Tag: federal subsidies

Heritage Immigration Study and Government Spending

Conservative and libertarian scholars are clashing over the findings and political implications of the new Heritage Foundation immigration study. The study spans 92 pages and is jam-packed full of statistics and detailed calculations.

I’ll leave the immigration policy to my colleagues who are experts in that area. To me, the study provides a very useful exploration into how massive the American welfare state has become. Here are some highlights:

  • “There are over 80 of these [means-tested] programs which, at a cost of nearly $900 billion per year, provide cash, food, housing, medical, and other services to roughly 100 million low-income Americans.”
  • “The governmental system is highly redistributive … For example, in 2010, in the whole U.S. population, households with college-educated heads, on average, received $24,839 in government benefits while paying $54,089 in taxes … [and] households headed by persons without a high school degree, on average, received $46,582 in government benefits while paying only $11,469 in taxes.”
  • “Few lawmakers really understand the current size of government and the scope of redistribution. The fact that the average household gets $31,600 in government benefits each year is a shock.”

Total federal, state, and local government spending in 2010 was $5.4 trillion, or $44,932 per U.S. household. The figure of $31,600 in “benefits” is total spending less spending on public goods, interest, and government pensions.

A useful feature of the Heritage study is a breakdown of the $5.4 trillion in spending into six categories constructed by the authors. “Direct benefits” includes mainly Social Security and Medicare. “Pure public goods” includes programs such as defense and scientific research. “Population-based services” includes programs aimed at whole communities, such as police and highways. (Some of these also seem to be public goods). “Means-tested benefits” includes programs such as food stamps. Education includes both K-12 and college subsidies. “Interest and pensions” is the current costs of past spending, which includes servicing the debt and paying for government pensions. The chart shows spending in 2010.  

This spending breakdown is useful for thinking about the proper size of government. From a libertarian standpoint, governments ought to be spending only on public goods and population-based services, as a first cut. That would be $1.94 trillion, or just 36 percent of the current total of $5.4 trillion. As a percent of GDP in 2010, that would be spending of 14 percent, rather than current spending of 38 percent.

But some of the population-based services mentioned by the authors could be privatized, and spending on some of the public goods could be cut. So a good libertarian target might be less than 36 percent of current spending, or less than 14 percent of GDP.

The Heritage study is sparking a debate about what type of immigration reform the nation should have. But hopefully, it will also spur more discussion about the massive size of the American welfare state. Immigration is partly, or mainly, such a contentious issue because we have such a huge welfare state.

The study includes projections about how many trillions of dollars of government benefits will flow to immigrants and their children in the decades ahead. But conservatives and libertarians agree that we ought to cut trillions of dollars in benefits to immigrants and nonimmigrants alike.

So is there some common ground here? Can we work toward an immigration reform that cuts government dependency in general and downsizes the welfare state?

Subsidies for Electronic Medical Records Leads to Higher Medicare Bills

Government subsidies often produce unintended consequences. The latest example comes from the New York Times, which reports that federal subsidizes to encourage doctors and hospitals to use electronic billing and recording records are leading to larger Medicare bills. That means that taxpayers are taking a double hit even though policymakers claimed that electronic record-keeping would make health care delivery more efficient, and thus less costly.

From the article:

Over all, hospitals that received government incentives to adopt electronic records showed a 47 percent rise in Medicare payments at higher levels from 2006 to 2010, the latest year for which data are available, compared with a 32 percent rise in hospitals that have not received any government incentives, according to the analysis by The Times…

Some experts blame a substantial share of the higher payments on the increasingly widespread use of electronic health record systems. Some of these programs can automatically generate detailed patient histories, or allow doctors to cut and paste the same examination findings for multiple patients — a practice called cloning — with the click of a button or the swipe of a finger on an iPad, making it appear that the physicians conducted more thorough exams than, perhaps, they did.

Critics say the abuses are widespread. “It’s like doping and bicycling,” said Dr. Donald W. Simborg, who was the chairman of federal panels examining the potential for fraud with electronic systems. “Everybody knows it’s going on.”

