Tag: budget

Why So Shy With The Hatchet?

ABC reports, “The Los Angeles Board of Education voted Tuesday to lay off as many as 5,400 teachers and support personnel for the upcoming school year” in order to help close “a roughly $718 million deficit.”

Ok, that’s a start. But the number of public school employees in the US has doubled since 1970, while the number of students has increased by just 9 percent.

The bloated, inefficient and ineffective LA District now spends nearly $13 billion a year –- over $20,000 per student –- so they might want to keep on cutting.

Considering the fact that the median private school tuition is around $4,800, maybe they could just let parents and taxpayers keep, say, a third of that money to spend on education themselves.

Presto, no budget problem! Although there would be a huge increase in unemployed school bureaucrats and ineffective teachers … I think it’s a good trade.

Federal Tax Rates

Conveniently timed as Tax Day approaches, the Congressional Budget Office has released new data on the taxes paid by each income group. The CBO data includes federal income taxes, payroll taxes, and excise taxes, which amounts to almost the entire federal tax grab.

The CBO calculates tax rates by quintile from the lowest-earning to the highest earning households. These tax rates are simply total federal taxes paid by the group divided by total income earned by the group.

The chart makes clear that we have a very graduated or redistributive tax system, which some people call “progressive.” President Obama doesn’t think that the 25.8% rate paid by the top quintile is progressive enough, so he plans to penalize that group with an income tax rate hike.

Piketty Tax Battle: Round Two

The Economist has posted rebuttals to first-round arguments in my tax debate with French economist Thomas Piketty. Piketty seems to think that everyone with a high income has a “grabbing hand” that comes at someone else’s expense.

The debate over tax rates on the rich is important, but Piketty is important in himself because he is widely cited in the media and elsewhere as if he were a neutral authority. For example, President Obama’s budget featured a chart showing that the top 1 percent of earners have greatly increased their share of national income over the decades, using Piketty’s numbers.

But Alan Reynolds has found serious flaws in Piketty’s calculations. Piketty bases his calculations on tax return data, but reported income under the federal income tax has changed greatly over time. 

The bottom line is to be suspicious when you see a chart on income trends that is sourced to this advocate of 80 percent tax rates.

Obama Tax Policies and Beyond

I was a panelist for a Tax Notes forum on April 3 regarding Obama’s tax policies. The other panelists were Len Burman of the Urban Institute and Gene Steuerle of the Peterson Foundation. It was an expert and ideologically diverse panel, but nobody was fond of Obama’s fiscal policy direction. (In the photo, that’s former CBO director Rudy Penner to my left. Photo credit to Derek Squires)

Tax Notes summarized the discussion: “A diverse panel of economists and tax specialists largely agreed … that President Obama’s tax and budget plans at best would fail to forestall long-term fiscal ruin and could even hasten its arrival.” One point of agreement was that the tax code is too complex and it doesn’t need the complicated new tax credits that Obama has proposed.

Where we differed was on the need for added federal revenue, and herein lies the big tax policy battle ahead. Len thought that some form of new value-added tax (VAT) was inevitable in order that the government could  raise more money. I am increasingly hearing that argument from top fiscal scholars, and I fear that the drumbeat for a VAT will get louder.

Dan Mitchell and I are dead-set against a VAT because it will be a tool to fund even larger government, as we discuss in Global Tax Revolution. But supporters of limited government need to start watching this issue and making preparations to ward off a Euro-style money machine.

Will the Military Industrial Complex Save American Foreign Policy?

Missing from most of the commentary on the Secretary of Defense’s big defense spending speech yesterday is the fact that the program cuts he proposed are largely a result of freezing the topline – keeping defense spending level (once you adjust for inflation) for the next decade.

For nearly a decade the country has really had two defense budgets – one for imagined conventional wars against states like China, another from nation-building, peacekeeping and counterinsurgency. The first budget requires a small ground force and lots of big platforms operated by the Air Force and Navy. The latter requires much larger ground forces, a few niche capabilities like intelligence, surveillance and reconnaissance aircraft, and less high technology wonders.

The current American love affair with counterinsurgency has resulted in a gradual shift of dollars from the conventional budget to the unconventional one. We are reversing the old idea that the American way of war is to replace labor with capital, or manpower with technology. We are becoming a land power first.  We have been increasing manpower in the Army and Marines – adding 90,000 new troops – and paying them way more (compensation per service member is up by almost half since 1998). Personnel costs are taking more of the budget.  And for more complex reasons, including health care costs, the operations and maintenance part of the budget – essentially the day to day cost of running the military – has also been growing fast when measured per service member.  (For details on these issues, read this testimony by Stephen Daggett of the Congressional Research Service.)

