Tea party austerity plan: Would slashing US spending work?

Can America cut its way to prosperity by reducing government spending by hundreds of billions of dollars – starting now and for each year to come for 10 years?

That's the assertion of tea party conservatives and fiscal hawks in Congress, whose economic plan would reduce government spending by a collective $2.5 trillion within a decade. Most nondefense government spending would get cut by 40 percent, and the share of the gross domestic product attributed to government would drop from 25 percent to 18 percent. The eventual benefit, supporters of the plan say, would be a reinvigorated private sector.

Contrast that with President Obama's competing vision for a renewed economy. His economic fix, as outlined Tuesday in the State of the Union address, is to invest in the education and energy sectors, hold the line for five years on so-called discretionary spending – which has jumped 84 percent in the past two years – and slash corporate tax rates, a strategy that helped kick-start the economy in the 1960s and mid-1980s. He offered a relatively modest $400 billion in spending cuts over five years (not including cuts in defense).

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The idea that American prosperity depends on shrinking the size and spending of "big government" is hardly new. It was an often-espoused tenet of President Ronald Reagan (under whose administration government spending actually grew, as did the economy). Now that it is finding reborn preeminence in the tea party fold – and in Congress – the approach is being reexamined by economists, journalists, lawmakers, and sundry number-crunchers. Their verdict on how well it would work?

That depends on what the ultimate goal is, and whom you ask.

To fiscal hawk Rep. Paul Ryan, who gave the Republican response to the State of the Union on Tuesday, the nearly $2 trillion in US spending to stimulate the economy yielded only a weak recovery and added to the national debt. Moreover, he and many tea party activists say, taxation, debt, and regulation – including the new health-care reform law – create uncertainties in the investment markets that inhibit investment and private-sector job creation.

"It's no coincidence that trust in government is at an all-time low when the size of government is at an all-time high," Mr. Ryan, who chairs the House Budget Committee, said Tuesday. The Republican Study Committee plan to chop $2.5 trillion off of federal spending "is not just about programs of government, but purpose of government," he said.

The plan calls for across-the-board cuts, dialing back agency spending to 2008 levels for this fiscal year, and 2006 levels after that. It also would end government subsidies for the Corporation for Public Broadcasting and Amtrak, among many others.

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