Tag: federal spending

Paul Ryan’s Budget: It’s Still Big Government

Chris Edwards provided an ample overview of Rep. Paul Ryan’s (R-WI) budget proposal, so I won’t rehash the numbers. Instead, I’ll just add a few comments.

Democrats and the left will squeal that Paul Ryan’s budget proposal is a massive threat to the poor, the sick, the elderly, etc, etc. It’s baloney, but a part of me thinks that he might deserve it. Why? Because the excessive rhetoric employed by the left to criticize lower spending levels for domestic welfare programs isn’t much different than the excessive rhetoric Ryan uses to argue against sequestration-induced reductions in military spending. For instance, Ryan speaks of the “devastation to America’s national security” that sequestration would allegedly cause. (See Christopher Preble’s The Pentagon Budget: Myth vs. Reality).

Now I’m sure that I’ll receive emails admonishing me for failing to recognize that the Constitution explicitly gives the federal government the responsibility to defend the nation while the constitutionality of domestic welfare programs isn’t quite so clear. Okay, but what are Ryan’s views on the constitutionality of domestic welfare programs?

At the outset of Ryan’s introduction to his plan, he quotes James Madison and says that the Founders designed a “Constitution of enumerated powers, giving the federal government broad authority over only those matters that must have a single national response, while sharply restricting its authority to intrude on those spheres of activity better left to the states and the people.” That’s nice, but then he proceeds to make statements like this:

But when government mismanagement and political cowardice turn this element of the social contract into an empty promise, seniors are threatened with denied access to care and the next generation is threatened with a debt that destroys its hard earned prosperity. Both consequences would violate President Lyndon B. Johnson’s pledge upon signing the Medicare law: ‘No longer will older Americans be denied the healing miracle of modern medicine…No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts.’ To fulfill Johnson’s pledge in the 21st century, America’s generations-old health and retirement security programs must be saved and strengthened.

Social contract? Well, so much for those enumerated limits on federal power.

Ryan’s “Statement of Constitutional and Legal Authority” only cites Congress’s general power to tax and spend. Based on the contents of his proposal, which would do little to rein in the federal government’s scope, one could conclude that Ryan’s view of federal power is almost as expansive as that of his Democratic colleagues. Yes, Ryan would reduce the size of government by reducing federal spending as a percentage of GDP. But as I often point out, promises to reduce spending in the future don’t mean a lot when you have a federal government that has the ability to spend money on pretty much any activity that it wants. And under Ryan’s plan, the federal government would be able to continue spending money on pretty much any activity that it wants.

Paul Ryan’s Spending Plan

House Budget Committee chairman Paul Ryan (R-WI) has introduced his annual budget blueprint. The plan will likely pass the House but won’t become law this year.

However, the plan signals the direction that House Republicans want to go in budget battles with the Democrats this year, and it also shows the likely thrust of policy under a possible Republican president next year.

Here are a few highlights:

  • Total federal outlays would fall from $3,624 billion this year to $3,530 billion next year. Those figures are $24 billion less than under President Obama’s budget this year and $187 billion next year.
  • Of the $187 billion savings compared to Obama next year, $38 billion would come from discretionary programs, $146 billion from so-called entitlements, and $3 billion from interest costs.
  • Ryan’s proposed spending in 2022 of $4,888 billion would be a modest 13 percent less than Obama’s proposed spending that year. That’s a useful statistic to remember when you read the inevitable stories about how Ryan would slash, burn, and pillage the government safety net.
  • Indeed, Ryan’s proposed increase in federal spending from $3,624 billion this year to $4,888 by 2022 represents fairly robust annual average growth of three percent.
  • As a share of GDP, the Ryan budget would trim outlays from 23.4 percent this year to 19.8 percent by 2022. That reduction would simply get spending back to around the normal historical level. And note that spending would still be higher than the 18.2 percent achieved in the last two years under President Clinton.
  • Ryan would repeal the 2010 health care law and reform Medicare by transitioning to a consumer-choice model. Those changes are expected to reduce annual outlays in 2022 by $258 billion.
  • Perhaps a more important proposal is the block-granting of Medicaid and other entitlement programs such as food stamps. Those Ryan reforms would save $313 billion annually by 2022.
  • Converting entitlements to block grants would allow the federal government to clamp down on federal costs while giving the states strong incentives to improve program efficiency.
  • The Ryan budget does not propose Social Security reform. Paul Ryan favors major reforms to this program, but he apparently thinks that reforming health care and other entitlements is a higher priority right now.
  • Aside from a few obvious targets—such as high-speed rail and the 2010 health care law—the Ryan budget shies away from abolishing specific programs, agencies, and departments.
  • Too often the Ryan budget proposes to fix broken programs when the proper reform would be elimination. Ryan proposes to “consolidate” federal job-training programs, for example, but these programs have a history of failure over the last five decades. Furthermore, job training is not a proper federal role within the U.S. constitutional structure.

