Topic: Tax and Budget Policy

Jeb Bush Almost Criticizes His Spendthrift Brother, Again

In New Hampshire yesterday, Jeb Bush found something to disagree with his brother’s presidency—sort of:

“I think that, in Washington during my brother’s time, Republicans spent too much money,” Mr. Bush said Thursday when asked to describe where there was a “big space” between himself and his brother George W. Bush. “I think he could have used the veto power. He didn’t have line-item veto power, but he could have brought budget discipline to Washington, D.C.”

As Peter Suderman noted in Reason, there’s some weaseling in there—it’s “Republicans” who spent too much, not specifically the Republican president. And Jeb quickly went on to say that such criticism “seems kind of quaint right now given the fact that after he left, the budget and deficits and spending went up astronomically.” Suderman notes that George W. Bush in fact

presided over the most significant increase in federal spending since Lyndon B. Johnson was president in the 1960s… Federal spending under Obama has increased at a far slower rate than under President Bush. Obama took Bush’s baseline and built on it, but George W. Bush’s spending increases were a big part of what made Obama’s spending possible.

Jeb had said this before—in fact, during his brother’s presidency. At CPAC in 2007, he said, “If the promise of pork and more programs is the way Republicans think they’ll regain the majority, then they’ve got a problem.” He said then that he was talking about the Republicans in Congress. And I noted then

But who’s he kidding? President Bush sponsored most of those “more programs,” and in six years he hasn’t vetoed a single piece of pork or a bloated entitlement bill or a new spending program. And if Jeb thinks “we lost … because we rejected the conservative philosophy in this country,” he must realize that his brother has set the agenda for Republicans over the past six years almost as firmly as Putin has set Russia’s agenda. If Republicans turned their back on limited-government conservatism, it’s because the White House told them to. Not that congressional leaders were blameless—and on Social Security reform, they did decide to resist Bush’s one good idea—but it was President Bush and his White House staff who inspired, enticed, threatened, bullied, and bully-pulpited Republicans into passing the No Child Left Behind Act, the biggest expansion of entitlements in 40 years, and other big-government schemes.

I also pointed out then, as Peter Suderman does today:

Although Jeb seems to have convinced conservatives that he’s much more committed to spending restraint than W—and he did veto some $2 billion in spending over eight years [as Florida governor]—his real record is much more like his brother’s. According to the Cato Institute’s Fiscal Policy Report Card on America’s Governors (pdf), he presided over “explosive growth in state spending.” Indeed, in the latest report card, only 10 governors had worse ratings on spending restraint, though—again like his brother—Jeb scored much higher on tax cutting. Federal spending is up 50 percent in six years; Florida’s spending was up 52 percent in eight years, and Jeb wasn’t fighting two foreign wars.

Republicans like to promise spending restraint, to deplore past profligacy, and then to deliver more of the same. That’s what George W. did, and it looks like Jeb is starting down the same path.

Fiscal Fights with Friends, Part I: Responding to Reihan Salam’s Argument against the Flat Tax

In my ultimate fantasy world, Washington wouldn’t need any sort of broad-based tax because we succeeded in shrinking the federal government back to the very limited size and scope envisioned by our Founding Fathers.

In my more realistic fantasy world, we might not be able to restore constitutional limits on Washington, but at least we could reform the tax code so that revenues were generated in a less destructive fashion.

That’s why I’m a big advocate of a simple and fair flat tax, which has several desirable features.

  • The rate is as low as possible, to minimize penalties on productive behavior.
  • There’s no double taxation, so no more bias against saving and investment.
  • And there are no distorting loopholes that bribe people into inefficient choices.

But not everyone is on board, The class-warfare crowd will never like a flat tax. And Washington insiders hate tax reform because it undermines their power.

But there are also sensible people who are hesitant to back fundamental reform.

Consider what Reihan Salam just wrote for National Review. He starts with a reasonably fair description of the proposal.

The original flat tax, championed by the economists Robert Hall and Alvin Rabushka, which formed the basis of Steve Forbes’s flat-tax proposal in 1996, is a single-rate tax on consumption, with a substantial exemption to make the tax progressive at the low end of the household-income distribution.

Though if I want to nit-pick, I could point out that the flat tax has effective progressivity across all incomes because the family-based exemption is available to everyone. As such, a poor household pays nothing. A middle-income household might have an effective tax rate of 12 percent. And the tax rate for Bill Gates would be asymptotically approaching 17 percent (or whatever the statutory rate is).

My far greater concerns arise when Reihan delves into economic analysis.

Privatize to Solve Government Cost Overruns

On large and complex government projects, costs will double from the original estimates. This tendency is called Edwards’ Law of Cost Doubling.   

The Wall Street Journal reports on the PATH rail station at the World Trade Center. Edwards’ Law was in effect:

… it has become a budgetary boondoggle, its cost doubling to nearly $4 billion, which gives it the unenviable distinction of the world’s most expensive train station.

Some people are blaming the project’s architect, Santiago Calatrava, for the problems. But, as I noted here, the real causes seem to have been political squabbling and mismanagement by the overgrown Port Authority of New York and New Jersey (PANYNJ). The WSJ notes:

But at the World Trade Center, Mr. Calatrava’s travails signal broader disharmony and discord at the country’s most recognizable construction project. The nearly 14-year effort—for which his firm has collected more than $80 million, according to a person familiar with the payments—has been marred by frequent public fighting between the governmental and private parties involved.