The Times also notes that the subsidies are a bipartisan creation:

Both the Bush and Obama administrations have encouraged electronic records, arguing that they help doctors track patient care. When used properly, the records can help avoid duplicate tests and remind doctors about a possible diagnosis or treatment they had not considered. As part of the economic stimulus program in 2009, the Obama administration put into effect a Bush-era incentive program that provides tens of billions of dollars for physicians and hospitals that make the switch.

But some critics say an unintended consequence is the ease with which doctors and hospitals can upcode — industry parlance for seeking a higher rate of reimbursement than is justified. They say there is too little federal oversight of electronic records.

Of course, now that government has treated a problem by creating a new one, policymakers will argue for more spending on “oversight.” Money for that will come from taxpayers, which means yet another hit for the poor rubes who always get stuck paying for the politicians’ schemes.

See this Cato essay for more on fraud and abuse in Medicare and other government programs.

House Appropriations Chairman Hal Rogers on the Budget

Following the House’s passage of a six-month continuing resolution last week (my comments on the CR here), House Appropriations Committee Chairman Hal Rogers (R-KY) chatted about fiscal policy with a couple of reporters on C-SPAN. The interview did nothing to change my 2010 opinion that the House leadership handing Rogers the chairman’s gavel was “about as inspiring as re-heated meatloaf.”

While Rogers is correct that domestic discretionary spending represents a relatively small share of total spending (approximately 12 percent) and that entitlement spending is the bigger problem, his comment that “we’ve just about reached the bottom of the barrel” on such spending is a stretch. Domestic discretionary spending has dropped, but after a sizeable increase during the 2000s. And arguably more important than the dollar amount this category represents are the activities being funded. For example, the federal government shouldn’t be spending a dime on the Department of Education, which is mostly discretionary spending.

When it comes to the other side of the discretionary spending coin—military spending—Rogers parrots the standard GOP line that sequestration would be “disastrous.” That’s nonsense. Perhaps Rogers is worried that cuts to the bloated military budget will crimp his ability to dole out the goods to defense contractors back in his district (see, for example, Rogers’s $17,000 drip pan).

That leads to Rogers’s most galling comments. When asked about earmarks, the “Prince of Pork” bemoaned his alleged inability to help shovel taxpayer dollars to his district since the practice was halted two years ago. Rogers said that “it hurts me that I can’t advocate for that governmental unit that’s in some desperate need.” What hurts me is that Rogers has to nerve to cite the Constitution to justify legislative earmarking (i.e., Congress’s “power of the purse”). As my colleague Roger Pilon and I have noted, the debate over the power of the executive versus that of the legislative branch to spend is constitutionally relevant and important. As Roger says, however, “it’s the growth of spending, most on matters unauthorized by the Constitution that is far and away the larger problem.” Federal subsidies to state and local governments largely belong in the unauthorized category.

The ‘47 Percent’ and the Fundamental Attribution Error

There are a number of things wrong with Mitt Romney’s now infamous suggestion that the 47 percent of Americans who don’t pay federal income tax will automatically support larger government, because those “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them” can never be persuaded to “take personal responsibility and care for their lives.” For one, as both Matt Yglesias and Ezra Klein note, the people who aren’t paying income tax are overwhelmingly either college-aged or elderly retirees who aren’t making much taxable income, not able-bodied layabouts in their 30s and 40s. In other words, they’re mostly not some distinct parasite class, but rather ordinary, hard-working people who either already have paid or will soon be paying quite substantial taxes.

The deeper mistake, however, is what social psychologists have dubbed the “fundamental attribution error”: the nigh universal human tendency to ascribe actions and outcomes to immutable personal characteristics rather than situational factors. We assume too quickly that someone behaves kindly or callously because they are a “kind person” or a “callous person”—yet research suggests that minor variations in circumstances can elicit either type of behavior from the very same people.

