Tag: budget

And the Other Washington Is Messed Up, Too

In a new op-ed, I have the regrettable task of pointing out to my fellow Washingtonians (of the PNW rather than D.C. variety) that we have increased public school spending in the past decade by $1.6 billion and gotten _________ in return. Nothing. Nada. Rien du tout, mes concitoyens.

NAEP scores are pretty much flat at the end of high school, as are SAT scores. It is hard to argue that we really care about children’s education when we’re willing to waste $1.6 billion that is purportedly meant for that purpose. If politicians and voters in the Evergreen State do decide, at some point, to do something for children, the first step would be to stop wasting that $1.6 billion. The next step would be to follow the lead of other states, like Florida, that have found ways to improve student achievement while _lowering_ taxes.

When Is $28,000 per Pupil Not Enough?

…Apparently, when you are the District of Columbia public school system. The Washington Times reports today on a candle-light vigil beseeching the federal government for extra cash for new computers. The group organizing the vigil, OurDC, shares this “horror story” from former technology teacher Toval Rolston:

I’ve been in D.C. schools where the computers are so antiquated that you can’t even download a basic pdf file; our children don’t have the tools to compete in today’s high tech world.

The twin implications of this plea are that DC schools are underfunded and that more money will actually be spent wisely. The first statement is false and the second is decidedly unlikely. The last time I calculated total spending on K-12 education in DC, from the official budget documents, it came out to over $28,000 per pupil (the linked post points to a spreadsheet with all the numbers).

How do you manage to spend $28,000 per pupil and not manage to keep your computer hardware up to date? Or, for that matter, manage to have among the worst academic performance in the country? Maybe, just maybe, it has something to do with not being capable, or perhaps even inclined, to spend the money on what works.

The Washington Times, by the way, points out that OurDC is headquartered at the same address as the Service Employees International Union. Go figure.

Strength vs. Stupidity

The New York Times weighs in this morning with a timely and sensible editorial on military spending. The main focus is on the increasingly outdated pay and benefits system for the nation’s troops. Some choice excerpts:

Military pay, benefit and retirement costs rose by more than 50 percent over the…decade (accounting for inflation). Leaving aside Afghanistan and Iraq, those costs now account for nearly $1 out of every $3 the Pentagon spends.

Much of that is necessary to recruit and retain a high-quality, all-volunteer military….But current military pay, pension systems and retiree health care benefits are unsustainable and ripe for reform.

[…]

The retirement system is both unfair and increasingly expensive. Most veterans, including many who have served multiple combat tours, will never qualify for even a partial military pension or retiree health benefits. These are only available to those who have served at least 20 years. Those who do qualify can start collecting their pensions as soon as they leave service, even if they are still in their late 30s, making for huge long-term costs.

So far, so good. Two essential points bear repeating.

First, the rise in military spending over the past decade has not been driven solely by the costs of the wars in Iraq and Afghanistan. Pentagon costs are growing, and the rate of growth is rising. Programmatic reform is needed to reign in those costs; avoiding stupid wars won’t solve the problem (although it won’t hurt).

Second, the current system disproportionately rewards individuals who stay in the service for 20-plus years, and undercompensates those men and women who serve several tours, but who do not qualify for military retirement. A better system would allow anyone who has served to retain some of what they paid (or what taxpayers paid for them) into a portable retirement account that they control. Private industry has been steadily moving away from a fixed-benefit, pension-style system for years. I have heard the arguments against such a move, but I don’t find them particularly convincing.

One point from the Times editorial, however, calls out for clarification. The editors claim on two separate occasions that current military spending patterns are “unsustainable.” They conclude:

The United States already has a comfortable margin of [military] dominance….The Pentagon’s ambitions expanded without limit over the Bush era, and Congress eagerly wrote the checks. The country cannot afford to continue this way, and national security doesn’t require it. (emphasis added)

The latter point, “national security doesn’t require it,” is crucial, correct, and should be repeated at every opportunity. The former assertion, “the country cannot afford” it, is false. Repeating that claim plays into the hands of the inveterate hawks who never saw a war, or a weapon system, that wasn’t deserving of more lives/money.

