Tag: federal spending

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.

Senator Schumer’s Feeble Grasp of Fiscal History

I’m not a big fan of Senator Schumer of New York. As I’ve noted before, he’s a doctrinaire statist who wants the government to have control over just about every aspect of our lives.

But that describes a lot of people in Washington. I guess what also bothers me is his willingness to say anything, regardless of how divorced it is from reality, to advance his short-run political agenda (sort of a Democrat version of Karl Rove).

For example, here’s part of what the Empire State  Senator recently had to say about fiscal policy, as reported by a Washington Post columnist.

Schumer said, “…Republicans came in and said, `We can solve your problem by shrinking government’…We tried their theory…The American people resent government paralysis, but most of them would say that government is doing too little to help them, not too much.”

What’s remarkable about this statement is that it’s so inaccurate that we can’t even decipher what he means. I’ve come up with three possible interpretations of what he might have been trying to say, and they’re all wrong.

1. He’s referring to GOP actions this year. This interpretation might make partial sense because the House Republicans have made a few semi-serious efforts to shrink government, but how can Schumer say “we tried their theory” when every Republican initiative was blocked by the Senate and Obama?

The Ryan budget died of malign neglect since the Senate didn’t even bother to produce a budget, and Republican efforts on the 2011 spending levels and the debt limit also were stymied, resulting at best in kiss-your-sister deals.

2. He’s referring to GOP actions during the Bush Administration. This interpretation might make some sense because the GOP did control the House, the Senate, and the Presidency, but does Schumer understand that “shrinking government” was not part of the Republican agenda during those years?

But don’t believe me. The numbers from the Historical Tables of the Budget unambiguously show that the federal budget almost doubled during the Bush years because of huge increases in domestic spending.

3. He’s referring to GOP actions during the 1990s. This interpretation actually does make sense because the burden of the public sector did shrink as a share of GDP during the Clinton years when Republicans controlled Congress, so it would be accurate to say “we tried their theory.”

But what was so bad about the era of spending restraint during the 1990s? The economy expanded and people were better off, in large part because, to quote Schumer, government was “doing too little to help them.”

Heck, the Clinton-GOP Congress years were so good that I even offered, during a debate on national TV, to go back to Clinton’s higher tax rates if it meant we also could undo all the reckless spending of the Bush-Obama years.

This doesn’t mean I’ve stopped caring about low marginal tax rates. It just means that I understand that the ultimate tax is the burden of the public sector. This video explains more, in case you’re wondering why I’d like to go back to the 1990s.

It goes without saying (but I’ll say it anyhow) that it would be even better to combine Clinton’s spending levels with Reagan’s tax rates.

Looking for Serious Program Terminations

The House passed a bill last week eliminating the Presidential Election Campaign Fund, which the Tax Foundation calls a “voluntary tax that stirs little enthusiasm.” It would also save a whopping $14 million by eliminating the Election Action Committee and transferring certain functions to other federal agencies.

The Republican-sponsored bill passed on a straight party-line vote with the exception of Rep. Walter Jones’ (R-NC) no vote. Eliminating the fund would result in the transfer of $200 million to the U.S. Treasury for deficit reduction. From a fiscal standpoint, $200 million in deficit reduction isn’t even worthy of a yawn. And based on press reports, floor debate centered on whether Republicans were really just trying to disenfranchise Democratic voters. Seriously, didn’t the GOP leadership have anything more substantial to bring to the floor?

I went looking for bills introduced in the House that would eliminate programs. The conservative Republican Study Committee’s Sunset Caucus has a list of bills sponsored by their members that would cut spending (see here). Although there are some worthy bills that the GOP leadership ought to at least get to the floor, I wasn’t overwhelmed by the offerings.

One that did look particularly good is a bill from Rep. Duncan Hunter (R-CA) that would “eliminate ineffective and unnecessary federal education programs.” I’d say that describes the entire Department of Education. However, as soon as I saw the bill’s title – The Setting New Priorities in Education Spending Act – I immediately knew that it would be a joke. Sure enough, the Congressional Budget Office’s scoring of the bill shows that I was, unfortunately, correct:

H.R. 1891 would amend the Elementary and Secondary Education act of 1965 to eliminate more than 40 discretionary grant programs. For 2011, the Department of Education allocated $413 million in funding from amounts appropriated in the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10) to programs that would be eliminated by H.R. 1891. Under current law, however, the funds allocated to those programs may be used for other grant programs that would not be eliminated by the bill.