Presumably there are some people out there who really do just shun responsibility and think others should work to provide them with life’s necessities—but it’s hard to believe they’re more than a very tiny fraction of the millions who depend in some way on government benefits. Most of them are just responding rationally to the circumstances of the world they live in. In a society where young people know they’ll soon be taxed to support educational subsidies, of course they’ll accept the government college loans they’ll later be expected to fund. In a society where the payroll taxes that support a government pension system leave workers with 15.3 percent less in their paychecks to save and invest for old age, of course they’re going to rely heavily on the system they’ve been paying into when they retire. But to infer that this reveals something about people’s desire for big government is a little like wondering why 18th century Americans were so much fonder of agriculture than we are. People mostly live in the world that’s presented to them.

This is an equal opportunity observation, however. Progressives, after all, often make essentially the same fallacious argument as Romney, though usually not put quite as offensively: if you benefit from government largesse—whether in the form of direct supports like Social Security and Medicare, or because the state “generously” offers to spare your earnings through tax credits or deductions—then obviously you’re logically required to fall to your knees in gratitude, and you must be either confused or some kind of hypocrite if you perversely persist in supporting smaller government. Net recipients of government aid, in this view, ought to have the political commitments Romney wrongly ascribed to them.

All of this seems confused. People want goods like health care and financial security. In a social and political environment where those things are provided by government, people will accept them from government. In an environment where they’re provided by the private sector, people will acquire them privately. In the long run, the nature of the broader system will probably influence the frequency in the population of deeper character traits and dispositions like responsibility or resilience—but you can’t legitimately infer a whole lot about people’s preferences between systems from their behavior within systems.

Political Support for Energy’s Loan Guarantees

Several weeks ago, 127 House Republicans joined 155 Democrats to defeat an amendment introduced by Rep. Dennis Kucinich (D-OH) and Rep. Tom McClintock (R-CA) that would have shut down the Department of Energy’s Title 17 loan guarantee program. That’s the program that gave birth to Solyndra, which has come to symbolize the failure of the Obama administration’s crony capitalist policies.

Why would members of Congress, and Republicans in particular, continue to support this federal boondoggle incubator? A new paper from Cato adjunct scholar Veronique de Rugy that looks at the Energy loan guarantees explains:

One reason is it serves three powerful constituencies: lawmakers, bankers, and the companies that receive the subsidized loans. Politicians are able to use loan programs to reward interest groups while hiding the costs. Congress can approve billions of dollars in loan guarantees with little or no impact to the appropriations or deficit because they are almost entirely off-budget. Moreover, unlike the Solyndra case, most failures take years to occur, allowing politicians to collect the rewards of granting a loan to a special interest while skirting political blame years later when or if the project defaults. It’s like buying a house on credit without having a trace of the transaction on your credit report.

Veronique notes that most of the money for the loan guarantees issued under section 1705 of Title 17 have gone to large and established companies:

These include established utility firms, large multinational manufacturers, and a global real estate investment fund. In addition, the data shows that nearly 90 percent of the loans guaranteed by the federal government since 2009 went to subsidize lower-risk power plants, which in many cases were backed by big companies with vast resources. This includes loans such as the $90 million guarantee granted to Cogentrix, a subsidiary of Goldman Sachs. Currently, Goldman Sachs ranks number 80 on the list of America’s Fortune 500 companies.

In recent testimony before the House Budget Committee, Chris Edwards and I also discussed the crony nature of the president’s “green” energy subsidies:

President Obama’s green energy programs illustrate how corporate welfare creates corrupting relationships between businesses and politicians. The Washington Post found that “$3.9 billion in federal [energy] grants and financing flowed to 21 companies backed by firms with connections to five Obama administration staffers and advisers.” It also noted that the “main players in the Solyndra saga were interconnected in many ways, as investors enjoyed access to the White House and the Energy Department.” According to the New York Times, Solyndra “spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House.”

American businesses, of course, have a right to lobby the federal government. But given that reality, Congress throws fuel onto the corruption fire by creating business subsidy programs. When subsidy money flows out the door from Washington to businesses at the same time that money flows back from businesses to Washington for lobbying, it’s no surprise that we get influence-peddling. Corporate welfare undermines honest and transparent governance, and Americans are sick and tired of the inevitable scandals.

Unfortunately, most members of Congress apparently aren’t sick and tired of it.