The hawks are correct to point out that the United States has in the past, and could in the future, choose to spend as much or more on our military. Current spending levels amount to about five percent of GDP (when including the costs of the wars), and military spending as a share of total government spending has been falling steadily for years. According to the hawks, it is other spending, or too little revenue, that is putting our children and grandchildren into debt.

I wish that the Times had spent more time hammering the point that such spending is unnecessary. Contrary to anecdote and the evening news, the international system is remarkably stable and peaceful. The United States need not spend more than we did at the height of the Cold War in order to be secure from most threats. And those few genuine threats to our security could be handled with a smaller, more efficient military—if we offloaded some responsibilities to other countries that have sheltered under the U.S. security umbrella for decades.

The Times doesn’t directly address that last point. By focusing most of their attention on programmatic reforms to pay and benefits, and a bit on costly procurement of unnecessary weapons, but not enough to the underlying flawed assumptions that drive military spending, the editors contribute to the misconception that the U.S. military should continue to be the world’s policeman, and find ways to do this on the cheap.

That is unfortunate. Spending more than we need to doesn’t make us stronger. Ignoring our favorable strategic circumstances is simply stupid. We spend too much on our military because we ask our troops to do too much. To spend less, we must do less. The good news is that we can. The bad news is that too few people understand that.

Federal Spending Hits $4.1 Trillion

If you looked at the new CBO report on the budget, you may have noticed that federal spending this year will be $3.6 trillion.

In fact, federal spending this year will top $4 trillion. But virtually all reporters and budget wonks (including me) routinely use the lower number when discussing total federal spending. I don’t think the higher $4 trillion number even appears anywhere in the CBO report.

The $3.6 trillion figure is “net” outlays. But “gross” outlays, or total spending, is quite a bit higher. The difference is caused by “offsetting collections” and “offsetting receipts.” These are revenue inflows to the government that are netted against spending at the program level, agency level, or government-wide level. Some examples are national park fees, Medicare premiums, and royalties earned on mineral deposits. There are hundreds of these cash inflows to the government that offset reported spending.

Details on these revenue offsets can be found in Chapter 16 of OMB’s Analytical Perspectives (pdf). In fiscal year 2010, net federal outlays were $3.456 trillion, but gross outlays were $4.057 trillion. Thus, gross outlays were 17 percent larger than widely reported net outlays.

In FY 2011, OMB expects gross outlays to be about 15 percent larger than net outlays. Thus, gross outlays this year will be $4.1 trillion, compared to net outlays of $3.6 trillion. As a share of GDP, gross outlays will be about 27.3 percent of GDP, compared to net outlays of 23.8 percent.

Accounting for offsets in this manner is a long-standing convention, but it is one of the sneaky ways that Washington tries to hide its large intrusion into the economy. Certainly, the CBO and OMB should include more prominent presentations of gross outlays in their regular budget updates.

For citizens and reporters, a rule-of-thumb to remember is that total federal spending is 3 to 4 percentage points of GDP larger than usually reported by officials.

Boehner Plan Doesn’t Cut Spending

House Speaker John Boehner is scrambling to revise his budget plan after the CBO found that it would only cut spending by $850 billion, not the $1.2 trillion promised.

However, the Boehner plan doesn’t actually cut spending at all. The chart shows the discretionary spending caps in the Boehner plan. Spending increases every year—from $1.043 trillion in 2012 to $1.234 trillion in 2021. (This category of spending excludes the costs of wars in Iraq and Afghanistan).

The “cuts” in the Boehner plan are only cuts from the CBO baseline, which is an imaginary path of future spending designed as a planning tool for Congress. Boehner can propose to spend any amount in any future year he wants, and in this plan he choose to have a steadily rising spending path.

The Boehner plan also doesn’t cut spending in a more fundamental way. It doesn’t lay out any particular programs or agencies to terminate. I’m in favor of spending caps as a secondary enforcement mechanism, but actual cuts have to come first. A caps-only plan like Boehner’s just kicks the can down the road. At best, it simply nudges future legislators to actually cut something specific.

Why doesn’t the House leadership propose real cuts? They’ve certainly got the resources and expertise to do the job. A single senator – Tom Coburn – produced a 620-page report last week detailing hundreds of programs to cut and terminate. Coburn and his staff read through thousands of articles and reports on the real-world performance of federal programs, and they made a good case for each particular cut they proposed.

