The time has come for Congress to begin a serious discussion about how it is going to correct the current budgetary path into deeper and deeper debt. Many members of the 112th Congress campaigned on a promise to cut government spending and reduce the federal deficit. In January, Taxpayers for Common Sense offered Congress a list of cuts as a starting point for this process, and promised to send more. Below we have fulfilled this promise, proposing additional cuts; producing a running total of more than $350 billion in cuts over the next five years.

We believe the programs listed here – whether funded through appropriations or the tax code – can be safely eliminated because they are an inefficient, ineffective, or wasteful use of taxpayer money.

Our list includes cuts that have been viewed by some as off limits, like wasteful defense spending or eliminating certain tax expenditures, or “tax earmarks.” But the federal budget, like any business or household budget, has two sides of the ledger: expenditures and revenues. This is why we think any plan to put the federal budget on a path to sustainability must address both federal income and spending. In fact, on the revenue side, like the spending side of the ledger, there are many “low-hanging fruit”: tax provisions that are not only ineffective and perhaps counterproductive, but also hugely expensive in terms of foregone revenue – revenue better used to address pressing needs, fund effective programs, or reduce the deficit.

We believe in the power and possibility of government to be part of the solution, and that government taxation and spending should produce the best possible return on investment for taxpayers, or be cut. We have five simple principles we follow when looking for ways to cut government costs:

1. If it doesn't work, don't fund it; if we don’t need it, don’t buy it.
2. Cut unnecessary subsidies and corporate welfare.
3. Avoid unnecessary long-term liability for the taxpayer.
4. Expose and stop corruption.
5. Don’t just give away government assets.

This is the moment to make reforms that will ensure our country continues to be the strongest, most vibrant in the world – a goal we all can support.

Click here for TCS Budget Cut List #1

BUDGET CUT LIST 2

Total Cuts: $205+ billion

Table of Contents

Section 1: Tax Expenditures
Total Cuts: $159.0 billion

* Mortgage Interest Deduction
* Last-In, First-Out (LIFO)
* Foreign Tax Credit (FTC)
* Deduction of State and Local General Sales Taxes
* Research and Development Tax Credit
* Extension of Seven Year Straight Line Cost Recovery Period for Motorsports Entertainment Complexes
* Extension of Enhanced Charitable Deduction for Contributions of Food Inventory
* Extension of Special Expensing Rules for U.S. Film and Television Productions

Section 2: Energy
Total Cuts: $6.4+ billion

* Clean Coal Programs
* FutureGen
* End Title XVII Loan Guarantee Program

Section 3: Defense
Total Cuts: $38 billion

* Production of V-22 Osprey
* Production of the Alternate Engine (F136) for the Joint Strike Fighter (F-35)
* TRICARE

Section 4: Infrastructure
Total Cuts: $1.5 billion

* Environmental Infrastructure
* Dare County Beaches, North Carolina (Bodie Island Portion)

Section 5: Transportation
Total Cuts: $750 million

* Essential Air Service (EAS) Program

Section 6: General
Total Cuts: $221+ million

* Shift Congressional Pensions to Defined Contribution
* Overseas Private Investment Corporation

Section 1: Tax Expenditures
Total Cuts: $159.0 billion

Mortgage Interest Deduction
Cut: $64.3 billion

The mortgage interest deduction enables homeowners to effectively deduct interest from up to $1.1 million in debt used to buy, build, or improve their primary or second home. The Congressional Budget Office detailed a budget option that starting 2014 would reduce the maximum debt eligible for the deduction by $100,000 per year until 2019 ($500,000 limit). In addition, the deduction would convert to a tax credit for interest paid which would better help achieve the purported goals of the existing deduction – making home ownership more affordable. While the five year revenue predictions are more modest because of the delayed implementation, the ten year total is more than $350 billion.

LIFO
Cut: $22.9 billion

Last‐in, first‐out (LIFO) accounting enables companies to move the most expensive inventory off of their balance sheets, and thereby reduce their taxable income, even though the actual movement of inventory occurs on a first‐in, first‐out (FIFO) basis in many industries. LIFO is already prohibited by International Financial Reporting Standards. The repeal of LIFO if applied to all industries would save $22.9 billion over the next five years. Oil and gas companies account for roughly half of the cost of LIFO.

Foreign Tax Credit
Cut: $26.3 billion

The Foreign Tax Credit was established to prevent U.S. businesses—and U.S. citizens living abroad—from being double‐taxed on income earned in foreign c ountries. The FTC allows U.S. companies and individuals to count foreign income taxes as a credit on taxes owed in the U.S. Unfortunately, the FTC contains a loophole that allows companies to shift income abroad to maximize the break. Companies have also obtained credits on “income taxes” that are not subject to tax in the U.S. For instance, oil and gas companies counting royalty payments to foreign governments as income tax that can be counted dollar‐for‐dollar against U.S. tax payments. Reforming the FTC by requiring companies to pool and report on all of their foreign income would provide more transparency for what is being counted as income tax that is eligible for a tax credit, and would reclaim an estimated $14.8 billion in lost tax revenue from 2012‐2016. Also, ending the practice of splitting foreign income and foreign taxes for accounting clarity would lead to $11.5 billion in taxpayer savings over the same period.

