Tag: federal subsidies

Response to Matthew Yglesias re: Uncle Sam’s $4 Million Bike Rack

In response to my criticism of the new federally-financed $4 million bike center set to open at Union Station in Washington, DC, Think Progress blogger Matthew Yglesias says:

I look forward to the day when the Cato Institute does a blog post denouncing each and every publicly financed parking lot or garage in the United States of America.

I’ll take that bait…sort of…

I denounce each and every federally financed parking lot or garage in the United States of America on non-federal property.  I’m one of those quaint individuals who recognizes that the Constitution grants the federal government specific enumerated powers.  Using federal tax dollars to finance local parking garages, lots, bike centers and racks is not one of the powers granted to the federal government.  So let me rephrase my statement from yesterday: Look, I harbor no animosity against [car drivers], but under what authority — legal or moral — does the federal government tax me in order to build [parking garages or lots] for parochial, special interests?

By the way, for an excellent study on the problems with federal subsidies to state and local government, please see my colleague Chris Edwards’ “Federal Aid to the States: Historical Cause of Government Growth and Bureaucracy.”

Here are a few additional random thoughts…

I know so-called “progressives” like Yglesias don’t lose sleep over how much money the federal government spends, but $4 million to park a hundred or so bikes?  As Chris Moody noted to me today, if bike security is the major issue, why not pay a guard $12 an hour to stand watch?bike rack

Isn’t it possible, just possible, that a bike center with even more racks could have been built for a lot less?  Isn’t that the question that people like Yglesias, who want more people on bikes and less in cars, should be asking?

I don’t see anything inherently governmental about building and operating parking garages or bike centers.  The absolutely sorriest, most poorly run parking garage system I’ve ever experienced is the one managed by the State of Indiana where I used to work.  I recall an overcrowding situation – exacerbated by lousy management – in which the solution put forward was to just build another garage.  Hey, someone else is going to pay for it so who cares, right?  I often tell people that young libertarians should spend a couple years working in the bowels of government in order to reinforce their belief system with hands-on experience.  I’m starting to think “progressives” and other unwavering fans of all-things-government should do the same.

Funding ACORN

The ACORN scandal provides a good opportunity for citizens concerned about profligacy in Washington to explore some of the tools available to find out where their tax money goes.

A good place to start your research is the Federal Audit Clearinghouse on the Census website. All groups receiving more than $500,000 a year from the government are required to file a report. Just type in “ACORN” as the entity and the system pops up the group’s filings. My assistant John Nelson summarized the federal programs and amounts received by ACORN in recent years:

2003

Housing Counseling Assistance $1,168,388

Community Development Block Grants $388,273

Home Investment Partnership $8,000

Self-Help Homeownership Opportunity $204,082

Fair Housing Initiatives Program $85,000

Total $1,853,743

2004

Housing Counseling Assistance $2,209,009

Community Development Block Grants $221,007

Home Investment Partnership Program $21,092

Self-Help Homeownership Opportunity $127,183

Fair Housing Initiatives Program $105,000

Total $2,683,291

2005

Housing Counseling Assistance $2,605,558

Community Development Block Grants $367,560

Self-Help Homeownership Opportunity $153,082

Fair Housing Initiatives Program $140,917

Total $3,267,117

2006

Housing Counseling Assistance $1,955,074

Self-Help Homeownership Opportunity $59,541

Rural Housing and Economic Development $47,619

Fair Housing Initiatives Program $150,000

Community Development Block Grants $238,809

Total $2,451,043

2007

Housing Counseling Assistance $1,813,011

Self-Help Homeownership Opportunity $46,608

Rural Housing and Economic Development $30,504

Fair Housing Initiatives Program $60,000

Community Development Block Grants $372,950

Total $2,323,073

My colleague, Tad DeHaven, has discussed why these HUD programs that funded ACORN ought to be abolished completely.

Subsidy information is also available from IRS Form 990, which is filed by all non-profit groups and compiled at Guidestar and other websites. I am not an expert on this data, but Velma Anne Ruth of ABS Community Research has done a detailed analysis, which she kindly sent to me. She finds that federal funding for ACORN was about $1.7 million in 2008 and about $2.2 million in 2009.

