Topic: Tax and Budget Policy

Tim Kaine Scored Poorly on Cato Report

Presidential candidate Hillary Clinton has named Senator Tim Kaine as her running mate. Kaine was governor of Virginia from January 2006 to January 2010. I assessed Kaine on Cato’s fiscal report card in 2008, and he received a low grade of “D.”

I found:

Governor Kaine has campaigned vigorously to raise taxes and fees to fund higher transportation spending. In 2007, Kaine helped pass a large revenue package that included tax and fee increases, higher penalties for driving infractions, and the creation of regional taxing authorities within Virginia. The Virginia Supreme Court struck down the unelected tax authorities, and citizens hated the new driver penalties so much that they were repealed. Kaine supported a few tax cuts in 2007, including an increase in the bottom threshold of the individual income tax and a repeal of the estate tax. But in 2008, he is promoting an even bigger transportation plan that would increase taxes and fees by $1.1 billion annually, and he is advocating higher state borrowing to fund education and transportation. On spending, Kaine promoted a big increase in his first budget, but has favored greater restraint since then.

In Kaine’s first year, general fund spending jumped a remarkable 17 percent. But spending was flat the second year, and then declined 14 percent during Kaine’s final two years as the economy entered recession. Richmond Times-Dispatch columnist Bart Hinkle gives Kaine credit for the spending cuts, but notes, “it’s clear that Kaine would much rather have preferred to balance the state budget by raising taxes.”

That was probably true of many governors at the time facing declining revenues from the sour economy. But thanks to balanced budget requirements, general fund spending across the 50 states was cut 9 percent those two years that Kaine was cutting.

Politifact says that Kaine tried unsuccessfully to raise taxes by $4 billion, which is a lot of money for a mid-sized state. Researching Kaine two and half years into his term, I included net proposed tax increases of $1.1 billion in my report. I included only one of his proposed transportation funding packages because I didn’t want to double count. Politifact may have included multiple transportation packages in its tally. Also, my report did not cover Kaine’s $1.9 billion proposed income tax increase in 2009, which the Washington Post discusses here.

Hinkle calls Kaine an “affable ideologue.” That’s a good description of Trump running mate Mike Pence as well, whose fiscal ideology of spending restraint and tax cutting earned him an “A” from Cato.

Wasteful Spending for Trump to Cut

Presidential candidate Donald Trump says that he will balance the federal budget while also cutting taxes. Given that the gap between federal spending and revenues is more than $500 billion and rising, he is going to need lots of spending cuts to make that happen.

In his big speech last night Trump said:

We are going to ask every department head in government to provide a list of wasteful spending projects that we can eliminate in my first 100 days. The politicians have talked about this for years, but I’m going to do it.

That’s great. Here are 10 “wasteful spending projects” (with annual costs) that Trump should put in his 100-day elimination plan:

  • Farm subsidies, which enrich wealthy landowners and harm the environment, $29 billion.
  • Energy subsidies, which have been one boondoggle after another for decades, $5 billion.
  • The war on drugs, which wastes police resources and generates violence, $15 billion.
  • Federal aid for K-12 schools, which generates huge bureaucracy and stifles innovation, $25 billion.
  • Excess pay for federal workers, especially gold-plated retirement benefits, which should be cut 10 percent to save $33 billion.
  • Housing subsidies, which distort markets and damage cities, $37 billion.
  • Community development and rural subsidies, which is corporate welfare used for buying votes, $18 billion.
  • Urban transit and passenger rail funding, which is properly a local and private responsibility, $15 billion.
  • Obamacare exchange subsidies and Medicaid expansion, which should be repealed along with the overall law, $200 billion a year by 2023.
  • TSA airport screening, which Trump said last night is “a total disaster,” and which should be devolved to local and private control, $5 billion.

Pervasive Misconduct and Corrosive Culture at the TSA

A new report from the House Homeland Security Committee lays bare the culture of misconduct that continues to plague the Transportation Security Administration (TSA), finding a surge in complaints and a pervasive lack of accountability at the agency.