In sum, Ryan’s proposals would make modest reforms to the giant federal welfare state. By Washington standards the Ryan plan is bold, and Paul Ryan certainly deserves his reputation as the sharpest and most energetic budget reformer on Capitol Hill.

However, there is too much happy talk in the Ryan plan about how failed big-government programs can be made to work better, and not enough focus on terminating activities that are properly state, local, and private in nature.

P.S. I think my budget-cutting plan is a better one.

You Keep Using the Word ‘Affordable.’ I Do Not Think It Means What You Think It Means.

The federal government gave a $10 million “affordability” prize to a giant corporation for manufacturing a $50 lightbulb. The Washington Post:

The U.S. government last year announced a $10 million award…for any manufacturer that could create a “green” but affordable light bulb.

Energy Secretary Steven Chu said the prize would spur industry to offer the costly bulbs…at prices “affordable for American families.”…

Now the winning bulb is on the market.

The price is $50.

Retailers said the bulb, made by Philips, is likely to be too pricey to have broad appeal. Similar LED bulbs are less than half the cost.

This is the same federal government that refers to ObamaCare, which costs more than $6 trillion, as the “Affordable Care Act.”

The Pentagon Budget: Myth vs. Reality

Over the past few weeks, a number of pernicious myths have popped up regarding the Pentagon’s budget. Here I want to dispel these myths with an exhaustive, and exhausting, look at the details. The charts below, compiled with my colleague Charles Zakaib, should help.

The President’s Budget officially requests $613.9 billion for the Pentagon FY 2013, broken down between $525.4 billion in the Pentagon’s base budget, and another $88.5 billion for Overseas Contingency Operations (OCO)—mainly the war in Afghanistan. This compares to a base budget and OCO of $530.5 billion and $115.1 billion, respectively, for FY 2012. (For other good overviews, see Chris Hellman’s analysis for the National Priorities Project; and Carl Conetta’s “Keeping Pentagon Cuts in Perspective” [.pdf] for the Project on Defense Alternatives).

There are, however, other costs in the budget that should be lumped under the rubric of national defense. For starters, there is about $33 billion in the non-Pentagon portion of what is official classified as “national defense.” Aside from the Pentagon and the wars, that includes the cost of the nation’s nuclear weapons (chiefly within the Department of Energy), and some mandatory spending not captured in the DoD base budget and OCO figures shown above. That brings requested defense spending to $647.4 billion. In addition, as Winslow Wheeler of the Center for Defense Information points out, the Obama administration has requested $137.7 billion for Veterans Affairs, and $46 billion for homeland security (that’s a government-wide total compiled by the Office and Management and Budget, excluding the defense portion). Wheeler also points to another $29.4 billion in military retirement and DoD retiree health care costs (these show up under budget functions 550, 650, and 950). All the items above total about $860 billion.