That was bound to squeeze the other big parts of the defense budget – research, development and procurement of new weapons systems. There is too much future cost in the budget for everything to fit without topline growth, so something had to give. Big weapons programs are where the most give is, if you don’t want to cut manpower.

That conflict was delayed while the budget topline grew, but now that it is flat, it erupts. The manpower intensive military that follows from our current policies is eating into the conventional military that delivers manufactoring jobs across the country and the high-technology dreams of our military leaders.

What will be interesting to see is whether this shift encourages those leaders and their friends on the Hill to take up the arguments that people like me have been making for years: that small wars are mostly dumb wars.  Preparation for these wars didn’t much hurt the military industrial complex before, now it does. 

An additional note: Gates’ criticism of the acquisition process was on the mark. Rather than blaming out of control weapons costs on the kind of contracts we write or crafty contractors, as the President seems to, Gates noted correctly that the trouble is the requirements process – what we want, not how we buy it.

Democratic Math

As President Obama institutionalizes the permanent campaign, Democrats are using his mailing list and his organization to generate support for his massive spending hikes. Yesterday they announced to the media that they were delivering 642,000 pledges of support for the Obama budget to Capitol Hill. But Washington Post writer Dana Milbank asked a couple of questions and got some interesting answers:

At Democratic National Committee headquarters yesterday morning, party workers were loading minivans with Xerox boxes, each addressed to a different congressional office. It was a classic campaign canvassing operation – except that the next election is 19 months away. “Supporters of President Obama’s Budget to Hand Deliver 642,000 Pledges Gathered from Around the Country to Capitol Hill,” announced the Democrats’ news release.

CNN and the Huffington Post dutifully reported the DNC’s claim of 642,000 pledges. Network cameras and the BBC showed up to film the operation. “We had one of the big printers downstairs smoking last night,” party spokesman Brad Woodhouse said.

In fact, the canvassing of Obama’s vaunted e-mail list of 13 million people resulted in just 114,000 pledges – a response rate of less than 1 percent. Workers gathered 100,000 more from street canvassing. The DNC got to 642,000 by making three photocopies of each pledge so that each signer’s senators and representative could get one.

So they asked 13 million Obama supporters to support Obama’s budget, and got 114,000 responses – which might suggest that even Obama supporters aren’t excited about trillion-dollar deficits farther than the eye can see. And then they counted each one they did get three times to get a good number for the press release, which some of the media bit on. I wonder – if I count each tax dollar three times, can I send in $3,000 and have them count it as $9,000? After all, my two senators and my congressman will all get to spend it.

New York’s ‘Not Austere’ Budget

“Not Austere” is how the New York Times is describing the state’s $131.8 billion budget for 2009-2010.  As a colleague pointed out to me, “how bad does a budget have to be for the New York Times to call it ‘not austere’?”  Apparently, pretty bad.

In addition to an estimated $7 billion in tax and fee increases, total state spending would increase almost 9% when federal “stimulus” money is included.  Supporters dismiss the inclusion of bailout money in the totals, but for those who think the “temporary” federal bailout money won’t foster otherwise higher state spending going forward, I’ve got a lot for sale in Poughkeepsie.

The Albany Times-Union reported that Gov. Paterson cited public employee labor contracts as a reason for the budget increase.  Once again, the needs of the productive class (i.e., taxpayers) take a back seat to the bureaucratic class living at their expense.  Of course, New York’s policymakers were also able to find money for critical expenditures on “gun clubs, churches, a yoga foundation and the Wantagh American Legion Pipe Band, among thousands of other projects.”

The biggest tax increase is a surcharge on personal income taxes paid by “the wealthy” that is supposed to net state coffers $4 billion.  (Note to New York personal income tax payers: New Hampshire doesn’t have one.)  But other tax increases will hit all walks of New York life including an increased assessment on utilities, a motor vehicle registration fee increase of 25 percent, an increase in driver’s license fees of 25 percent, increased taxes on beer and wine, a tax increase on auto rentals of 1 percent, and possibly the most insulting – a new $100 fee on tax preparers (guess who’s going to ultimately pay that one?).