Farm Pig-Out Moves Forward in the Senate

Republicans and Democrats have reached a deal that substantially increases the prospects for passage of a massive farm bill in the Senate. The Senate will vote on 73 amendments and then vote on passage. According to Senate Agriculture Committee chairwoman Debbie Stabenow (D-MI), the deal “is really an example of the Senate coming together to agree to get things done.”

It’s also an example of Republicans and Democrats coming together to fleece taxpayers. Chris Edwards and I noted this in an op-ed we penned yesterday for The Hill:

Pundits claim that partisanship is creating gridlock in Washington. But in the Senate, the two parties still know how to make bipartisan deals on big government subsidy legislation. That chamber may move ahead with a massive agriculture bill that would spend almost $1 trillion over the next decade. Supporters are calling it a “reform” bill because it would trim a measly two percent from projected spending over the period.

Sen. Stabenow crowed that “We are now closer than ever to achieving real reform in America’s agriculture policy.” Here’s our response to that claim:

This year, Farm Bill supporters are claiming that their bill represents major a “reform.” It is true that the Senate bill would end some types of subsidies, such as “direct payments.” However, it would replace them with new subsidies, such as a “shallow loss” program to deliver more aid if farm revenues fell below the high levels of recent years. This new program could end up costing as much or more than direct payments, and may cause more distortions to agricultural markets…Real reform would entail abolishing farm subsidy programs and not replacing them with anything—except with the natural entrepreneurial skills of farm businesses.

Assuming that Stabenow & Co. have to votes for passage, attention is going to turn to the Republican-controlled House. Edwards and I note that thus far Speaker John Boehner (R-OH) and his lieutenants have been silent on the Senate version of the farm bill, which is curious because the House leadership has made its intentions clear on other major bills that the Senate wants to pass before the November elections:

Perhaps the House leadership is hoping that the Senate bill goes down in flames before they have to make any decisions on it. After all, House Republicans that favor major cuts to farm subsidies will face internal opposition. The House Agriculture Committee chairman, for example, is Rep. Frank Lucas of Oklahoma, who is a National Association of Wheat Growers “Wheat Champion.” For the passage of the last major Farm Bill in 2008, 100 House Republicans helped the Democrats override President Bush’s veto of that spending monstrosity.

Now that it appears that the Senate bill won’t be going down in flames, here’s the big question:  Will the more conservative House go along with the taxpayer-funded farm pig out?

Agriculture Is Doing So Well (ergo We Must Subsidize It)

Farmer-friendly members of Congress are such a target-rich environment for ridicule when it comes to poor agriculture policy that it would be a full-time job just blogging about their utterances. So I try to spare you, most of the time. (You’re welcome.) But occasionally a quote passes my desk that is so ridiculous that I just have to share.

Senator Debbie Stabenow, chairwoman of the Senate Agriculture Committee and a Democrat (not that that matters) from Michican, yesterday made a statement that contains a pretty obvious logical fallacy:

“American agriculture represents a bright spot in our economy,” Chairwoman Stabenow said. “Agricultural exports are reaching record highs and American farmers and ranchers are continuing to outpace the rest of the world in productivity and efficiency. Sixteen million American jobs are supported by American agriculture, so it’s critical we pass the Farm Bill this year. We must provide farmers and small businesses the certainty they need to continue growing and helping the country’s economy recover.” [emphasis mine]

Which of course raises the question: If U.S. agriculture is doing so well, why do we need to subsidize it? To maintain those sixteen million jobs the Senator claims are supported by U.S. agriculture? Please. Research has shown a negative link between farm subsidies and rural development, including jobs creation (more here, including on rural subsidies more broadly). And the money for farm programs is extracted from the productive sector of the economy, at ensuing cost.

In the meantime, a non-subsidized sector of the U.S. farm sector is faring very well indeed. The popcorn industry is booming thanks to sales to Colombia following the U.S.-Colombia Free Trade Agreement, which came into effect last month. That hasn’t stopped Nebraska’s senators from asking for hand-outs on behalf of the industry, of course, but the lesson to me seems clear: freer trade, fewer subsidies. [HT: Andy Roth at the Club for Growth]

For more on Cato’s work on agriculture subsidies see here, here, here, here and here. And a whole lot more here.

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