We proposed here in 2011 that the federal government, and those state governments that are in trouble, make across the board spending reductions to their budgets. While this does seemingly imply a degree of thoughtlessness, or indiscretion, or non-strategic thinking, the proposal is being made for very strategic reasons.

Felonious Munk, at left, makes a more pointed, and colorful plea for brain-dead sensible fiscal responsibility. For a version you can share with your pre-teen grandchildren, click here.

At the federal level, the overspending has grown so huge that it is the overspending itself that represents a threat far greater than the threat of reductions to all of the programs. Insisting on selective cutting before an agreement has been made on a package of reductions creates so much contention that the reduction proposals just do not get made. Or, what does get proposed is so small that it is, comparatively, inconsequential.

However, a mechanism is included for being more selective with cuts in later years.

1. Set a non-revokable Drop Dead Deadline Date (D4) for which budget reduction debate will end. Set it 60 days from the start of debate, or from April 2nd, 2011, whichever is sooner.
   
   
2. Set the Baseline from which Total Target Spending will not grow
   
   
   • That's right, we will not grow target spending levels from the Baseline for several years.
     
     
   • For example - since FY 2011 revenues are estimated to be 2,200 billion (or less), we will propose a spending Baseline, our eventual goal, of 2,200 billion dollars.
   
   
3. Assess the deficit, and cut it by 1/2 the first year
   
   
   • For example, since FY 2011 spending is estimated to be 3,800 billion dollars, our starting deficit is 1,600 billion. Our goal will be to cut spending, then, for FY 2012 by half that amount, or 800 billion dollars. For simplicity, we will assume revenue remains 2,200 in FY 2012 (and, if it comes in higher, we will not raise spending, but rather will simply run a smaller huge deficit.) Thus, spending has been cut from 3.8 trillion in FY 2011 to 3.0 trillion in FY 2012.
     
     
   • Note that as tough as this might seem, we are still spending beyond our revenue (2,200 billion,) just slower (for now). In the past, that remaining 800 billion dollar annual deficit would have been considered huge. IT STILL IS!!
   
   
4. Make the cuts across the board, by even percentages
   
   

   The Path	FY 2011	after 21% cut	then Swaps	Net	then Drops	2012 Net	overall Change
   Pensions	793.2	626.6	...	626.6	...	628.7	-164.5
   Health Care	882.0	696.8	-20.0	676.8	...	679.1	-202.9
   Education	129.8	102.5	...	102.5	...	102.9	-26.9
   Defense	964.8	762.2	+20.0	782.2	...	784.9	-179.9
   Welfare	495.6	391.5	-30.0	361.5	...	362.7	-132.9
   Protection	60.7	48.0	...	48.0	...	48.2	-12.5
   Transportation	94.5	74.7	...	74.7	...	75.0	-19.5
   General Gov	33.2	26.2	-10.0	16.2	...	16.3	-16.9
   Other	158.4	125.1	-30.0	95.1	-10.0	85.1	-73.3
   Interest	206.7	163.3	+70.0	233.3	...	234.1	+27.4
   Total Spending	3,818.8	3,016.9	...	3,016.9	...	3,017.0	-801.8
   Revenues	2,173.7	2,200.0	...	2,200.0	...	2,200.0	+26.3
   Deficit	1,645.1	816.9	...	816.9	...	817.0	-828.1
   Gross Debt	15,476.2	16,293.1	...	16,293.1	...	16,293.2	817.0
   Net debt rate	1.34%	...	...	1.43%	...	1.44%	...
   FY 2011 estimates are from Government Revenue in the United States of America

   • In the example above, if 800 needs to be cut from a previous 3,800 spending level, that represents a 21% across the board spending reduction.
     
     
   • Some programs cannot be cut, for example, interest on the debt. It will be the one line item that will inevitably grow. Spending needs to be added back to "Interest", and compensating reductions (swaps) MUST come from elsewhere. In addition, perhaps additional swaps can be agreed to before the D4 date. If so, include those. Total spending may not change.
     
     
   • There will be great gnashing of teeth. The time it takes to gnash is precious, costly. "Across the board" cuts minimizes gnashing. Remember, the overspending is a greater threat than the loss to any one program. ANY program.
     
     
   • If in putting together the cuts, one finds areas that can be cut (dropped) quickly, before D4, with very little gnashing, then make those cuts, leaving more funds for the remaining programs. Thus, in this example, if 10 billion can be agreed to be dropped before the D4, then that amount can be distributed proportionally to the remaining.
     
     
   • The figures above are not intended to be an explicit recommendation, other than to cut the deficit in half in the first year. The table is primarily and example of how the methodology works. If another mix of cuts is desired, fine. Just make them add up to 800 billion dollars.
   
