Tag: federal spending

Sequestration Is a Small Victory for Budget Hawks

The budget battles in Washington, D.C., are far from over. President Obama’s attempt to break the stalemate by reaching across the aisle and dining with GOP members two days in a row seems more about show than substance. 

The apparent lack of urgency to undo the cuts underscores what we knew all along: the world did not end under sequestration. Most of the cuts will be phased in over the next few months. The defense cuts amount to just 6.5 percent of total spending on national security (Pentagon base budget plus war costs). This is a pittance, and spending will still dwarf what we spent before 9/11. Those who claim that the cuts will undermine American security should explain how we managed to win the Cold War while spending much less, on average. (To learn more about proposals that would maintain a highly capable, but less costly, military, attend our event on March 14th.) 

There is still the possibility that most of this year’s cuts, or the caps on planned spending over the next decade, may not materialize. Congress could reverse the cuts in the future as part of a grand bargain. Or they could simply punt without one. Meanwhile, legislation is moving along that would allow the Pentagon and other agencies to implement the cuts with greater discretion across department programs. This is a good thing, potentially. Smarter cuts are desirable, but we should be on the lookout to ensure that Congress doesn’t simply legislate away any cuts, dumb or otherwise. 

Nonetheless, the fact that military spending actually declined is a small victory. But how will future battles play out? Are the neocons and their supporters in retreat? In a piece running today at Foreign Policy, I offer a cautionary note. Just because the fiscal hawks won this time doesn’t mean that they’ll win the next one, or the one after that: 

The defense contractors and special interests still have enormous firepower in Washington, and they’ve turned their attention to the “continuing resolution” that will fund the government for the remainder of the year. Meanwhile, the neoconservatives are single-minded and relentless. Their tenacity paid off in their bid to launch a war in Iraq and depose Saddam Hussein, but failed to stop Chuck Hagel’s nomination and eventual confirmation as secretary of defense.

The budget fight matters even more. A $470 billion military is more than sufficient to fight the wars the United States truly needs to fight, but not the wars that the neocons want to fight. The next phase in the fight over the Pentagon’s budget should focus less on how much the United States spends on defense, but rather why it spends so much. If we are going to give our military less than it expected to have three or four years ago, we need to think about asking it to do less.

Read the full article here.

Herbert Hoover Was No Penny Pincher

In a story regarding federal budget cuts, the Washington Post reports: 

‘One of the last presidents to balance the budget was Herbert Hoover,’ [Rep. Peter] King added darkly, referring to the penny-pinching Republican blamed for deepening the Great Depression.

What a loaded and inaccurate statement! 

I just finished the fine new biography Coolidge by Amity Shlaes. Hoover plays a major part in the book as a long-time cabinet member of President Coolidge and his successor in the White House. Coolidge was about as frugal a president as we’ve had, and he dreaded that he would be followed by big-spender Hoover, who he knew would probably unravel his years of hard work at budget restraint. 

Coolidge fought against many new spending plans pushed in Congress, including flood control projects, farm subsidies, and higher veteran’s benefits. But Hoover worked behind the scenes during the Coolidge years to boost flood control spending. And when he became president, Hoover sadly gave into the farm lobbies and launched the first major subsidy schemes. 

In 1929 Hoover signed the Agricultural Marketing Act, which created the Federal Farm Board to subsidize agricultural cooperatives. I’ve noted that the scheme turned into a $500 million boondoggle, harming consumers and disrupting markets. 

As president, Coolidge worked long and hard to cut the federal budget to $3 billion and hold it at about that level from 1923 to 1929. But when he was president, Hoover jacked up the budget from $3.1 billion in 1929 to $4.7 billion in 1932. 

Shlaes concludes that Hoover “spent like a Democrat. But that spending hadn’t been enough to ensure even Hoover’s own reelection.” And contrary to the implication of the Washington Post, neither did Hoover’s big spending alleviate the Great Depression.

Sequestration: Governors Are a Special Interest Too

The president made an appearance at the National Governors Association’s winter meeting to drum up support for his position that the sequestration spending cuts should be mitigated with tax hikes. The president understands that state politicians are dependent on federal handouts (see chart below), which makes them ideal candidates to help him convince the citizenry that spending cuts would usher in the apocalypse.  

