Topic: Tax and Budget Policy

Improve Government: Repeal Aid to States

James L. Buckley’s new book, Saving Congress from Itself, examines federal aid-to-state programs. The federal government spends more than $600 billion a year on 1,100 such programs for education, welfare, and many other state and local activities.

The whole system is a damaging mess, and Buckley proposes in his book that Congress “eliminate all federal grants-in-aid to state and local governments.” That action would “have a profound effect on how we govern ourselves.” A profoundly positive effect, that is, which is a bold claim, but I’ve come to the same conclusion in my writings on the aid system (here, here, and here).   

Buckley’s analysis is grounded in his distinguished career as a U.S. senator from New York, a judge on the U.S. Court of Appeals for the D.C. Circuit, and a high-level Reagan administration official. He argues that repealing aid-to-state programs would free the federal government to focus on truly national matters, put the government on sounder financial footing, and improve the ability of states to increase the quality and efficiency of their own programs.

Buckley’s book is a fairly quick read at 95 pages, but he hits the key legal and practical problems with aid to the states. Buckley believes, as I do, that the aid system is a hidden, or at least underexamined, factor steadily corroding the quality of American governance, particularly since the aid expansion of the 1960s. He notes, for example: “Congress’s current dysfunction is rooted in its assumption, over the years, of more responsibilities than it can handle. As a result, its members now live a treadmill existence that no longer allows them time to study, learn, and think things through. Instead, they substitute political reflex for thought.”

Federal aid is not the free lunch that state governments think it is. Nonetheless, a free lunch is available to you this Monday: please join James Buckley, Roger Pilon, and me at a Capitol Hill forum on December 1 to discuss the book. Details are here.

Latest Essays in Cato’s Growth Forum

Today we add the following essays to Cato’s online growth forum:

1. Enrico Moretti wants to increase the R&D tax credit.

2. Daniel Ikenson calls for more foreign investment.

3. Scott Sumner argues for better monetary policy based on nominal GDP targeting.

4. Don Peck worries about growing dysfunction in the middle class.

5. William Galston offers a potpourri of proposals for faster, more inclusive growth.

6. David Audretsch highlights the central importance of entrepreneurship.

The remaining essays will posted next week.

Why Do Some Advocates of Small Government Want to Keep a Democrat Appointee at CBO?

Since I’ve accused the Congressional Budget Office of “witch doctor economics and gypsy forecasting,” it’s obvious I’m not a big fan of the organization’s approach to fiscal analysis.

I’ve even argued that Republicans shouldn’t cite CBO when the bureaucrats reach correct conclusions on policy (at least when such findings are based on bad Keynesian methodology).

So nobody should be surprised that I think the incoming Republican majority should install new leadership at CBO (and the Joint Committee on Taxation as well).

So why, then, are some advocates of smaller government - such as Greg Mankiw, Keith Hennessey, Alan Viard, and Michael Strain - arguing that Republicans should keep the current Director, Doug Elmendorf, who was appointed by the Democrats back in 2009?

Before answering that question, let’s look at some of what was written today for the Washington Post’s Wonkblog.

Today in Cato’s Growth Forum

Cato’s special online forum on reviving growth continues today with the following new essays:

1. Morris Kleiner makes the case against occupational licensing.

2. Tim Kane calls for more immigration.

3. Alan Viard advocates moving to a progressive consumption tax.

4. Donald Marron argues for a carbon-corporate tax swap.

New in Cato’s Online Growth Forum

Here are the newest essays in the Cato Institute’s online forum on reviving growth:

1. Ramesh Ponnuru offers three ideas – on taxes, patents, and money.

2. William Gale argues for getting our fiscal house in order.

3. Jeff Miron proposes cuts in health insurance subsidies.

4. Adam Thierer calls for a culture of permissionless innovation.

Fraud in the Defense Department

The wars in Iraq and Afghanistan cost more than $1 trillion with billions going to Department of Defense (DoD) contractors. All of that spending has led to a large uptick in waste and fraud.

As much as $60 billion has been wasted on U.S. operations in those two countries, according to analysis from the Commission on Wartime Contracting in Iraq and Afghanistan. The Justice Department has brought more than 235 criminal cases since 2005.

The Associated Press highlights some examples:

In the past few months alone, four retired and one active-duty Army National Guard officials were charged in a complex bribery and kickback scheme involving the awarding of contracts for marketing and promotional material, and a trucking company driver pleaded guilty to bribing military base employees in Georgia to obtain freight shipments — often weapons which required satellite tracking — to transport to the West Coast.

More recently, a former contractor for the Navy’s Military Sealift Command, which provides transportation for the service, was sentenced to prison along with a businessman in a bribery case in which cash, a wine refrigerator and other gifts traded hands in exchange for favorable treatment on telecommunications work. Also, three men, including two retired Marine Corps officers, were charged with cheating on a bid proposal for maintenance work involving a helicopter squadron that serves the White House.

The story continues on with the long list of abuses:

Defense contractor Leonard Francis was arrested in San Diego last year on charges that he offered luxury travel, prostitutes and other bribes to Navy officers in exchange for confidential information, including ship routes. Prosecutors say he used that information to overbill the Navy for port services in Asia in one of the biggest Navy bribery schemes in years. Ethan Posner, a lawyer for Francis, declined comment.

Yet many others involve more mundane cases of contracting or procurement fraud. Consider the trucking company contractor in Afghanistan who bribed an Army serviceman to falsify records to show fuel shipments that were never delivered, or the former Army contractor who demanded bribes before issuing orders for bottled water at a military camp in Kuwait.

According to the story, the Defense Department acknowledges the issue and is working to improve the situation. But if this report is any indication, DoD has a long way to go.

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