Tuning in to the latest round of fiscal panic, you might think that Congress and the President have been doing exactly nothing about the deficit over the past few years. Of course, though, that is wrong: Major steps have already been taken to control government spending. According to a new analysis by the Center for Budget and Policy Priorities:
Reductions in funding for discretionary (i.e., non-entitlement) programs enacted last year, primarily in the Budget Control Act, have produced $1.5 trillion in savings in discretionary spending for fiscal years 2013 through 2022. This part of the budget includes defense, international programs, and an array of domestic programs ranging from education to law enforcement, food safety, and environmental protection.
Two-fifths of the $1.5 trillion in savings from cutting and capping funding for discretionary programs comes from defense, while the other three-fifths comes from reductions in domestic and international programs. These reductions will shrink non-defense discretionary spending to its lowest level on record as a share of GDP, with data going back to 1962.
The $1.5 trillion in reductions in discretionary spending also will produce lower interest payments on the debt. The interest savings amount to about $250 billion, bringing the total deficit reduction achieved to date to more than $1.7 trillion.
These are pretty significant numbers, and almost entirely ignored. Just yesterday I debated Dan Mitchell of CATO on CNBC and listened to him talk about government spending as if it were a runaway train -- a standard view. Few seem to realize or acknowledge the key fact above, which is that non-defense discretionary spending is heading back to where it was when John F. Kennedy was president. And fewer still acknowledge another key fact flagged in the CBPP analysis, which is that the reductions made so far have "largely implemented the discretionary cuts that Bowles and Simpson recommended." While the common view is that Simpson-Bowles was put on a shelf and forgotten, in fact one major portion of its recommendations have already been implemented.
Now, are all these cuts a good thing? Certainly not, with the economy still very weak. We do need to reduce the deficit, but spending cuts need to happen later, when growth is strong. The fact that Washington has already agreed on major spending cuts should, ideally, help forestall further spending cuts right now.