Finally, a user-friendly website to research recipients of federal grants and contracts is www.usaspending.gov.

ACORN’s share of overall federal subsidies is tiny, but as thousands of similar organizations have become hooked on 1,800 different federal subsidy programs, a powerful lobbying force has been created that propels the $3.6 trillion spending juggernaut. ACORN’s own website touts its lobbying success in helping to pass various big government programs. So cutting off ACORN is a start, but just a small start at the daunting task of cutting back the giant federal spending empire.

Kennedy’s Health Bill: A First Look

A draft of Sen. Ted Kennedy’s health care reform bill is finally available, and it is difficult to overstate how far he would move us to a government-run health care system. An initial read-through reveals among the key provisions:

  • An individual mandate, requiring that every American purchase a “qualified” insurance plan. (Sec. 161(a)) The mandate will be enforced through the tax code with Americans required to pay a penalty if they fail to comply.  In an extraordinary delegation of congressional authority, the Kennedy bill would give the Secretaries of Treasury and Health and Human Services the power to determine what this penalty should be. Individuals would be required to submit information on their insurance status over the previous year to the Secretary of HHS, along with “any such other information as the Secretary may require.” (Sec. 6055(b)(2) and (3)). Individuals who already have insurance could keep it. However, if they changed plans (or presumably changed jobs), their new insurance would have to meet the definition of “qualified.”
  • A “pay or play” employer mandate requiring employers to provide all workers with health insurance and pay a minimum amount of the premium, or pay a tax (Sec 162). Again, the amount of the new tax is left to the discretion of the Secretaries of HHS and Treasury. Some small employers would be exempt from the mandate, but the size of those firms remains TBA. (Sec. 3113(g)) Companies with fewer than 250 workers would be forbidden to self-ensure. (Sec. 2720)
  • A new federal bureaucracy, the Medical Advisory Council, which would determine what benefits will be required to be part of your “qualified” insurance plan. (Sec. 3103(h) and (i)). Lest anyone think Congress won’t get involved. The Council’s decisions can be disapproved by Congress if, say, they don’t mandate inclusion by a favored provider group or disease constituency. (Sec 3103(g)).
  • Massive new federal subsidies. Medicaid would be expanded to individuals earning 150 percent of the poverty level, and the federal government would pay all incremental costs of the increased enrollment. (Sec 152.) Single, childless adults would become eligible for Medicaid. Even more egregious, individuals and families with incomes between 150-500 percent of the poverty level ($110,250 for a family of four) would be eligible for subsidies on a sliding scale-basis.(Sec. 3111(b)(1)(A-G)).
  • Insurers would be required to accept all applicants regardless of their health (guaranteed issue) and forbid insurers from basing insurance premiums on risk factors (Community rating). There does not appear to be any exception for lifestyle factors, such as smoking, alcohol or drug use, diet, exercise, etc. Thus, not only will the young and healthy be forced to pay higher premiums to subsidize the old and unhealthy, but the responsible will be forced to pay more to subsidize the irresponsible.
  • A “public option” operating in competition with private insurance (Section 31__). How this plan would be funded, the level of premiums, etc. is left mostly TBA. In response to criticism, the Kennedy bill does require that the public plan pay providers 10 percent above Medicare reimbursement rates. (Sec 31__(B)). That would still allow for a considerable degree of cost-shifting to private insurance. And, we should recall that such promises are ephemeral. When Medicare began, proponents promised it would reimburse at the same rate as insurance. That promise didn’t last long.
  • States would be prodded to set up “gateways,” similar to Massachusetts’ “connector.” (Sec 3104(a)) If a state fails to do so, the federal government will set one up for them. (Sec. 3104(d)) The federal government would provide grants to states to help them set up these gateways. The amount of the grants is, you guessed it, left to the discretion of the Secretary of HHS. Gateways may also fund their operations by assessing a surcharge on insurers. Sec. 3101(b)(5)(A)/
  • A new federal long-term care program (Sec 171).