Bursting budgets throughout the 16-acre site have weighed heavily on the Port Authority of New York and New Jersey, the body that owns the site. The agency has delayed other projects like renovations of the region’s airports, and tolls on bridges and tunnels to New Jersey have more than doubled in recent years to raise revenue.

EPA’s Political Activism

Federal regulations are generally issued under a notice-and-comment process. A regulating agency releases a draft of a rule, the public provides comments on the draft, the agency reviews the comments, and then issues a final rule which incorporates public feedback.  

Outside groups can and do launch campaigns to encourage citizens to weigh in on proposed rules. But now it appears that a federal regulatory agency has been using grass-roots style activism and propaganda to push its own rules. The Environmental Protection Agency launched a lobbying campaign to encourage support for a major new rule on drinking water.

The New York Times reports:

Late last year, the EPA sponsored a drive on Facebook and Twitter to promote its proposed clean water rule in conjunction with the Sierra Club. At the same time, Organizing for Action, a grass-roots group with deep ties to Mr. Obama, was also pushing the rule. They urged the public to flood the agency with positive comments to counter opposition from farming and industry groups.

The piece continued:

The Thunderclap [a social media tool] effort was promoted in advance with the EPA issuing a news release and other promotional material, including a photograph of a young boy drinking a glass of water.

“Clean water is important to me,” the message said. “I want E.P.A. to protect it for my health, my family and my community.”

In the end, the message was sent to an estimated 1.8 million people, Thunderclap said.

The EPA advocacy campaign ginned-up more than one million public comments on the proposed water rule. Then Gina McCarthy, the EPA’s administrator, had the audacity to testify to the Senate that 87 percent of commenters supported the rule—as if that high percentage was actual spontaneous and broad-based support from the public.

The EPA’s campaign may have violated federal law, but even it did not, this is a dangerous path for federal agencies to go down.

From this incident, it appears that the EPA is not serious about taking opposing public comments into account before engaging in regulatory action. The purpose of public comments is to gauge public sentiment before a final rule is issued. The agency should act as an unbiased arbitrator of comments, not as an advocacy organization.

Reforming the Highway Trust Fund

Congress has created an ongoing crisis in the Highway Trust Fund (HTF). Year after year, policymakers spend more on highway and transit aid to the states than the HTF raises from gas taxes and other dedicated revenues. CBO projects that annual HTF spending will be $53 billion and rising in coming years, while HTF revenues will be $40 billion. That leaves an annual funding gap of at least $13 billion.

Congress faces a deadline at the end of May to reauthorize the HTF. However, Congress will probably enact a short-term HTF extension, and then grapple with the funding gap problem later in the summer. Everyone agrees that Congress should find a long-term solution to the funding gap.

The best solution for the HTF is simple: cut annual spending by $13 billion to match revenues. State and local governments are fully capable of funding more of their own highway and transit expenses. Congress can help the states by reducing federal regulations that boost transportation construction costs, such as Davis-Bacon and environmental rules.

Cutting federal aid for highways and urban transit would improve the efficiency of infrastructure investment. Ending transit aid would be particularly beneficial. Local officials often focus on maximizing the flow of money from Washington, rather than ensuring that projects generate overall net value. By injecting federal dollars and regulations into local transit planning, Congress distorts local decision making and increases the complexity, bureaucracy, and costs of projects. 

NYT Infrastructure Story Crumbles

In the New York Times on Wednesday, David Leonhardt presented a chart under the headline “Amtrak Crash and America’s Declining Construction Spending.”

The chart shows federal, state, and local government construction spending as a share of GDP. Leonhardt discusses America’s “crumbling infrastructure,” particularly rails, bridges, highways, and airports. He highlights the spending decline as a share of gross domestic product over the past five years.

Leonhardt also cites Joe Weisenthal of Business Insider, who presented a similar chart after the collapse of a bridge near Seattle two years ago. Weisenthal’s brief piece was called “The Collapse Of Public Infrastructure Spending In One Chart.”

There is a big problem here: the falling spending that Leonhardt and Weisenthal point to has very little to do with transportation. The data come from the Census, which the two writers extracted from this Fed database. The data can be broken out into a dozen subcomponents for the period 2002–2015. If the writers had done that, they would have come to different conclusions.

The three largest subcomponents of government construction are highways and streets, education, and (non-road) transportation, which includes airports, seaports, and transit. Using the Fed database, I charted the three components in millions of dollars; that chart is below the jump. (I’ll look at spending as a percentage of GDP in a moment.)

Federal Spending Cut Plan 2015

According to opinion polls, Americans think the federal government is too big and too powerful. On average, people think that more than half of the tax dollars sent to Washington are wasted. When Gallup asked people what the most important problem facing the nation was, more people identified “government” than any other concern, including the economy, immigration, health care, and terrorism.

The people are right. The federal government is too big, too powerful, and too wasteful. Rather than defending our rights to life, liberty, and the pursuit of happiness, the federal government often abuses those rights. The bigger it is, the more it abuses, and less well it functions.

The solution is a major downsizing. I have posted an updated plan to cut spending and balance the federal budget by 2020. The plan includes cuts to low-value and harmful programs across the government. Whether or not the government was running deficits, the proposed cuts would make sense because they would generate growth and expand freedom.

Political leaders should listen to the public’s concerns about big government. They should help lead a national discussion on programs to eliminate, devolve to the states, and privatize. They can start with the items in my new plan, including cuts to subsidies, entitlements, and state aid.

Why cut? Because Americans would gain more net benefits from the federal government if it were much smaller.