   
5. Get those cuts done quickly. Regardless what they were used for (pick your most noble example), the overspending is a threat. More of a threat than the loss to the programs.
   
   
   • Those seeing benefit cuts or cuts to programs they favor will disagree. The disagreement will have compelling, even legitimate emotional and rational appeal. Cut anyway, but make a note that the program may have legitimate grounds for increasing once excess funds become available.
     
     
   • Note that the projects getting budget cuts will themselves have a bit of waste, inefficiency, duplication, fraud, corruption, etc. within them. Good administrative managers will find these and streamline, so that the cuts to the services being provided wind up being less than the cuts to the budgets being provided.
     
     
   • Managers who can only cut services while not cutting overhead waste should be fired. This will help resolve the overhead waste.
     
     
   • Managers who refuse to cut ... should be cut. This will help resolve the overhead waste.
   
   
6. In the second year, cut the last 1/2 of the spending that represents a deficit vs. the authorized Baseline budget spending.
   
   

   The Path	FY 2011	FY 2012	after 27% cut	then Swaps/ Drops	2013 Net	overall Change
   Pensions	793.2	628.7	459.0	...	461.1	-167.6
   Health Care	882.0	679.1	495.7	-25.0	472.9	-206.2
   Education	129.8	102.9	75.1	...	75.4	-27.5
   Defense	964.8	784.9	573.0	-10.0	565.6	-219.3
   Welfare	495.6	362.7	264.8	-25.0	240.9	-121.8
   Protection	60.7	48.2	35.2	...	35.4	-12.8
   Transportation	94.5	75.0	54.8	...	55.1	-19.9
   General Gov	33.2	16.3	11.9	...	12.0	-4.3
   Other	158.4	85.1	62.1	-30.0	32.1	-53.0
   Interest	206.7	234.1	170.9	+80.0	252.1	+18.0
   Total Spending	3,818.8	3,017.0	2,202.5	...	2,202.6	-814.4
   Revenues	2,173.7	2,200.0	2,200.0	...	2,200.0	0
   Deficit	1,645.1	817.0	2.5	...	2.6	-814.4
   Gross Debt	15,476.2	16,293.2	16,295.7	...	16,295.8	2.6
   Net debt rate	1.34%	1.44%	...	1.54%	1.55%	...
   FY 2011 estimates are from Government Revenue in the United States of America

   • In our example above, this would be the remaining 800 billion from a budget that was 3,800 but is now 3,000. From 3,000, this would be been a 27% cut. Spin it however you want.
     
     
   • In this phase, we cut across the board again, just like last time. Then, again, we quickly swap and drop, eliminating the no-haggle areas to leave more for the remaining, just like last time.
     
     
   • Unlike last time, however, we have some time for gnashing and haggling, but again, for a limited time only. While a D4 exists for this second year reduction agreement, it is more than 60 days in coming, hitting two weeks before the next budget is due.
     
     While total budgeted spending will now have been reduced to 2,200, and will be kept there, some programs may petition for additional funds. These must, obviously, come from the remaining programs. Gnashing time is up by D4, two weeks before the budget is due, so that the final calculations can be compiled. At D4, which is before the start of the budget year, all disagreements are frozen, and "What Has Been Agreed To" up until that point is now the budget.
     
     
   • "What Has Been Agreed To" (WHBAT) is defined as follows: WHBAT always starts from the value of the across the board reduced values. They are considered already agreed to. These can then be amended each time there is an agreed upon compensating adjustment, and the paired adjustments will become the new agreement, the WHBAT. Thus, at the budgeting deadline, everything agreed to is already known. The disagreements, the additional adjustments that could not be agreed to, are what are now frozen out and not included in further calculations. As an extreme example, let's say no one agrees on any trade-offs. No problem, as the debate already starts from a previously agreed solution - the programmatically adjusted across the board cuts. The debates are only for substituting agreements. If no debates are successful, the starting point of the debate is the WHBAT.
   
   
7. By 3rd Year, we have only a few decisions to make.
   
   
   • If we are in deficit still, we make more across the board cuts, using the methodology of year 2
     
     
   • If we are in surplus, we pay down debts.
     
     
   • In no circumstance is spending grown from the original Baseline, in this example, 2,200 (although this baseline may have been reduced by year three in order to balance.)
     
     
   • It is OK to pay down debts. That indicates to folks that we will really pay them back, that borrowing is not simply a permanent theft from the future, but rather a temporary obligation intended to end by repayment in full. (Borrowing in order to pay debt coming due does not count as paying debt back.)