Topic: Tax and Budget Policy

Wasteful Federal Aid to the States

Photo credit: House Committee on Oversight and Government Reform

In my testimony last week to the House Oversight Committee, I focused on aid-to-state programs as a major source of waste in the federal budget.

The federal government spent about $560 billion on aid to the states in 2013, making it the third largest item in the budget after Social Security and defense. The aid system includes more than 1,100 different programs for education, housing, community development, and many other things.

The aid-to-state system is rife with waste and inefficiency. So I was not surprised to see that many of the 100 programs in Senator Tom Coburn’s new wastebook are aid programs. Federal aid stimulates overspending by state and local governments and encourages them to put money into dubious projects that they would not spend their own money on.

Here are some of the wasteful aid-to-state projects profiled by Coburn and his expert staff:

  • $1 million for a gold-plated bus stop in Arlington, Virginia
  • $50 million for a fancy parking lot (“transit center”) in Maryland that has quintupled in cost
  • $65 million for New York and New Jersey to advertise that they are (supposedly) good places to do business
  • $3.5 million for a New Hampshire airport to buy solar panels, which will save less than the cost of the project, and which are creating dangerous glare for pilots
  • $67 million for the Alaska Bridge to Nowhere
  • $195,000 from a substance-abuse program to throw a Hollywood party
  • $8 million for an unfinished, unneeded, and overbudget transportation conference center—which is named after a congressman—at South Carolina State University
  • $140,000 in housing aid to fix up some random house in Patterson, New Jersey, on which the city already spent $260,000, and which is only worth $171,000
  • $3.9 million on a tiny airport in St. Cloud, Minnesota, which has no daily commercial service
  • $1.25 million for the State of Florida to settle a lawsuit with one of its contractors
  • $532,000 to beautify one block on main street in Rossville, Kansas (pop. 1,150), which Google streetview indicates is a rather empty place
  • $30 million for “coastal conservation” in Mississippi, which is partly being spent on non-conservation items such as an art museum
  • $800,000 for Las Vegas to award a prize to someone who has a good economic development idea
  • $368,000 of “community development” money to an electric golf cart maker in Montana.

The money for all of these projects initially flows to Washington from taxpayers who live in the 50 states. It travels through the federal bureaucracies and funds generous salaries for many paper pushers, and then a reduced amount flows back to chosen state and local governments. Those governments treat the funding coming from the distant national capital as free, and they proceed to fritter it away on low-value and often hare-brained public and private schemes.

The bottom line is that the federal aid system is a roundabout and inefficient funding method for state, local, and private activities. Cutting aid programs would be a great way to reduce government waste.

Downsize the Department of Health and Human Services

The Department of Health and Human Service (HHS) spends more than $908 billion each year (nearly a third of the federal budget) in various redistribution programs, the most important ones being Medicaid and Medicare.

Medicaid helps low-income citizens getting healthcare. It matches state spending, encouraging them to spend more than they otherwise would – their spending increased from $ 118 billion in 2000 to $ 275 billion in 2010, and is projected to double in the next decade. Ten to twenty percent of Medicaid funds ($ 180 billion) are wasted in various frauds.

Medicare, which helps seniors over 65 getting healthcare, is the third largest expenditure for the federal government. It is estimated that its unfunded liabilities could reach $30 trillion (in other words, $30,000 billion) in the next 75 years.

In order to stop hemorrhaging so much money, serious reforms need to be enacted. For Medicare, freedom of choice in coverage should be given back to citizens, along with private competition and personal savings. And for Medicaid, states should ultimately be the only ones spending money of the program, keeping them from overspending. In the end, this would save hundreds on billions of dollars each year. To that end we’ve created a short video which makes these and other points, which you can watch below:

Hearings on Wasteful Federal Spending

In the picture, I am swearing to tell the truth about wasteful spending to the House Oversight Committee last week. And the truth is that the government does huge amounts of it.

In my testimony, I described why the federal fiscal outlook is worse than shown in official long-range projections. And I discussed why federal “waste” is a broader problem than simple screw-ups, such as an unused $300 million Pentagon blimp.

The federal government has been wasting money since the beginning of the Republic, and I listed 15 reasons why that is the case. I concluded with some proposed reforms, including privatization and chopping aid to the states.

Senator Tom Coburn also testified at the hearing. Coburn’s staff puts together a very nice annual compilation of wasteful projects, and it publishes many detailed reports on proposed reforms to federal agencies.

Why is Coburn just about the only member of Congress who uses his staff to dig into the budget, critique programs, and inform people about where savings can be found? Every congressional office should be doing that. If they did, Congress might finally be able to put together a package of major budget savings.

