Tag: taxpayer

If There’s Money, We Want It! (Whatever “It” Is.)

There seems to be a real trend in Washington to declare support for a bill now, but actually have the bill exist later. It’s been most obvious in the health care marathon, where often purely notional pieces of legislation have been boisterously celebrated or bemoaned for months. It’s also the case with the Student Aid and Fiscal Responsibility Act, which may or may not be tacked on to health-care reconcilation because supporters don’t, you know, want to actually debate the thing. Currently, there is no Senate version of SAFRA, and it’s unclear what changes would need to be made to the House version to make it reconcilable.

So why are so many people willing to take big chances on legislation that only exists in the fertile minds of congresspeople? As this Inside Higher Ed article on community colleges illustrates, it’s often because they want taxpayer money – $12 billion is the community colleges’ hoped for windfall – no matter what:

Sensing the urgency of the moment on Capitol Hill, many community college advocates believe that budget reconciliation is the most likely route for passage of the AGI this year. They argue that time is of the essence for those community college trustees and presidents visiting town for the summit to lobby their representatives and senators without focusing on quibbles over the bill.

“I know there’s a lot of discussion for many of you [about] what’s in the program,” said Jee Hang Lee, ACCT director of public policy. “‘What’s in the final program for SAFRA? What’s in the final program for AGI? What is it going to look like?’ What we’ve heard is that, for the most part, the House and Senate staffs and the White House have something in place. I don’t know what it looks like. I don’t know many people who do know what it looks like. But they have a broad agreement on the structure of these programs, so that’s nice to know that they have because that means it’ll likely get funded.”

Still, he advised visiting trustees and presidents to be direct in their support for the bill and wait until later to work out potential kinks in its specific provisions.

“My point is that you just need to press hard to get this money and get it passed, and we can work out some of the details, I guess, later, I guess through the negotiated rule-making period,” Lee said.

Hmm. And I guess money grabs like these explain a good bit of why the national debt is now approaching $12.6 trillion.

Lessons from the Greek Budget Debacle

Fiscal crises have a predictable pattern.

Step 1 occurs when the economy is prospering and tax revenues are growing faster than forecast.

Step 2 is when politicians use the additional money to increase government spending.

Step 3 is that politicians do not treat the extra tax revenue like a temporary windfall and budget accordingly.Instead, they adopt policies - more entitlements, more bureaucrats - that permanently expand the burden of the public sector.

Step 4 occurs when the economy stumbles (in part because more resources are being diverted from the productive sector to the government) and tax revenues stagnate. If the resulting fiscal gap is large enough, as it is in places such as Greece and California, a crisis atmosphere is created.

Step 5 takes place when politicians solemnly proclaim that “tough measures” are necessary, but very rarely does that mean a reversal of the policies that caused the mess. Instead, the result in higher taxes.

Greece is now at this stage. I’ve already argued that perhaps bankruptcy is the best option for Greece, and I showed the data proving that Greece has a too-much-spending crisis rather than a too-little-revenue crisis. I’ve also commented elsewhere about the feckless behavior of Greek politicians. Sadly, it looks like things are getting even worse. The government has announced a huge increase in the value-added tax, pushing this European version of a national sales tax up to 21 percent. On the spending side of the ledger, though, the government is only proposing to reduce bonuses that are automatically given to bureaucrats three times per year. Here’s an excerpt from the Associated Press report, including a typically hysterical responses from a Greek interest group:

Government officials said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent. …One government official, speaking on condition of anonymity ahead of the official announcement, said…that “we have exhausted our limits.” …”It is a very difficult day for us … These cuts will take us to the brink,” said Panayiotis Vavouyious, the head of the retired civil servants’ association.

Now, time for some predictions. It is unlikely that higher taxes and cosmetic spending restraint will solve Greece’s fiscal problem. Strong global growth would make a difference, but that also seems doubtful. So Greece will probably move to Step 6, which is a bailout, though it is unclear whether the money will come from other European nations, the European Commission, and/or the European Central Bank.

Step 7 is when politicians in nations such as Spain and Italy decide that financing spending (i.e., buying votes) with money from German and Dutch taxpayers is a swell idea, so they continue their profligate fiscal policies in order to become eligible for bailouts. Step 8 is when there is no more bailout money in Europe and the IMF (i.e., American taxpayers) ride to the rescue. Step 9 occurs when the United States faces a fiscal criss because of too much spending.

For Step 10, read Atlas Shrugged.

Son of the Stimulus

Like the sequel to a horror film, the politicians in Washington just passed another stimulus proposal. Only this time, they’re calling it a “jobs bill” in hopes that a different name will yield a better result.