Americans likely spend even more on things loosely connected to national security. For example, there might be some additional intelligence spending that is not captured in the above numbers. Wheeler suggests that we should also count the International Affairs budget ($69.8 bn), and the DoD’s portion of interest on the debt ($63.7 bn). According to Wheeler’s calculations, the actual “defense” budget proposed for 2013 weighs in at a whopping $994.3 billion.

In the charts below, however, I have chosen to focus solely on the Pentagon’s base budget, excluding the wars, and the various other costs mentioned above that are not counted under the “National Defense” budget function (aka 050 for budget geeks).

Chart 1 shows different baseline projections for DoD spending, beginning with President Bush’s final budget in FY 2009 (the dark red line). All are shown in constant 2012 dollars. The President’s Budget for FY 2013, the bright pink line, will average $517 billion over the next decade. The ten-year projections from his earlier budget requests for FY 2011 and FY 2012 are shown as dark blue and light blue, respectively. The dark green line shows the budget levels dictated by the sequestration provisions of last year’s Budget Control Act.

At first glance, the changes appear to be quite significant. The administration claims that its budget achieves $486.9 billion in savings by 2021, but that is in nominal dollars, and measured against the FY 2012 baseline. By my calculations, the gap between the top line shown in the chart (FY 2011) and the most recent request accumulates to $667 billion in real, inflation-adjusted savings over nine years.

Either way, it looks as though a lot of money has been shaved off the budget. Taxpayers and deficit hawks should be pleased. The “defending defense” crowd is appalled.

But there is less here than meets the eye (or more, depending on your perspective). The following three charts show how the Pentagon’s base budget compares to the past 15 years, and the past 35 years. In all cases, the figures are shown in constant, FY 2012 dollars.

The first shows that the Pentagon’s budget, according to the Obama administration’s projections, will average $517 billion over the next decade, slightly more than what we spent in 2008 ($511 bn), and 38 percent more than we spent in 1998 ($375 bn).

The second chart below displays the new projections in a wider historical context, going all the way back to 1976. We spent, on average, $523 billion during the Reagan Era (1981-1990).

Finally, I have included one chart that shows all of these figures, from 1976 to 2022 against a Y-axis starting at $0. Starting the axis at $300 billion (as I have done in the other charts in order to differentiate the projected baselines) can produce the visual effect of apparent sharp increases or declines, when in fact most of these have been quite modest.

The bottom line? People may disagree about whether national security threats are more urgent today, and therefore require much more money than we spent in the 1980s to defeat the Soviet Union. For my part, I have long argued we are vastly safer than we were a generation ago. But it isn’t accurate to say that the Pentagon’s budget has been gutted or cut to the bone.

‘Even Though Earmarks Are Gone, There Are Still Billions of Dollars Available’

That quote from a local government official in California sums up why banning earmarks won’t do much to rein in the size and scope of the federal government. The quote comes from a McClatchy Newspapers article on lobbying expeditions to Washington undertaken by local government officials who want federal taxpayers to pick up the tab for projects in their backyards.

From the article:

[Fresno County supervisor Henry] Perea has joined 19 other Fresno County business, academic and political leaders in this week’s three-and-a-half day lobbying venture on behalf of transportation and other projects. Separately, a four-member delegation from the Merced County city of Livingston also is on the prowl.

Billed under the unifying ‘One Voice’ banner, the Fresno County wish list ranges from a transportation bill that might help improve State Route 99 to assistance with controlling air pollution and streamlining environmental reviews for roadwork…

Underscoring the potential regional competition, four representatives from Livingston are separately making the rounds this week in their own search for federal assistance.

‘We want to hit up some congressmen,’ Livingston Mayor Rodrigo Espinoza said Monday.

Federal grants, too, are part of the Livingston delegation’s agenda, with city officials targeting a variety of potential opportunities, including funding, to help nurture a downtown cultural arts district.