Also testifying was Tom Schatz of CAGW, Brandon Arnold of NTU, and Jaimie Woo of PIRG. For years, Tom’s group has been informing the public about thousands of wasteful projects buried in the massive federal budget.

Brandon and Jaimie have released a study describing billions of dollars of savings from cuts that should appeal to both liberals and conservatives. Brandon is a former director at Cato, and so Cato’s small-government views were well-reflected at the hearing.

My homework assignment for members of Congress is to task their staffs with digging through the budget and producing lists of, say, 20 substantial cuts to spending. Publish those proposed savings, and use media opportunities to highlight them, as Coburn does. That would at least start a dialog about budget trade-offs.

All federal programs impose burdens on taxpaying families, and so members of Congress have a duty to weed out low-value agencies, programs, and activities on an ongoing basis.

(I completed the homework assignment here).

Privatize the TSA: Make Americans Safer by Letting Airports Handle Security

Any American who travels deals with the Transportation Safety Administration. The Bush administration made many mistakes in the wake of the September 11, 2001 terrorist attacks; creating a government monopoly to handle air transportation security was one of the worst.

Government’s most important duty is protecting its citizens, but others can share that role. After all, no airport or airline wants a plane hijacking, and no airline (or railroad) passenger wants to die in a terrorist incident. 

Unfortunately, the TSA is a costly behemoth that is better at bureaucracy than safety. Created in 2001, the TSA spent $7.9 billion and employed 62,000 employees last year alone. The agency’s main job is to protect the more than 450 commercial airports, and two-thirds of the agency’s budget goes for airport screening. 

Unfortunately, as my Cato Institute colleague Chris Edwards has documented in a recent Policy Analysis, the TSA has lived down to expectations. Notes Edwards: “TSA has often made the news for its poor performance and for abusing the civil liberties of airline passengers. It has had a troubled workforce and has made numerous dubious investments.” For all the agency’s spending and effort, “TSA’s screening performance has been no better, and possibly worse, than the performance of the remaining private screeners at U.S. airports.”

The TSA has had an abundance of problems, as I listed in a Freeman column:

Wasteful spending of all sorts. “Unethical and possibly illegal activities,” according to the agency Inspector General. “Costly, counterintuitive, and poorly executed” operations, according to the House oversight committee. Employee misconduct. Ranking 232 out of 240 federal agencies in job satisfaction.

Washington Big Spenders: Wasteful as Essential

If you live anywhere but Washington, D.C., you probably believe that the federal government spends too much.  Today the national debt is more than $17 trillion.  CBO figured that existing budget plans would add between $6.3 trillion and $8.8 trillion in red ink over the coming decade. 

Social Security and Medicare alone account for more than $100 trillion in unfunded liabilities, promised benefits for which no revenues are set.  Counting a multitude of other debts and obligations, American taxpayers are on the hook for more than $220 trillion in unfunded liabilities.

As I point out in my new Forbes online column:

However, denizens of Washington see things very differently.  Policymakers recently approved a bipartisan budget that increased discretionary spending, theoretically the easiest outlay to control, over the next two years.  Legislators ignored so-called entitlement outlays, which threaten to consume the entire federal budget.

It really doesn’t matter which party is in charge in Washington.  Most Republicans have little desire to cut federal outlays.  One man’s waste is another man’s vote-winning special interest hand-out.

Sen. Tom Coburn (R-Ok.) has issued a second “Wastebook” which contains 100 of the dumbest uses of taxpayers’ money.  Explained the Senator:  “While the president and his cabinet issued dire warnings about the cataclysmic impacts of sequestration, taxpayers were not alerted to all of the waste being spared from the budget axe.”

Downsize the Department of Agriculture

The Department of Agriculture spends over $150 billion dollars per year on various programs related to agriculture and food. It spends tens of billions on farm subsidies that largely go to growers of just a few crops: wheat, corn, soybeans, rice, and cotton. Beyond this, it subsidizes food through the federal food stamp program, which is rife with waste and corruption. It also regulates many agricultural products, most notably milk and sugar, setting minimum prices which artificially keep food prices high for consumers.

The federal government has little reason to be engaging in any of these activities, which should be left to the states in the case of food stamps, or eliminated entirely in the case of regulations or subsidies. This could save taxpayers $140 billion per year. To that end we’ve created a short video which makes these and other points, which you can watch below:

Even the Establishment Media Is Now Admitting the French Economic Model Is Fatally Flawed

Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Geesh, looking at that list, I guess I’m guilty of - in the words of Paul Krugman - being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.