Because annual appropriations to the Department of Education can be used for other programs, enacting the bill would not have a significant effect on spending from the appropriation provided for 2011. Furthermore, the authorizations for all of the programs specified in the bill have expired, so CBO estimates the bill would have no impact on such authorization levels. However, savings would accrue – as compared to 2011 appropriations levels – if the total amounts provided in 2012 and subsequent years are lower than the current-year funding for the department.

Note to Duncan Hunter: Why bother?

Debate Needed on Nuclear Weapons Spending

Nuclear weapons have played a major role in U.S. force planning for many decades. But we have never had a thorough accounting of the total cost of these weapons, and we still don’t. (The best to date is probably this study by Stephen I. Schwartz and Deepti Choubey, but they don’t claim to capture every nickel spent on nuclear weapons.)

The Washington Post’s Glenn Kessler published a fact checker article earlier this week that challenged the claim that we would spend $700 billion on nuclear weapons over the next decade. Since then, other organizations have come forth to decry the lack of transparency within the nuclear weapons budget, and call for the government to do a much better job of documenting all of the costs associated with our many nuclear weapons programs. This would include an understanding of the full life-cycle costs for fissile material, warheads, and delivery vehicles, from design and development, to production, to retirement and waste removal and abatement. As with the rest of the Pentagon’s budget, which has never been subject to a complete audit of its assets and liabilities, the nuclear weapons portion (much of which resides in the Department of Energy) remains shrouded in secrecy.

I hope that the latest dust-up over what we are actually spending creates additional pressure on the bureaucracy to open up its books.

This an excerpted version of a longer post from “The Skeptics” at the National Interest.

It Goes Beyond the Supercommittee

Today Politico Arena asks:

Should Obama have led the supercommittee?

My response:

Whether or not Obama had led the supercommittee in its effort to trim a pittance from our federal deficits and debt, the effort was doomed from the start for the reasons committee co-chairman Jeb Hensarling stated in this morning’s Wall Street Journal:  “Ultimately, the committee did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society, the proper purpose and design of the social safety net, and the fundamentals of job creation and economic growth.”

Obama has proven himself clueless about economics from the time he first entered public life, as evidenced by the economic disaster surrounding him and his party. Their vision was soundly rejected by the voters a year ago. If it is rejected again a year from now, we may start the slow climb out of the hole that they, as well as Republicans who share their vision, have put us in. But if the voters give us a mixed result, it’s only a matter of time before our creditors exact the price of our economic irresponsibility. These lessons, the subjects of children’s books and learned lectures, are as old as humanity itself. We have only to heed them.

The Pentagon and Jobs

Desperate to fend off cuts in military spending, the defenders of the status quo are claiming that potential reductions included in the debt ceiling deal’s sequestration provision would result in huge job losses. In September, Leon Panetta suggested that cuts of up to $1 trillion would increase the nation’s unemployment rate by a full percentage point, and put up to 1.5 million people out of work.

Early last week, the Aerospace Industry of America (AIA) jumped in claiming that “more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions….”

The media picked up on the AIA’s press release, but their documentation was flimsy, at best: AIA offered up a five-page summary of the research conducted by George Mason University professor Stephen S. Fuller, and a video of the press conference in which Fuller, AIA CEO Marion Blakey, and Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, railed against the “devastating impact” (Blakey) of military spending cuts and the “economic turmoil” (Buffenbarger) that would result.

Yesterday, nearly seven weeks after the secretary issued his dire warning, Panetta’s office released the findings of a report from Interindustry Forecasting at the University of Maryland (INFORUM) to buttress their claims.

By then, the counteroffensive was already in full swing. Bill Hartung has one of the better assessments that I’ve seen because it includes Bill’s insight into the inner workings of the military-industrial complex, blended with his characteristic wit. The bottom line, he explains, is that the contractors are doing just fine, and they will be in the future. The claims of massive job losses are just the latest in a string of scaremongering tactics aimed at allowing them to hold onto their loot.

Other opinion writers and columnists have fixed on aspects of the jobs argument that suit their broader purpose. Paul Krugman pushed a predictably Keynesian line (all government spending is good, but non-military spending is better). Others pointed to the hypocrisy of the situational Keynesians, people who generally oppose government spending when it buys road and bridges, but who embrace military spending for its supposedly magical stimulative effects. These are the “believers in the military spending fairy,” explains Dean Baker at the Center for Economic Policy Research.