In the battle with congressional Republicans over sequestration, it would be particularly helpful to the president to have Republican governors fan the flames. The post-appearance coverage that I’ve read indicates that some GOP governors took the bait and others did not. For instance, Louisiana Gov. Bobby Jindal dismissed the president’s position as “just trying to scare the American people.” On the other hand, Virginia Gov. Bob McDonnell expressed dissatisfaction with congressional Republicans (and the president’s) inability to come to an agreement to avoid sequestration. 

If an article in Politico is accurate, however, Republican governors are working behind the scenes to get congressional Republicans to acquiesce: 

The new rumblings match what’s been going on behind the scenes for months. Governors have publicly signed on to letters bashing Obama and praising House Republicans’ efforts, but privately their offices have been urging lawmakers to work harder to avoid potentially devastating cuts — particularly those that could hit local programs. 

Having worked for a Republican governor who made it a mission for his state to grab as many federal dollars as possible, I have zero reason to doubt that this is the case. The reason is simple: every federal dollar that a state politician can spend is a dollar that he or she doesn’t have to ask his or her voters to part with. Thus, state politicians love the “free” money from the feds and expend great effort (and additional taxpayer money) trying to obtain it. 

Of course, it isn’t really free.

So You Want to Cut Spending

Back in 2011 there was a titanic fight between President Obama and the newly energized House Republicans over the federal budget. The ballyhooed result, which averted the frightening specter of a “government shutdown,” was “the largest annual spending cut in our history,” in the words of President Obama and the national media. I raised some doubts about it at the time, noting that it certainly wasn’t the largest budget cut in history and then pointing to a National Journal story suggesting that the cuts weren’t really there.

Now, in the Sunday Washington Post, David Fahrenthold follows up: What happened to the much-touted $38 billion in cuts (out of a $3,800 billion budget)? Oops. Not so much: 

Nearly two years later, however, these landmark budget cuts have fallen far short of their promises.

In some areas, they did bring significant cutbacks in federal spending. Grants for clean water dried up. Cities got less money for affordable housing.

But the bill also turned out to be an epic kind of Washington illusion. It was stuffed with gimmicks that made the cuts seem far bigger — and the politicians far bolder — than they actually were.

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee.

Read it all. It’s just an amazing investigation into what happens in the bureaucracy when Congress announces it’s cut the budget, and the reporters move on.

Which is why I wrote last week that if you really want to cut spending, you should shut down agencies and programs. Then you have some hope that the spending will actually stop.

WP: ‘Many 2011 Federal Budget Cuts Had Little Real-World Effect’

Today’s Washington Post has an excellent article by David A. Fahrenthold on the gimmicks used by both Democrats and Republicans in the April 2011 budget deal to create phantom ‘cuts’ in federal spending:

In the real world, in fact, many of their “cuts” cut nothing at all. The Transportation Department got credit for “cutting” a $280 million tunnel that had been canceled six months earlier. It also “cut” a $375,000 road project that had been created by a legislative typo, on a road that did not exist.

At the Census Bureau, officials got credit for a whopping $6 billion cut, simply for obeying the calendar. They promised not to hold the expensive 2010 census again in 2011.

Today, an examination of 12 of the largest cuts shows that, thanks in part to these gimmicks, federal agencies absorbed $23 billion in reductions without losing a single employee…

Congress, for instance, “cut” $14.6 million from its own budget to build the Capitol Visitor Center. That changed nothing. The center was already built…

At the Pentagon, for instance, the April 2011 bill required a whopping $6.2 billion cut to military construction. But through a combination of congressionally installed gimmicks and military ingenuity, the Pentagon escaped nearly unscathed…Total real-world savings: $25.2 million. Just 0.4 percent of the total that Congress counted as “cut” on paper.

Not all the bill’s cuts were illusory, however. The Post’s analysis found five large cuts that turned out to be very real.

