Topic: Tax and Budget Policy

Meet the Kronies!

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s Learn more from our video series on how to downsize specific departments (all videos will play below):

Flooding: Do Governments Make It Worse?

Both the economy and the environment are complex ecosystems. Governments often upset the natural balance and cause damage because they combine limited understanding with an excessive zeal to mandate and subsidize.

In Washington , we have snow and cold, but I can’t blame that on the government. However, Britain has been suffering from river flooding, and a Daily Mail article explains how subsidies are a key culprit: “Thought ‘extreme weather’ was to blame for the floods? Wrong. The real culprit is the European subsidies that pay UK farmers to destroy the very trees that soak up the storm.”

The author is a liberal environmentalist, but his piece illustrates how liberals and libertarians can share common ground on the issue of government subsidies.

The article describes how forests in the upstream areas of watersheds can mitigate floods. However, there “is an unbreakable rule laid down by the EU’s Common Agricultural Policy. If you want to receive your single farm payment … that land has to be free from what it calls ‘unwanted vegetation.’ Land covered by trees is not eligible. The subsidy rules have enforced the mass clearance of vegetation from the hills.”

In the United States, we’ve got our own environment-damaging farm subsidies. We’ve also got the Army Corps of Engineers, which the Daily Mail could be describing when it refers to British policy: “Flood defence, or so we are told almost everywhere, is about how much concrete you can pour.

The long-time bias of the Army Corps has been to spend a lot of taxpayer money on reengineering nature. Apparently, it’s been a similar story in Britain:

Many years ago, river managers believed that the best way to prevent floods was to straighten, canalise and dredge rivers along much of their length, to enhance their capacity for carrying water. They soon discovered that this was not just wrong but also counter-productive. By building ever higher banks around the rivers, reducing their length through taking out the bends and scooping out the snags and obstructions along the way, engineers unintentionally did two things: they increased the rate of flow, meaning that flood waters poured down the rivers and into the nearest towns much faster; and, by separating the rivers from the rural land through which they passed, they greatly decreased the area of functional flood plains. The result, as authorities all over the world now recognise, was catastrophic.

You don’t have to be an environmental expert to conclude that governments should at least “do no harm,” and not worsen the damage done by adverse weather. That means they should end subsidies for farming, deforestation, and building in flood-prone areas.

Mirror, Mirror, on the Wall, Which Nation Has Increased Welfare Spending the Fastest of All?

There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

New Study on Air Traffic Control Reform

Robert Poole is one the nation’s top experts on privatization and transportation policy reform. He has a great new Hudson Institute study on problems with our air traffic control (ATC) system and ideas for restructuring it. The nation’s ATC system is operated by the Federal Aviation Administration (FAA). Here are some of Bob’s findings:

  • The features and procedures of our government-run ATC system “have remained remarkably unchanged through a half century of dramatic advances in technology” elsewhere in the economy.
  • Our ATC system “has fallen well behind the capacity of new technologies to provide  safer, faster, more reliable, and more fuel efficient air travel and to keep up with the increasing volume of air travel.”
  • “Nearly all communications are still by voice radio, despite the ubiquity of text messaging and its greater ease and accuracy for routine communications.”
  • “Radar remains the principal means of aircraft position surveillance, despite the much greater accuracy of GPS and other systems.”
  • The FAA “is slow to embrace promising innovations in outside research organizations or private-sector companies.”
  • The FAA “does a poor job of procuring new technology, with many programs eventually cancelled or emerging years late at inflated cost.”
  • The FAA “is particularly resistant to high-potential innovations that would disrupt its own institutional status quo.”
  • Canada, Australia, New Zealand, Britain, and Germany are doing a better job of embracing new technologies for ATC. These countries have restructured their systems as self-supporting organizations outside of their government bureaucracies.

Ultimately, the culprit for America falling behind on ATC is not the FAA, but Congress. Congress has its head buried in the sand. Aviation demand is rising and our government-run system is not up to the challenge. ATC is an increasingly dynamic, high-tech business, and it is too important to consign to the lethargy, inefficiency, and bungling that dominates so many Washington bureaucracies.    For more, see this study on airport and ATC reform, and this op-ed on privatizing ATC. Bob’s work at the Reason Foundation is here.

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).