But if past performance is any indicator of future results, this is bad news for taxpayers. By every possible measure, the first stimulus was a flop. But don’t take my word for it. Instead, look at what the White House said would happen.

The Administration early last year said that doing nothing would mean an unemployment rate of nine percent. Spending $787 billion, they said, was necessary to keep the unemployment rate at eight percent instead.

So what happened? As millions of Americans can painfully attest, the jobless rate actually climbed to 10 percent, a full percentage point higher than Obama claimed it would be if no bill was passed.

The President and his people also are arguing that the so-called stimulus is responsible for two million jobs. Yet according to the Department of Labor, total employment has dropped significantly – by more than three million – since the so-called stimulus was adopted. The White House wants us to believe this sow’s ear is really a silk purse by claiming that the economy actually would have lost more than five million jobs without all the new pork-barrel spending. This is the infamous “jobs saved or created” number. The advantage of this approach is that there are no objective benchmarks. Unemployment could climb to 15 percent, but Obama’s people can always say there would be two million fewer jobs without all the added government spending.

To be fair, this does not mean that Obama’s supposed stimulus caused unemployment to jump to 10 percent. In all likelihood, a big jump in unemployment was probably going to occur regardless of whether politicians squandered another $787 billion. The White House was foolish to make specific predictions that now can be used to discredit the stimulus, but it’s also true that Obama inherited a mess – and that mess seems to be worse than most people thought.

Moreover, it takes time for an Administration to implement changes and impact the economy’s performance. Reagan took office in early 1981 during an economic crisis, for instance, and it took about two years for his policies to rejuvenate the economy. It certainly seems fair to also give Obama time to get the economy moving again.

That being said, there is little reason to expect good results for Obama in the future. Reagan reversed the big-government policies of his predecessor. Obama, by contrast, is continuing Bush’s big-government approach. Heck, the only real difference in their economic policies is that Bush was a borrow-and-spender and Obama is a borrow-and-tax-and-spender.

This raises an interesting question: Since last year’s stimulus was a flop, isn’t the Administration making a big mistake by doing the same thing all over again?

The President’s people actually are being very clever. Recessions don’t last forever. Indeed, the average downturn lasts only about one year. And since the recession began back in late 2007, it’s quite likely that the economic recovery already has begun (the National Bureau of Economic Research is the organization that eventually will announce when the recession officially ended).

So let’s consider the political incentives for the Administration. Last year’s stimulus is seen as a flop. So as the economy recovers this year, it will be difficult for Obama to claim that this was because of a pork-filled spending bill adopted early last year. But with the passing of a supposed jobs bill, that puts them in a position to take credit for a recovery that was already happening anyway.

That may be smart politics, but it’s not good economics. The issue has never been whether the economy would climb out of recession. The real challenge is whether the economy will enjoy good growth once the recovery begins. Unfortunately, the Obama Administration policies of bigger government – combined with the Bush Administration policies of bigger government – will permanently lower the baseline growth of the United States.

If America becomes a big-government welfare state like France, then it’s quite likely that we will suffer from French-style stagnation and lower living standards.

Public Schools = One Big Jobs Program

Who said public schooling is all about the adults in the system and not the kids? Everyone knows it’s even more basic than that: Public schooling is a jobs program, pure and simple. At least, that’s what one can’t help but conclude as our little “stimulus” turns one-year old today.

“State fiscal relief really has kept hundreds of thousands of teachers and firefighters and first responders on the job,” declared White House Council of Economic Advisers head Christina Romer today.

Throwing almost $100 billion at education sure as heck ought to have kept teachers in their jobs, and the unemployment numbers suggest teachers have had a pretty good deal relative to the folks paying their salaries. While unemployment in “educational services” – which consists predominantly of teachers, but also includes other education-related occupations – hasn’t returned to its recent, April 2008 low of 2.2 percent, in January 2010 it was well below the national 9.7 percent rate, sitting at 5.9 percent.

Of course, retaining all of these teachers might be of value to taxpayers if having so many of them had a positive impact on educational outcomes. But looking at decades of achievement data one can’t help but conclude that keeping teacher jobs at all costs truly isn’t about the kids, but the adults either employed in education, or trying to get the votes of those employed in education. As the following chart makes clear, we have added teachers in droves for decades without improving ultimate achievement at all:


(Sources: Digest of Education Statistics, Table 64, and National Assessment of Educational Progress, Long-Term Trend results)

Since the early 1970s, achievement scores for 17-year-olds – our schools’ “final products” – haven’t improved one bit, while the number of teachers per 100 students is almost 50 percent greater. If anything, then, we have far too many teachers, and would do taxpayers, and the economy, a great service by letting some of them go. Citizens could then keep more of their money and invest in private, truly economy-growing ventures. But no, we’re supposed to celebrate the endless continuation of debilitating economic – and educational – waste.

