's announcement provided a visual symbol of the lengths the company would go to—even denying passengers a garnish with their drinks—to save money and be the low-cost airline. But the announcement also sent the same message to Southwest's own employees as to the lengths they are expected to go to keep costs low.
For Republicans this will mean taking on a sacred cow or two to signal to both the American people and federal employees that the era of profligate spending is over.
In Washington parlance, of course, taking on sacred cows typically means going after major entitlement programs such as Social Security and Medicare. To be sure, those programs need fixing for the long term, but anyone who thinks that those are the only sacred cows in Washington doesn't understand how obsolete programs such as the Wool and Mohair program, the Appalachian Regional Commission, Rural Utilities Service (formerly the Rural Electrification Administration) and the Corporation for Public Broadcasting continue to benefit from taxpayer subsidies.
Remarkably all of these obsolete programs survived the "Gingrich revolution" and the government shutdown in 1995. But they should not be allowed to survive the Boehner/Tea Party revolution if Republicans are to reestablish their reputation as prudent fiscal stewards.
It won't be easy. As Ronald Reagan once said, "A government bureau is the nearest thing to eternal life we'll ever see on this earth." Once begun, a program's beneficiaries and stakeholders refuse to allow it to die. As a result, the federal budget is littered with programs that time has made irrelevant.
The Wool and Mohair program, for example, is a relic from World War II, when airmen's flight jackets had wool linings. The Depression-era Rural Utilities Service was obsolete 40 years ago when 98% of rural America was electrified and had telephone service. The Corporation for Public Broadcasting, of course, was created when America had three TV channels, no cable service, no remote controls, no Internet, no iPods, no Netflix and apparently no other entertainment options.
Republicans should terminate one or more of these programs immediately to show people that life can go on without them—n the same way people can survive a flight from Nashville to Reno without lemon wedges.
But cutting government down to size will require more than just killing obsolete programs. Because programs never die, redundancy is rampant. For example, according to the Government Accountability Administration, the federal government currently funds nearly 70 domestic food assistance programs, the 18 largest of which spend more than $60 billion per year.
Speaking of food, the federal food safety system is based on 30 different laws that are administered by 15 agencies, says the GAO. And the 44 job training programs administered by nine federal agencies at a cost of $30 billion annually have done wonders for the 9.5% of Americans out of work (hat tip to Sen. Tom Coburn). Needless to say, redundancy is a target-rich environment for cost savings.
Republicans should also put their federalism money where their mouth is by cutting federal funding of purely local projects. Why should the federal government (in this case, the Economic Development Administration) give $1 million to the Bee Development Authority in Beeville, Texas, to support renovation of two existing airplane hangars? Or give $663,375 to the city of Kendallville, Ind., to fund construction of infrastructure improvements in the Kendallville Eastside Industrial Park?
Or how about the $500,000 to downtown West Plains, Mo., to fund the historic preservation and renovation of a 1918 building adjacent to the West Plains historical district? These projects, and thousands more like them, have purely local benefits and should be funded by state and local taxpayers—if at all.
But the government also owns a lot of stuff that should be sold off to raise cash to retire debt or pay down liabilities, in the same way the Feds forced AIG and General Motors to divest themselves of various assets to pay back their bailouts. For example, billions of dollars could be raised by privatizing government-owned businesses, including utilities like the Tennessee Valley Authority and the Western Power Marketing Administrations, the passenger rail service Amtrak and even the air traffic control system. Even more billions could be raised by selling some of the estimated $1 trillion worth of federal land and buildings, $400 billion in mineral rights and $280 billion in inventories.
Speaking of privatization, the supposed guardians of free enterprise should get government out of the business of subsidizing business, whether it is SBA loans for Subway franchises or the 21st Century Truck Partnership program at the Department of Energy. If Nixon can go to China, Republicans can cut corporate welfare. Except in this case, they should use the savings to cut the corporate income tax rate rather than lower the deficit. That will do more to stimulate long-term economic growth than trimming a few billion off the national debt.
House Speaker-elect John Boehner, R-Ohio, has already promised a moratorium on congressional earmarks. That is a first good step in retraining his colleagues that they can curry favor with voters by not delivering pork.
Next, however, Boehner and his leadership team must convince their colleagues that slaughtering a number of small sacred cows--such as the Wool and Mohair program--can not only make a dent in the deficit, but more import, can earn them the credibility to take on the big sacred cows of Medicare and Social Security. It all begins by cutting a few lemons.
Scott A. Hodge is president of the Tax Foundation, a nonprofit tax research organization in Washington, D.C.
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