None of this debate is new. In the late 1940s, Keynesians assailed Harry Truman for questioning whether excessive military spending might drag down the economy. Nonsense, they said. We can afford much more spending, and it will have wonderful stimulative effects, to boot. Many of these same Keynesians claimed that Dwight Eisenhower’s fiscal restraint was forcing the country to fight the Soviets with one arm tied behind its back. (Truman eventually relented, which has earned him the undying respect and admiration of liberal and conservative hawks alike; Ike’s fiscal conservatism, by contrast, has generated only scorn from the same group).

Ronald Reagan was no Keynesian, but he seemed to agree with them when it came to military spending. “Defense is not a budget issue,” he said, “You spend what you need.” And yet, not even the Gipper spent as much as we do today on our military. We are spending more, in inflation-adjusted terms, than at any time since World War II. More than during Korea, more than during Vietnam, and more, even, than in the early 1980s. It is likely that total military spending will be lower in 2012 than 2011, but most of these savings will come from the troop reductions in Iraq and Afghanistan. The Pentagon’s base budget may yet emerge unscathed.

Military spending advocates routinely skirt around such inconvenient facts. Looking at absolute spending, even if adjusted for inflation, they say, obscures the reality that spending as a share of GDP is relatively modest, in historical terms. But the hawks can’t have it both ways: they can’t claim on the one hand that military spending constitutes a very small share of the total economy (and therefore we can spend as much, or more, with ease), and at the same time wail about the massive job losses that would result from cuts in military spending.

In the end, it all comes back to opportunity costs. Unless one believes that every dollar saved from the Pentagon’s budget will be thrown into a huge government money hole in the New Mexico desert, the reality is that at least some–and likely most–of the taxpayers’ dollars that are currently dedicated to the military could be better employed elsewhere. My preference would be for each of us to keep a bit more of the money that we earn, money that we will then choose to spend as we see fit. This new private spending would more than offset the cuts in government spending, given the government’s inherent inefficiencies, dead-weight losses, etc. Yes, some workers might lose jobs in the near term, but, as Gordon Adams notes, the economy has recovered from a number of previous military build downs, which were deeper and faster than those envisioned today.

Finally, we should embrace the discipline that even modest fiscal constraints can have on our grand strategy. The most “draconian” cuts envisioned under sequestration would take the military’s budget back to 2007 levels–hardly a “lean” year for the defense industry–but policymakers are likely to pay more attention to how they allocate resources if they perceive that they have less of them.

During his last few months as the Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen explained that the Pentagon had forgotten how to prioritize during more than a decade of ever-rising budgets. The White House and others in the national security community have as well. I’m confident that shrinking budgets will infuse a measure of prudence and restraint that is long overdue.

Cross-posted from the Skeptics at the National Interest.

Senate Spares Rural Development Subsidies

An amendment to a Senate appropriations bill introduced by Sen. Tom Coburn (R-OK) that would have reduced funding for rural development subsidies at the Department of Agriculture by $1 billion was easily voted down today. Only 13 Republicans voted to cut the program. Thirty-two Republicans joined all Democrats in voting to spare it, including minority leader Mitch McConnell (R-KY), ranking budget committee member Jeff Sessions (R-AL), and tea party favorite Marco Rubio (R-FL).

This was a business-as-usual vote that will receive virtually no media attention. However, it is a vote that symbolizes just how unserious most policymakers are when it comes to making specific spending cuts. That’s to be expected with the Democrats. On the other hand, Republicans generally talk a good game about the need to cut spending and they rarely miss an opportunity to criticize the Obama administration for its reckless profligacy. Republicans instead fall back on their support of a Balanced Budget Amendment and other reforms like biennial budgeting.

I think most Republicans are in favor of a BBA because they believe it gets them off the hook of having to name exactly what they’d cut. There are several reasons why Republican policymakers won’t get specific: 1) they really don’t want to cut spending; 2) they’re afraid of cheesing off special interests and constituents who benefit from government programs; 3) they’re more concerned with being in power and getting reelected; 4) they’re just plain ignorant of, or disinterested in, the particulars of government programs.

As for biennial budgeting, Republicans would have us believe that appropriating money every other year will give policymakers more time to conduct oversight of government programs. I think it’s another cop-out. Coburn’s office put out plenty of information on the problems associated with USDA rural development subsidies (see here). A Cato essay on rural development subsidies provides more information, including findings from the Government Accountability Office that are readily available to policymakers.

(Note: I worked for both Jeff Sessions and Tom Coburn.)