#4: Can We Change the Non-Defense Budget?

In my last post, I noted that there are 9 government employees at all levels for every 5 employees in manufacturing, but the number of federal employees has been in a long-term decline since World War II.  I also showed how the average level of non-military federal employment in the years 1962 – 1970 was only 90% of uniformed military employment.  I postulated that if this 90% ratio guided federal hiring year to year, then the number of federal employees in 2014 would be 50% fewer.  If the federal government had this practice since 1970, clearly our current national debt would be less.  I won’t attempt to calculate how much less as this would be an academic exercise.  The money is already spent and the debt is what it is.  We have to deal with it.

I have taken Obama’s 2017 budget and designed three alternative scenarios focusing on non-defense spending.

Alternative 1:  Gradual decline – non-defense spending declines gradually until it equals half of the 2025 Obama budget.

Alternative #2:  Hold spending – non-defense spending stays constant from 2017 thru 2025.

Alternative #3:  Shock treatment – non-defense spending declines dramatically from 2017 thru 2020 and holds steady until 2024, before increasing in 2025.

Obama’s 2017 budget for non-defense spending is indicated by the blue line in the following graph.

In the “Hold spending” plan (green line), non-defense spending holds steady at Obama’s 2016 level of  $627 billion through 2025.  Clearly, this does not promise significant budget savings which can impact the national debt.

NonDefense Spending

In the “Gradual decline” plan (red line), I reduce non-defense spending as follows:

Gradual Decline Table
Gradual Decline Schedule for Reducing Non-Defense Spending

My proposed cuts are not cuts in the rate of growth.  They are true reductions from the year before.

In the “Shock treatment” plan (purple line), all of the reductions occur in the first term of the next president.  In the second term, or the first term of the next president, non-defense spending holds steady at the 2020 level for the next four years.

Shock Treatment Table
Shock Treatment Schedule for Reducing Non-Defense Spending

It is easy enough to put a number on paper and say that the budget will be cut by X% each year, but is there a way that makes more sense by looking at the budget by department?  In March, 2016, the US Census Bureau published the 2014 Annual Survey of Federal Government Civilian Employment and Payroll Data for March, 2014.  The following table shows the federal employment functions and estimated annual payroll ranked from highest to lowest.

Federal Emp Functions

WOW!  I never knew that the postal service represents 26% of the non-defense federal budget.  Let’s privatize the USPS and get it off the books.  That may be difficult to do since it is the only agency authorized in the Constitution, but it would accomplish half of the budget cutting we propose to do in order to reduce our non-defense budget to 50% of the 2025 target.  But wait!  This recommendation is not just a numerical exercise.  It is highly political.  Such a large organization has its protectors in Congress.  Chris Edwards from the CATO Institute describes in his article published on April 1, 2016, “Privatizing the US Postal Service”, that even though the USPS has lost $50 billion since 2007, has costly unions, and has monopolistic powers over the mail granted by Congress, Congress blocks all efforts to reform the USPS.  First class mail volume peaked in 2001 at 104 billion pieces and dropped 40% to 62 billion pieces in 2015.  This trend is likely to continue.

Other countries have privatized their mail system and opened up mail delivery to competition, including Sweden, the Netherlands, New Zealand, Germany and Britain.  I believe in order to be successful, it will be necessary to both privatize and allow competition.  In fact, if the USPS sold bonds with an interest coupon rate of 5% – 6%, it could solve another problem in our culture today.  Seniors with savings have few options to earn a safe income because interest rates have been so low for so long.  I propose that Congress allow the USPS to sell income tax exempt bonds in order to raise the capital to go private and streamline operations.  I expect the USPS would have to raise stamp prices to reflect the true cost of mailing a letter, but competition would work to keep these prices down over the long term.  When all is said and done, it may mean that you no longer receive mail on Saturday, or receive your mail in a mailbox at your residence.

Looking at the remaining employment functions, it is obvious that large cuts in the smallest program which account for less than 5% of the payroll will have little impact on the overall payroll budget.  Therefore, it is necessary to focus on large reductions in the largest categories from National Defense to Police Protection.  Here is a proposal for payroll reductions which results in an overall reduction of 50% of the 2014 total.  Other scenarios are possible and would become evident as you dive into the details.  How fast these reductions are implemented is a political process.

Proposed Federal Emp Functions

If the goal is to produce a balanced federal budget and stop increasing the national debt, what benefit do we gain by cutting non-defense spending by half?  Recall that all appropriated spending accounts for only 29% of the federal budget in 2017.  By 2025, appropriated spending will account for only 20% of the federal budget.  The following chart makes it clear that reducing this part of the budget does not get the job done by itself.  The red bars represent the deficit in Obama’s 2017 budget.  The blue bars represent the projected deficits if we cut non-defense spending by 50% in a shock treatment approach. The projected deficit in 2025 would still be over $800 billion.   This result makes it clear that we must focus our attention on the entitlement portion of the federal budget in order to achieve the goal.  I’ll start this discussion in my next post.

Budget Deficit with Reduced Fed Empl
















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