If local officials in Livingston want funds for a cultural arts district, then they should be traveling around Livingston “hitting up” local taxpayers to pay for it. But with “billions of dollars” available in Washington, why would Livingston officials take the politically unpleasant route of asking their voters to foot the bill? Of course, federal policymakers are typically only too happy to oblige because they’ll get to attend the ribbon cutting ceremony and brag about their ability to bring home the bacon. Meanwhile, the federal taxpayer continues to get soaked, the government’s debt mounts, and the Beltway Neros fiddle.

Bring home the bacon? But isn’t there an earmark ban? There is, but the programs that policymakers were earmarking money from still exist. That means that the federal dollars continue to flow; the only thing that changed is the course of the river. An earmark ban is good, but as I’ve repeatedly discussed, earmarks are only a symptom of the problem.

So let me make a suggestion to reporters: the next time you’re interviewing a federal policymaker who supports keeping the ban on earmarks, ask them if their staffers are helping the folks back home obtain federal grants, loans, etc. When they respond in the affirmative but argue that they’re merely making sure that their constituents receive their “fair share” of the loot, ask them how the federal government is supposed to get its finances in order if policymakers won’t stop putting parochial concerns ahead of the national interest. You might have to keep pressing, but eventually the hypocrisy will expose itself.

See this Cato essay for more on federal subsidies to state and local government.

Earmarks are a Symptom of the Problem

A Washington Post investigation identified dozens of examples of federal policymakers directing federal dollars to projects that benefited their property or an immediate family member. Members of Congress have been enriching themselves at taxpayer expense? In other news, the sun rose this morning.

According to the Post, “Under the ethics rules Congress has written for itself, this is both legal and undisclosed”:

By design, ethics rules governing Congress are intended to preserve the freedom of members to direct federal spending in their districts, a process known as earmarking. Such spending has long been cloaked in secrecy and only in recent years has been subjected to more transparency. Although Congress has imposed numerous conflict-of-interest rules on federal agencies and private businesses, the rules it has set for itself are far more permissive.

Lawmakers are required to certify that they do not have a financial stake in the actions they take. In the cases The Post examined, not one lawmaker mentioned that he or she owned property that was near the earmarked project or had a relative who was employed by the company or institution that received the earmark. The reason: Nothing in congressional rules requires them to do so, and the rules do not address proximity.

With the fox guarding the henhouse, the most one can hope to accomplish is to limit the carnage. Many pundits, politicians, and policy wonks argue that a permanent ban on earmarks would be an effective limit. Unfortunately, that’s just wishful thinking as earmarks are merely a symptom of the real problem: Congress can spend other peoples’ money on virtually anything it wants.

Take the example of Rep. Candace Miller (R-MI):

In Harrison Township, Mich., Rep. Candice S. Miller’s home is on the banks of the Clinton River, about 900 feet downstream of the Bridgeview Bridge. The Republican lawmaker said when she learned local officials were going to replace the aging bridge, she decided to make sure the new one had a bike lane.

“I told the road commission, ‘I am going to try to get an earmark for the bike path,’” Miller said, recalling that she said, “If we don’t put a bike path on there while you guys are reconstructing the bridge, it will never happen.”

A member of the House Transportation Committee, Miller in 2006 was able to secure a $486,000 earmark that helped add a 14-foot-wide bike lane to the new bridge. That lane is a critical link in the many miles of bike paths that Miller has championed over the years. When the bridge had its grand reopening in 2009, Miller walked over from her home.

“People earmark for all kinds of things,” she said. “I’m pretty proud of this; I think I did what my people wanted. Should I have told them, ‘We can never have this bike path complete because I happen to live by one section of it’? They would have thrown me out of office.”

Forget how the federal money made it to Harrison Township, Michigan. As I’ve discussed before, the more important concern is that the federal government is funding countless activities that are not properly its domain:

There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge.

As a taxpayer, it disgusts me that Rep. Miller steered federal dollars to a project in her district that she personally benefited from. But would I be any better off had the money for a bike path in Harrison Township, Michigan come from a grant awarded by the Department of Transportation?