This comes on the heels of another significant increase in cases of employee misconduct at the TSA, as a 2013 investigation from the Government Accountability Office (GAO) reported a 27 percent increase from fiscal years 2010 to 2012. In response to that earlier report and the GAO’s related finding that the TSA did “not have the process in place to adequately address it,” the TSA installed adopted many of the GAO’s recommendations for investigating misconduct in an attempt to finally bring some effective oversight and accountability to the troubled agency.

Despite those efforts, there has been no slowdown in the surge of misconduct allegations filed against TSA employees: misconduct complaints increased by 28.5 percent from fiscal year 2013 to 2015 while the number of full-time equivalent employees grew by only 1.6 percent.

These allegations range from relatively mundane but still troubling offenses like a failure to follow instructions and failure to report to duty to more egregious cases like an officer being charged with facilitating human smuggling and allegations of sexual misconduct by officers.

The concerns go beyond just the sheer number of complaints or the recent surge, it’s that there are so many employees that have allegedly committed some form of misconduct multiple times: roughly 43 percent of the employees with a complaint had more than one, almost 5 percent had more than 5, and one ‘enterprising’ employee had 18 separate complaints during fiscal years 2013 to 2015.  Despite the long-recognized problems contributing to a culture prone to misconduct, there do not seem to be consequences for these TSA employees. As the report says “it appears as though minimal accountability is provided with certain employees engaged in ongoing misconduct.”

Number of Complaints among Employees with Filed Complaints, FY 2013-2015

 

Source: Homeland Security Committee.

This recent surge in complaints might be due to the perception that allegations of misconduct will not be thoroughly investigated, and this does not seem to be baseless: even as the number of complaints increased substantially, the number of investigations over this same period declined by 15 percent, while the number of investigations closed fell by 28 percent. Even within the shrinking pool of cases where the agency takes some action, fewer employees faced real consequences, as “TSA increased the use of non-disciplinary actions by almost 80 [percent], while it decreased the use of disciplinary and adverse actions by 14 [percent] and 23 [percent], respectively.” In most cases, TSA employees can think it is plausible that they can avoid being investigated should they have a complaint filed against them, and if there is ultimately a decision against them, the most likely reprimand will be non-disciplinary actions like counseling, guidance, or additional training.

Employees within the TSA who might have tried to bring attention to some of the agency’s problem may have faced some form of backlash, as almost a dozen individuals told staffers that  “certain senior leaders at TSA have reassigned employees to other locations around the country as retaliation for, in some cases, employees raising security concerns.” Far from moving towards more transparency and attempting to address the ongoing misconduct that seems to be so prevalent in the agency, some senior level employees could be undermining these efforts. Outside agencies and Congress have also lamented their limited ability to investigate these concerns because the agency has not been forthcoming with requested data.

Misconduct Allegations and Investigations, FY 2013-2015

 

Source: Homeland Security Committee.

Beyond these concerns about misconduct, other investigations have revealed the TSA to be ineffective and prone to security failures. My colleague Chris Edwards has an insightful policy analysis laying out the case for privatizing the TSA and following the lead of most airports in Europe and Canada that use private companies for screening procedures. As he explains, allowing competitive bidding to multiple companies could finally bring a degree of accountability to the sphere, something that is sorely lacking at the TSA. 

Tax Army Larger than U.S. Army

The Office of Management and Budget has released new data on the amount of time Americans spend complying with the federal tax code. Tax Foundation summarizes the data here.

Individuals and businesses spend 8.9 billion hours a year on federal tax paperwork, which is equivalent to 4.3 million people working full-time and year-round on this unproductive activity. That “tax army” is three times larger than our uniformed military of 1.4 million active duty service members.

The burden of tax paperwork can be expressed in dollars. Based on the average earnings of U.S. workers, Tax Foundation finds that federal tax paperwork imposes a $409 billion annual cost on the economy.

Mike Pence a Solid Fiscal Conservative

It looks like Indiana Governor Mike Pence may be chosen as Donald Trump’s running mate. On tax and budget matters, that would be a good choice. While Trump has followed an erratic approach to economic policy issues, Pence has been a solid fiscal conservative.

