It is March 1, 2013 and apparently a sequester is going to be implemented by the US Federal Government. Most sectors of government are going to be cut by some fixed amount. Much has been written about how stupid this is. The proximate cause is the immediate stupidity of politicians trying to create a Sword of Damocles above their colleagues to get them to do something less stupid. There is a root cause. This is what I call the “Lump of Government Mistake”.

Almost all agencies of the federal government are on the general budget, paid for from general revenue, with an annual appropriate cycle. This need not be the case.
We should have many separate agencies, each with their own user-based revenue sources, for as many parts of government as possible. For instance Highways already have a Highway Trust Fund (underfunded perhaps, but that is a relatively simple problem if there is an actual desire to govern responsibly).
Air Traffic Control should be handled by a private corporation paid for from some kind of user fee on aircraft movements, like it is in Canada or New Zealand, not part of the Lump of Government.

National Parks should be owned by a Foundation (or better multiple Foundations) that charges admission to users to cover costs, not part of the Lump of Government.
Food Inspection Services should be a Non-Profit Corporation paid for by a small tax on food producers (like the Food Marketing Boards) and administered separately, not part of the Lump of Government.

We can go on and identify many parts of government that can easily be hived off into separable, self-sustaining, non-profit organizations.

Once we did that, the threat of Sequester disrupting the obviously generally useful things that happen to be socialized in the US makes a lot less sense.

Clearly there are exceptions, true public goods like National Defense and Foreign Relations perhaps. Research is another example. Similarly interest (and principal) on the accumulated debt needs to be handled somehow. Everyone receives “defense services” from the Department of Defense (whether you want it or not), so it needs to be paid for from a general revenue source. But this need not be the same general revenue source as used for income redistribution (like Social Security), or health insurance (like Medicaid or Medicare). In fact it is not. Social Security taxes pay for Social Security. Why should not Defense taxes (e.g. a VAT) pay for Defense. If Congress wants more, it raises the VAT rate associated with Defense, if it wants less, it lowers the rate.
The National Science Foundation similarly should not be subject to the vagaries of annual budgets. Like any good foundation, it should have an endowment, and live off the interest.

Every function would have its own associated source of funds and rates, and would stand or fall on its own merits. Horse trading would still exist, but this notion of cutting useful self-sustainable services as collateral damage for reducing the Defense sector would be eliminated.

If this feels familiar, I made basically the same point locally in July 2011 when the State of Minnesota shut down: Lessons from the state shutdown. Avoiding fragility in governance. I wrote a lot, but the main points was:

I propose the lesson to be learned is that, to avoid a total government shutdown, the government should not be totally central.