Deduction of State and Local General Sales Taxes
Cut: $14 billion*

This provision was eliminated from the tax code in the 1986 reforms, but was brought back to life in recent years. It enabled taxpayers the option of deducting itemized state and local sales taxes from federal income tax, but only if they do not deduct state income tax. Therefore, the major beneficiaries are the residents of states that don’t pay state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Research and Development Tax Credit
Cut: $30 billion*

Companies doing research and experimentation in the United States receive a lucrative tax credit from this provision in the tax code. Companies that have benefited from this provision include Microsoft Corp., Boeing Co., United Technologies Corp., Electronic Data Systems Corp., and Harley-Davidson Motor Co.

Extension of Seven Year Straight Line Cost Recovery Period for Motorsports Entertainment Complexes
Cut: $200 million*

Undercutting IRS rulings to the contrary, owners of motorsports entertainment complexes (aka NASCAR tracks) would be able to write-off the cost of their facilities on their taxes over seven years, instead of the standard 39 years for nonresidential property and 15 years for “improvements” (such as fences and roads), as long as the venue hosts an event within three years of its completion. Such an accelerated depreciation schedule increases the value of the yearly deduction for owners. Track owners have also gotten plenty of other tax breaks over the years from states and localities eager to get speedways. The provision encompasses all facilities including grandstands, parking lots, and concession stands.

Extension of Enhanced Charitable Deduction for Contributions of Food Inventory
Total Cut: $460 million*

Congress has routinely extended an enhanced deduction for the charitable contribution of food inventory. Under this provision, the food must be “apparently wholesome food.” However, “wholesome” food isn’t necessarily healthful or even edible and is defined as “food intended for human consumption that meets all quality and labeling standards imposed by Federal, State, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.”

Extension of Special Expensing Rules for U.S. Film and Television Productions
Cut: $810 million*

In an effort to keep film and television production in the United States, filmmakers have the option of immediately deducting significant costs for most film or television productions. Under this provision producers can elect to expense in the current year the first $15 million of production costs incurred in the U.S. ($20 million if the costs are incurred in economically depressed areas in the U.S.). This can be used if at least 75% of the costs are for services performed in the U.S. and is available for both blockbusters and those that go “directly to video cassette or any other format.”

Section 2: Energy
Total Cuts: $6.4 billion

Clean Coal Programs
Cut: $5.3 billion

Three provisions, the Clean Air Coal Program, the Clean Coal Power Initiative, and the Credit for Investment in Clean Coal Facilities, spend billions of taxpayer dollars supporting the mature coal industry. Carbon capture and sequestration is the process that’s supposed to make coal “clean,” but this technology is uneconomic and simply not ready for commercialization. Lending government aid to this hugely profitable industry also further increases our dependence on dirty fossil fuels. Whether it happens through grant programs or through the tax code, funding these “clean” coal projects is a waste of taxpayer money.

FutureGen
Total Cut: $1.1 billion

The Department of Energy’s (DOE) FutureGen project is a large federal initiative to finance and construct a “clean coal” facility in Matoon, Illinois. For more than 7 years, the massive plant has been politically controversial, and increasing costs led the Bush Administration to cancel the project in 2008. Yet project proponents, led by Illinois lawmakers, quickly revived plans for the mega-facility upon Bush’s departure. Although project costs continue to soar and clean coal technology remains elusive, taxpayer subsidies continue to flow to FutureGen.

End Title XVII Loan Guarantee Program

The Department of Energy (DOE) Loan Guarantee Program was created to provide loan guarantees for innovative emerging energy technologies, yet mature industries like coal and nuclear are eligible as well. More than $50 billion in taxpayer backed loan guarantee authority is available. There are several major taxpayer problems with the program: the massive scope and uncertain costs; high default rates and low recovery rates on capital intensive projects, like nuclear reactors; the weakening of taxpayer rights in the event of default; and the unclear administration of loans. In addition to the loan guarantee authority, the DOE also received $4 billion in appropriated funds to pay the credit subsidy costs for renewable energy, energy efficiency, and electric power transmission projects in the 2009 Stimulus.