Cato scored Pence on the 2014 edition of the Fiscal Policy Report Card on America’s Governors. He was only one of four governors who received a grade of “A.” The report noted:

Mike Pence of Indiana has been a champion tax cutter, and he has held the line on spending. He signed into law a 2013 tax package that cut the individual income tax rate from 3.4 to 3.23 percent and repealed the state’s inheritance tax. In 2014 he approved cuts to the corporate income tax rate and to business property taxes, both of which will be phased in over time.

When Pence came to office in fiscal 2013, Indiana’s general fund spending was $14.25 billion. In fiscal 2017, it’s going to be about $15.56 billion. That translates into annual average growth of 2.2 percent, which is substantially less than the 50-state average over those years of 4.2 percent.

Look for a new Cato fiscal report card in October.

Oldsters vs. Youngsters

Ten years ago, if you walked down the street looking at faces passing by, you could have counted off “young, young, young, young, young, old …”. Fifteen years from now, if you do the same, it’s going to be “young, young, young, old …”.

That’s a striking bit of data included in new CBO budget projections. America has already grayed, but it’s nothing like what’s ahead. The number of old folks is going to soar over the next 20 years. The chart below shows that the ratio of oldsters (age 65+) to youngsters (age 20 to 64) is rising from 1-to-5 to more than 1-to-3. Is America ready for that radical shift?

The federal budget isn’t ready. Politicians have failed to reform oldster subsidy programs, with the sad result that the livelihoods of youngsters will be dragged down by an anchor of debt and taxes. The first, third, and fourth largest federal programs (Social Security, Medicare, Medicaid) transfer vast and increasing resources from young taxpayers to old retirees. There’s no justice in that, and social tensions will rise as the unfairness becomes ever more obvious in coming years.  

There is good news, however. When I’m flipping around radio stations in my car today, it’s teen pop, teen pop, teen pop, classic rock. But when I’m an oldster in the 2030s, it’s going to be classic rock, classic rock, classic rock. To me at least, that will be fair and just.

The Six Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

The Congressional Budget Office has just released the 2016 version of its Long-Term Budget Outlook.

It’s filled with all sorts of interesting data if you’re a budget wonk (and a bit of sloppy analysis if you’re an economist).

If you’re a normal person and don’t want to wade through 118 pages, you’ll be happy to know I’ve taken on that task.

And I’ve grabbed the six most important images from the report.

First, and most important, we have a very important admission from CBO that the long-run issue of ever-rising red ink is completely the result of spending growing too fast. I’ve helpfully underlined that portion of Figure 1-2.

And if you want to know the underlying details, here’s Figure 1-4 from the report.

Once again, I’ve highlighted the most important portions. On the left side of Figure 1-4, you’ll see that the health entitlements are the main problem, growing so fast that they outpace even the rapid growth of income taxation. And on the right side, you’ll see confirmation that our fiscal challenge is the growing burden of federal spending, exacerbated by a rising tax burden.

And if you want more detail on health spending, Figure 3-3 confirms what every sensible person suspected, which is that Obamacare did not flatten the cost curve of health spending.

Medicare, Medicaid, Obamacare, and other government health entitlements are projected to consume ever-larger chunks of economic output.

Now let’s turn to the revenue side of the budget.

Figure 5-1 is important because it shows that the tax burden will automatically climb, even without any of the class-warfare tax hikes advocated by Hillary Clinton.

And what this also means is that more than 100 percent of our long-run fiscal challenge is caused by excessive government spending (and the Obama White House also has confessed this is true).

Let’s close with two additional charts.

We’ll start with Figure 8-1, which shows that things are getting worse rather than better. This year’s forecast shows a big jump in long-run red ink.

There are several reasons for this deterioration, including sub-par economic performance, failure to comply with spending caps, and adoption of new fiscal burdens.

The bottom line is that we’re becoming more like Greece at a faster pace.

Last but not least, here’s a chart that underscores why our healthcare system is such a mess.

Figure 3-1 shows that consumers directly finance only 11 percent of their health care, which is rather compelling evidence that we have a massive government-created third-party payer problem in that sector of our economy.

Yes, this is primarily a healthcare issue, especially if you look at the economic consequences, but it’s also a fiscal issue since nearly half of all health spending is by the government.

P.S. If these charts aren’t sufficiently depressing, just imagine what they will look like in four years.

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