None of them actually caused an agency in Washington to shed federal personnel. Instead, they reduced the money that passed through those agencies to state and local projects…

Now Washington is facing the “sequester,” which would cut $85 billion starting March 1. The administration has sought to persuade Republicans to cancel it or replace it with a package of spending cuts and tax increases.

That, at times, has made for an awkward argument. Two years later, it appears that some of the budget cuts from April 2011 turned out to be less painful than originally believed. But the White House says that can’t happen again.

This time, it says, the cuts would be very real and very painful.

“Reductions that were possible in 2011 are not possible in 2013,” said [Robert] Gordon, of the Office of Management and Budget. “The resources that could be cut, they’ve been cut. The low-hanging fruit is gone.”

Of course.

Federal Spending Has Always Been Wasteful

A new article by Ivan Eland describes how wars have stimulated growth in the American welfare state. I was interested in his discussion regarding the overexpansion of pensions following the Civil War:

In 1879, the Arrears Act caused many veterans, who hadn’t realized they were disabled until the government offered $1,000 or more for finding aches and injuries, to flood the Bureau of Pensions with claims.  Although, according to its commissioner, the bureau was the largest executive bureau in the world, it had few means to detect fraudulent claims, which were rampant. During election years between 1878 and 1899, Republicans used the bureau to dole out pensions rapidly and heavily in key electoral states.

In 1890, a quarter century after the Civil War ended, pension eligibility expanded to include any soldier who had served 90 days or more during the war and was unable to do manual labor—whether or not he was injured during the conflict, or even whether he had seen combat. Similarly, widows of soldiers serving in the war for 90 days or more got pensions, regardless of whether their husbands had died in the conflict.”

Republicans supported lavish pensions to groups in their political constituency (Union veterans) to justify continued high tariff walls to protect Northern industries, which were among the most influential supporters in their political coalition. The interests of such industrialists coincided with those of pensioner lobbies and the bureaucratic empire of the Bureau of Pensions to widen the program over time.

Politically driven overspending and waste is nothing new in Washington. In the 19th Century, there was tons of waste in federal agencies such as the Army Corps of Engineers. The Bureau of Indian Affairs (BIA) was also a very troubled agency:

Fraud, corruption, and bribes were common in the BIA during some periods in the 19th century. One reason was because local BIA officials had substantial discretionary control over cash, goods, trading licenses, and other items handed out by the agency. In the years following the Civil War, “Indian rings” of government agents and contractors colluded to steal funds and supplies from taxpayers and the tribes. The New York Times railed against the “dishonesty which pervades the whole Bureau.” And the newspaper argued that “the condition of the Indian service is simply shameful. It has long been notorious that rascally agents and contractors have connived to cheat the Indians. … It now appears that a ring has long existed in the Indian Bureau at Washington for the express purpose of covering up these frauds and facilitating others.

How Firms Will Adapt to Avoid ObamaCare’s Mandates (and Drive up Its Cost)

An oped in today’s Wall Street Journal explains:

How big can a company get with just 50 employees? We’re about to find out.

Thousands of small businesses across the U.S. are desperately looking for a way to escape their own fiscal cliff. That’s because ObamaCare is forcing them to cover their employees’ health care or pay a fine—either of which will cut into profits and stymie future investment and growth…

“Going protean” offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations…

Non-core tasks could include things like accounting, marketing, product development, manufacturing, IT, PR, legal, finance, etc. There is almost nothing that cannot be outsourced…

These new contracts will be a mix of large corporations, small businesses, micro-corporations and even nano-corporations (an individual doing business as a corporation). But to be a protean solution, it must involve a corporation-to-corporation relationship…

In the context of ObamaCare, a small business could go protean by offering current employees contracts for doing their current work as a corporate entity instead of as an employee…

[A]s government continues to impose itself into the marketplace and reduce the freedom of the commercial sector through statist programs like ObamaCare, businesses will have to look for creative solutions to survive. Going protean is only one way, and others will emerge.

Keeping the core company below 50 full-time employees will allow such companies to avoid the employer mandate. But it will also drive up ObamaCare’s cost, because most of the workers in the new corporate entity will be eligible for government subsidies through ObamaCare’s health insurance “exchanges.” This will drive up the cost of ObamaCare wherever those subsidies exist.