Earmarks are not a significant portion of the budget as you point out. However, they are a corrupting factor in the process favoring elective patronage at the public expense. Worse their adverse consequences often go unreported.
After hurricane Katrina there was little coverage of the fact that the levees protecting New Orleans are the property and responsibility of the State of Louisiana. Even more pointed was the fact that federal appropriations to the Corps of Engineers destined, among other things, for the upgrade of state owned Mississippi levees were diverted for the earmarked construction of the J. Bennet Johnston ship channel near New Orleans. This ship channel was a key factor in the hydraulic short circuit between the storm surge in the Gulf and Lake Ponchatrain - where the levees failed. You may ask who was "J. Bennet Johnston"? - he was the Democrat senator from Louisiana who wrote the earmark directing the funding of the ship channel named after him.
I do agree that the big dollars in the Federal budget involve entitlements and social welfare spending. That, of course is an increasingly common phenomenon in the western world and is also the common factor behing the various budget crises in Europe, including those in Portugual, Greece, Hungary, and even France & the UK. There appears to be no option other than making some reductions in this area, and every commission or appointed group that has studied the matter has reached this conclusion as well. The Republicans in the House have proposed doing that and are preparing specific measures for doing it in the 2012 budget - which is due by October. Unfortunately we are entangled in a struggle for the 2011 budget - a government fiscal year that is now more than half behind us. That budget was the responsibility of the last Congress, and they didn't even bother to attempt it.