If Harrison Township wanted a bike path, then it should have been paid for with taxes collected by the appropriate unit of local government. Better yet, a private group could have raised the funds. Either way, I don’t see how it’s possible to argue that the U.S. Constitution gives Congress the authority to spend taxpayer money on such activities. Invoking the General Welfare Clause doesn’t pass the laugh test as the bike path obviously doesn’t benefit the rest of the country. The Commerce Clause? Please.

For more on why the federal government should stop subsidizing activities that are properly the domain of the state and local government, see this Cato essay on fiscal federalism.

New Congressional Budget Office Numbers Once Again Show that Modest Spending Restraint Would Eliminate Red Ink

Back in 2010, I crunched the numbers from the Congressional Budget Office and reported that the budget could be balanced in just 10 years if politicians exercised a modicum of fiscal discipline and limited annual spending increases to about two percent yearly.

When CBO issued new numbers early last year, I repeated the exercise and again found that the same modest level of budgetary restraint would eliminate red ink in about 10 years.

And when CBO issued their update last summer, I did the same thing and once again confirmed that deficits would disappear in a decade if politicians didn’t let the overall budget rise by faster than two percent each year.

Well, the new CBO 10-year forecast was released this morning. I’m going to give you three guesses about what I discovered when I looked at the numbers, and the first two don’t count.

Yes, you guessed it. As the chart illustrates (click to enlarge), balancing the budget doesn’t require any tax increases. Nor does it require big spending cuts (though that would be a very good idea).

Even if we assume that the 2001 and 2003 tax cuts are made permanent, all that is needed is for politicians to put government on a modest diet so that overall spending grows by about two percent each year. In other words, make sure the budget doesn’t grow faster than inflation.

Tens of millions of households and businesses manage to meet this simple test every year. Surely it’s not asking too much to get the same minimum level of fiscal restraint from the crowd in Washington, right?

At this point, you may be asking yourself whether it’s really this simple. After all, you’ve probably heard politicians and journalists say that deficits are so big that we have no choice but to accept big tax increases and “draconian” spending cuts.

But that’s because politicians use dishonest Washington budget math. They begin each fiscal year by assuming that spending automatically will increase based on factors such as inflation, demographics, and previously legislated program changes.

This creates a “baseline,” and if they enact a budget that increases spending by less than the baseline, that increase magically becomes a cut. This is what allowed some politicians to say that last year’s Ryan budget cut spending by trillions of dollars even though spending actually would have increased by an average of 2.8 percent each year.

Needless to say, proponents of big government deliberately use dishonest budget math because it tilts the playing field in favor of bigger government and higher taxes.

There are two important caveats about these calculations.

1. We should be dramatically downsizing the federal government, not just restraining its growth. Even if he’s not your preferred presidential candidate, Ron Paul’s proposal for an immediate $1 trillion reduction in the burden of federal spending is a very good idea. Merely limiting the growth of spending is a tiny and timid step in the right direction.

2. We should be focusing on the underlying problem of excessive government, not the symptom of too much red ink. By pointing out the amount of spending restraint that would balance the budget, some people will incorrectly conclude that getting rid of deficits is the goal.

Last but not least, here is the video I narrated in 2010 showing how red ink would quickly disappear if politicians curtailed their profligacy and restrained spending growth.

Other than updating the numbers, the video is just as accurate today as it was back in 2010. And the concluding message—that there is no good argument for tax increases—also is equally relevant today.

P.S. Some people will argue that it’s impossible to restrain spending because of entitlement programs, but this set of videos shows how to reform Social Security, Medicare, and Medicaid.

P.P.S. Some people will say that the CBO baseline is unrealistic because it assumes the sequester will take place. They may be right if they’re predicting politicians are too irresponsible and profligate to accept about $100 billion of annual reductions from a $4,000 billion-plus budget, but that underscores the core message that there needs to be a cap on total spending so that the crowd in Washington isn’t allowed to turn America into Greece.