Kennedy does not include any estimate of how much his plan would cost, nor any proposal for how to pay for it.

More details will undoubtedly emerge, but it is very clear that the Kennedy plan would put one-sixth of the US economy and some of our most important, personal, and private decisions firmly under the thumb of the federal government.

Injustice of State Subsidies

My colleague Chris Edwards made a good point yesterday in his post on the injustice of federal subsidies.  The wrangling between the states to haul in the federal largesse is wasteful, and getting worse.  But the underlying issue in the article Chris cites — a state using taxpayer money to lure a company away from another state — is another wasteful activity that is all too common.

Instead of competing with other states to attract industry by lowering taxes and reducing regulations, it seems most state governors prefer a politically opportunistic method I call “press release economics.”  Here’s how it works:

A state “economic development” agency offers an out-of-state company (or even an out-of-country company) tax breaks and/or direct subsidies to locate some or all of its business operations in that state.  Most likely, the business would have located there anyhow due to myriad factors including demographics, transportation logistics, and workforce capabilities.  Sometimes several states will engage in a “bidding war” to get a business to set up shop within their borders.  The governor of the “winning” state will then issue a press release citing the new jobs and capital his administration has just brought to the state.  The locating company usually tells the press that the winning state’s package helped seal the deal.  The company and the governor’s press staff then typically arrange a photo-op at an orchestrated ground-breaking ceremony for the new facilities.

If a state is already bleeding jobs, as is often the case in the current economy, such press releases and photo-ops can be a political coup.  Moreover, the governor will have given up, or foregone, relatively little in tax revenue in comparison to, say, cutting the state corporate income tax.  This also leaves the governor with more money to spend on various vote-buying programs. I’m picking on governors, but the legislature generally prefers the press-release economics route for similar reasons.  And if you’re a governor, why risk the headache of engaging the legislature in a fight over reducing corporate taxes, unemployment taxes, or any other tax — including personal income taxes and sales taxes — that effect industry when you can take the easy win?

Am I too cynical?  Actually, I had first-hand experience with this issue when I worked in state government.  My suggestion that the governor eliminate or reduce the state’s high corporate income tax rate, and “pay for it” — at least in part — by getting rid of the state’s corporate welfare apparatus, was routinely ignored for the reasons I cited above.  That one would be hard-pressed to find support among the economics profession for the state corporate welfare give-away game means little to the majority of policymakers and their minions who naturally favor short-term political gain over long-term economic gain.  That other companies already located within the state are stuck paying the regular tax rate, and are thus put at a competitive disadvantage, is a secondary or non-concern as well.

Another issue that I won’t delve into here is the fact that these giveaways often blow up in a state’s face when the locating company ends up not producing the jobs it promised and/or it relocates to another state or country after pocketing the free taxpayer money.  Anyhow, journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.”  Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.

Note: South Carolina Gov. Mark Sanford proposed late last year to do exactly what I recommended: eliminate the state’s corporate income tax, offset in part by the elimination of corporate tax incentives.  There is hope.

Injustice of Federal Subsidies

Ohio lawmakers are hot under the collar about federal stimulus dollars possibly helping Georgia bid away one of its big employers. Here’s the Dayton Daily News:

NCR’s news release touting its decision to move jobs from Dayton to the Atlanta, Ga. suburbs includes one factoid that has Ohio lawmakers in a fury: The City of Columbus, Ga. plans to use federal stimulus dollars to buy a building and construct another to accommodate the 870 manufacturing jobs expected to come to the that Atlanta suburb. ‘The fact that economic stimulus dollars were used to move an Ohio company to Georgia at taxpayer expense is an outrage,’ said state Sen. Jon Husted.

Added U.S. Rep. Pat Tiberi, R-Columbus: “Federal stimulus money is being used to create winners and losers among workers in different states and that’s just not right; it’s dirty.”

All I can say to both parties is that’s what you get for building an imperial city on the Potomac and spending the last few decades destroying the constitutional principle of federalism. As I’ve described in this study, regional warfare over federal subsidies has escalated in recent years. It’s horribly wasteful, and it’s getting worse.