Section 3: National Security
Total Cuts: $38 billion

Production of V-22 Osprey
Cut: $5 billion

Troubled since its inception and nearly cancelled several times since the early 1990s, the V-22 program is now at least 150% over its original unit cost. Stopping procurement and fulfilling any remaining requirement with MH-60S or CH-53K helicopters will save significant amounts of money. The system now costs $100-plus million per unit (2010) – much higher than comparable helicopter systems that may lack the speed of the V-22 but can carry much more payload, according to the GAO.

Production of the Alternate Engine (F136) for the Joint Strike Fighter (F-35)
Cut: $3 billion

The Defense Department (DOD) has put all its resources into the Joint Strike Fighter, decreeing it our next-generation fighter aircraft. But at the same time, Defense Secretary Gates has fought Congressional efforts to build an alternate engine for the plane, saying it would waste money by slowing development without generating savings. Lawmakers representing districts in Ohio and Massachusetts, where the second engine would be manufactured, have repeatedly fought to add funding for the engine. GAO quibbles slightly with DOD’s $3 billion cost estimate, but admits that any savings from the program is highly conditional and will take years to realize.

TRICARE
Cut: $30 billion

DOD’s health care system, TRICARE, routinely consumes more than 8% of the Defense budget. The program’s premiums haven't risen since it was founded more than a decade ago, providing an incentive for working age military retirees earning full-time salaries on top of their full military pensions to use taxpayer subsidized TRICARE instead of employer-provided private health care. Defense Secretary Robert Gates has said that “health care costs are eating us alive” and warned that the military is facing an entitlement spending crisis. A recent DOD review of military compensation outlined reforms that could save taxpayers tens of billions of dollars while maintaining our pact with our servicemen and women to provide them with lifetime care.

Section 4: Infrastructure
Total Cuts: $1.5 billion

Environmental Infrastructure
Cut: $650 million*

The Army Corps of Engineers’ Environmental Infrastructure program duplicates and undermines other more cost-effective and accountable governmental programs. Under this program, Congress designates a state, city, or county for environmental infrastructure funding, which includes municipal water supply, drinking water treatment, and wastewater treatment projects. Congress then provides grants for 65% of the costs for unspecified water projects in these areas with no strings attached. The necessity, value, and effectiveness of these projects is difficult to determine because they are not subject to standard economic analyses. The water projects funded under this program are not the legislated primary mission areas for the Corps (navigation, flood and storm damage reduction, and environmental restoration), but instead directly compete with those missions for limited funding.

Dare County Beaches, North Carolina (Bodie Island Portion)
Cut: $827 million

The Dare County Beaches project would pump sand to maintain a 14.1 mile stretch of beach in North Carolina’s Outer banks for fifty years. This project costs more than $1.6 billion, with approximately $94 million in initial construction and more than $1.5 billion in “future nourishment” activities = pumping of sand onto the beach after waves inevitably remove it. More than half of the cost will be borne by federal taxpayers.

Section 5: Transportation
Total Cuts: $750 million

Essential Air Service (EAS) Program**
Cut: $750 million*

This program was launched in the 1970s to ease the transition to airline deregulation by subsidizing commercial flights to the nation’s rural airports. What exactly constitutes “essential” about this program remains a mystery; many of the cities served by this program can be found an hour or less away from airports with unsubsidized flights. For example, Lancaster Airport in Pennsylvania is subsidized by EAS and it’s only a 30 minute-drive to Harrisburg International Airport. A Government Accountability Office analysis found the federal spending for the program ranges from about $13 to $677 per passenger.

** Originally located under infrastructure (see PDF of report).  We decided EAS was a better fit under transportation and as a result there is a transportation category and total cuts to infrastructure decreased by $750 million.

Section 6: General
Total Cuts: $221+ million

Shift Congressional Pensions to Defined Contribution

Congress benefits from an elaborate and lucrative pension system that is more generous than is available to government employees. While most Americans have a defined contribution system that they pay into like a 401(k) retirement plan, simply remaining in office is key to increasing the annual pension for lawmakers. Aside from the savings, shifting Congress from a defined benefit to defined contribution plan would more readily align lawmakers’ interests with their working constituents.

Overseas Private Investment Corporation
Cut: $221+ million

This corporation is a government-supported agency that subsidizes U.S. companies to invest in risky foreign markets by providing them direct and low-cost financing and insurance. While purported to help American small businesses compete in the global marketplace, the Overseas Private Investment Corporation (OPIC) actually provides subsidies to some of the largest multinational corporations in the world. In fact, many of the firms OPIC aids are large U.S. corporations, including McDonald's, DuPont, Citicorp, and Coca-Cola, all of which are very capable of obtaining loans and risk insurance in the private sector. Under current OPIC practices, Fortune 500 corporations gain healthy profits from their foreign investments while U.S. taxpayers are held financially responsible for any potential losses.

* Because each of these programs was subject to annual appropriations or was an expiring tax provision (that had been regularly extended), the five year cost estimate was extrapolated based on available cost or spending data.