You’ll have to pardon me for not considering this an accomplishment I should cheer about.

Criminalizing Politics

Steve Poizner, the California insurance commissioner who is seeking the Republican nomination for governor, created a stir this week by charging opponent Meg Whitman’s campaign with attempting to coerce him out of the race. He said he had reported her campaign to state and federal law enforcement authorities.

What did Whitman actually do? Well, Poizner said that Whitman consultant Mike Murphy had contacted a Poizner staffer by phone and email to urge him to withdraw from the race. The email, released by Poizner, said: “I hate the idea of each of us spending $20 million beating on the other in the primary, only to have a badly damaged nominee. And we can spend $40 million tearing up Steve if we must; bad for him, bad for us, and a crazy waste to tear up a guy with great future statewide potential.” In the email, Murphy went on to suggest that if Poizner dropped out of the race before the June 8 vote, Whitman and her team would immediately get behind him for a 2012 challenge to Sen. Dianne Feinstein.

Poizner says that’s not only “strong-arm tactics” but possibly an illegal inducement to get him to withdraw. But isn’t this really just politics as usual? Don’t candidates as a matter of course say “support me this time, and I’ll support you next time” or “run for a different office and I’ll endorse you”? Presidential candidates, or their campaign managers, are often said to have promised the vice presidency to more than one rival to clear the field.

The point about spending $40 million of Republican money tearing up fellow Republicans is a pretty common complaint about party primaries. In fact, National Review correspondent John J. Miller raised just that concern about the Rick Perry-Kay Bailey Hutchison showdown in Texas.

Even during the Rod Blagojevich flap over “selling” a Senate seat, the always-provocative Jack Shafer and Jim Harper both asked, Isn’t this what politicians do? They make deals – including deals like “I’ll support your campaign if you’ll make my buddy (or me) a Cabinet secretary.” No doubt the promises are often worthless, but they still get made. Blagojevich and Murphy have reminded pols all over the country that such deals are better made in person, not via email or telephone.

Politics ain’t beanbag, Mr. Poizner. Accept the deal or reject it. But “let’s clear the field and spend our money fighting the other party” is pretty standard politics. And a darn sight better than another standard political practice, using the taxpayers’ money to bribe the voters to support you.

Obama Small Business Lending Fund Likely A Bust

President Obama has announced his intention to use $30 billion in TARP funds to create a new small business lending fund.  In all likelihood, this is $30 billion the taxpayers will never see returned.

First of all, the problem facing small business, outside of the massive uncertainty being created by Washington, is one of credit availability, not cost.  For those who can get credit, its quite cheap, arguably too cheap.  So if the president doesn’t intend to lower the cost of credit, the plan must be to lower the quality; using the $30 billion to cover expected credit losses.  Of course, we tried throwing lots of taxpayer money at unsustainable homeownership, is there any reason to believe throwing taxpayer money at unsustainable businesses is going to work any better?

Using TARP funds for this program is also somewhat disingenuous.  This program adds $30 billion to the deficit regardless of whether it’s funded by TARP or by Congressional appropriations.  Taking from the TARP only allows the President to keep treating the TARP as his personal slush fund.  Nowhere in the TARP legislation can you find language authorizing the use of funds to cover credit losses on new loans.  Being a constitutional scholar, the President should know very well that the spending power rests with Congress, not the President.  If we are to have a new small business lending program, it should be designed and funded by Congress, not bureaucrats at the Treasury Department.

Historically the two main sources of small business start-up funding have been home equity and credit cards.  Clearly the availability of home equity has declined.  Sadly as well, with the passing of credit card “reform” the availability of credit card lending has also declined.  If the President truly wants to help small business, then the first thing to do is ask Congress to repeal the credit card bill and then just get out of the way.

That’s Quite a Multiplier

Via Cato’s Director of Government Affairs, Brandon Arnold, comes this [$] bold claim by the National Journal’s Congress Daily (although, to be fair, they are just quoting the study):

U.S. wheat promotion programs increase sales more than programs for other grains and agricultural products, according to an analysis of wheat export programs released this week.

The study by Cornell University professor Harry Kaiser showed that for every dollar spent on wheat promotion, U.S. producers get $23 back in increased net revenue, Kaiser told U.S. Wheat Associates, which commissioned the study.

With that sort of return on “investment”, the U.S. government should devote all of its revenue to wheat promotion as an ultra-quick revenue raising measure. Right after they’ve bought the swampland in Florida that the U.S. Wheat Associates has to sell them.

Alternatively, since it is such a great deal, perhaps U.S. Wheat Associates should pick up all of the tab for the program, instead of saddling U.S. taxpayers with half the cost.