Republican leaders can’t hide behind baselines forever. If they really want a smaller government as they keep claiming, they’ve got to target particular programs and agencies and begin a national debate about terminating them.

Thoughts on the Boehner Plan

These are the times that try budget analysts’ souls—especially budget analysts who’d like to see Washington dramatically cut spending. The debate over lifting the debt ceiling has produced a number of proposals from Capitol Hill—none of them have been worth celebrating. We can now add House Speaker John Boehner’s latest proposal to the pile.

Boehner’s proposal boils down to the following: cap discretionary spending over 10 years to achieve $1.2 trillion in savings; have (another) bipartisan group of policymakers come up with $1.8 trillion in “deficit reductions” over ten years; and get a vote on a balanced budget amendment. In exchange, the president would get to increase the deficit by $900 billion this year and by another $1.6 trillion next year.

Here are some thoughts on Boehner’s plan:

  • Under the Congressional Budget Office’s optimistic spending baseline, the federal government will spend $46 trillion over the next ten years. Obviously, reducing spending by $1.2 trillion oven ten years is relatively small.
  • The same dysfunctional congress that treats entitlement programs like lit sticks of dynamite is supposed to come up with $1.6 trillion in “deficit reduction.” Note that we’re not even talking specifically about spending cuts here, so that figure would likely include tax increases assuming they’re able to even come up with something.
  • Under the Boehner plan, spending and debt will continue to rise. At the most, the plan would produce an average of $300 billion a year in cuts in exchange for increasing the debt ceiling by $2.5 trillion over the next two years.
  • Boehner’s bill includes language that tightens up the definition of what constitutes “emergency” spending. Congress regularly slaps the “emergency” designation on all sort of non-emergency spending bills. I have no faith that the new language will stop the foxes guarding the henhouse from continuing to devour chickens.
  • Where are the immediate spending cuts? Once again, we have the promise of cuts but no specifics. Even if the discretionary caps hold the line on that portion of spending, total federal spending (and debt) will continue its unsustainable upward climb. Entitlement spending is the biggest driver of our long-term budgetary problems but entitlement spending isn’t capped under the Boehner plan.

In sum, this plan is another stinker. But with Harry Reid controlling the Senate and Barack Obama sitting in the White House, the votes just aren’t there to get a plan passed that sufficiently addresses our fiscal mess by reining in the size and scope of government.

Debt-Limit Deal: $500 Billion Cut Option

Charles Krauthammer is absolutely right that Republicans must call President Obama’s bluff on the debt-limit vote. I suggested that the House GOP pass $2 trillion in cuts tied to a $2 trillion debt increase, thus handing the matter over to the Senate and the president and refusing to budge.

Krauthammer has the same idea, but with $500 billion in cuts and a $500 billion debt increase. That would certainly be better than Senator McConnell’s chicken-out plan, and it would have the advantage of being so modest in size that I think it would ultimately get large support in the Senate from moderates.

The cuts–small “trims” really–could be taken right from Obama’s own Fiscal Commission report. The table below illustrates how modest and limited are the reforms needed to hit $500 billion in savings over 10 years. Indeed, the data from the commission only covers a nine-year period and includes just some of the proposed entitlement savings.

Obama Fiscal Commission Entitlement Trims $Billions
Trim Health Care Subsidies
Reduce subsidies for medical education $60
Expand Medicare cost sharing $110
Enact tort reform $17
Reduce Medicaid tax gaming $44
Reform Tricare $38
Trim Social Security Growth
Increase benefits by chained CPI $89
Trim Growth in Other Entitlements
Increase other entitlements by chained CPI $43
Reform federal retirement benefits $73
Reduce farm subsidies $10
Reduce student loan interest subsidies $43
Total Trims, 2012-2020 $527

It would be blindingly obvious to most voters that Obama would be responsible for a debt default if he couldn’t bring himself to sign such modest cuts that were proposed by his own fiscal commission. Then, when the government runs up against the debt limit again five months from now, the GOP should have another package of cuts ready to be passed. This next time they could perhaps focus on discretionary program terminations, some of which I’ve proposed here.