Topic: Tax and Budget Policy

CBO’s Orszag on Waste in Medicine

In today’s Wall Street Journal, Congressional Budget Office Director Peter Orszag writes [$]:

Some academic research suggests that national costs for health care can be reduced by perhaps 30% without harming quality.

In the September 2007 issue of Cato Unbound, Robin Hanson sees Orszag’s 30 percent and raises him another 20 percent.

Who Pays

The Congressional Budget Office released new data yesterday on the burden of federal taxes. The data answers the question: What share of earnings do households at different income levels pay in federal taxes?

The CBO data is useful because it not only includes individual income taxes, but also corporate income taxes, payroll taxes, and excise taxes. Those four taxes account for virtually all federal revenues. The data is for 2005 and is based on a definition of “income” that is broader than AGI reported on income tax returns.

The chart shows that households with higher incomes pay a much larger share of their income in federal taxes, on average, than do households with middle and lower incomes. Clearly, there are gross inequities in federal taxation. But few people will find out because none of the major newspapers reported on the CBO data, as far as I could tell.

Our Depressingly Bipartisan Farm Policy

When Democrats regained control of Congress after the 2006 election, they promised to pursue fiscal discipline and bring the curtain down on “business as usual” and the “culture of corruption” in Washington. Apparently U.S. agricultural programs were exempted from any of those promises.

In a perfectly bipartisan vote yesterday, the Senate rejected a modest reform amendment to the 2007 farm bill. Sponsored by Sens. Richard Lugar, R-IN, and Frank Lautenburg, D-NJ, the amendment would have repealed Depression-era farm programs that deliver huge subsidies to a relatively small number of farmers who grow so-called program crops—corn, cotton, rice, wheat and soybeans—and import protection for sugar and dairy.

The amendment would have replaced those programs with a generously subsidized system of insurance. While still far removed from the free market, the proposed alternative would have been less costly and market-distorting than the current system.

Yet even such an incremental step away from our current command-and-control farm policies went down in flames by a 37 to 58 margin (Senate roll call vote no. 417). Voting against the reform were exactly 29 Democrats and 29 Republicans. When it comes to farm programs, neither party represents the majority of Americans who must pay the high cost of U.S. farm programs. [The Center for Trade Policy Studies has documented the cost and proposed a plan to bring U.S. farm programs into the 21st century.]

Not surprisingly, with the Iowa presidential caucuses less than three weeks away, the five senators who were absent from the vote are all busy running for president!

Does Jimmy Carter Really Speak for African Farmers?

Jimmy Carter’s grasp of economics apparently hasn’t sharpened in the 27 years since he imparted a wretched U.S. economy to his successor.  Or perhaps his poor-man-advocate bona fides should be scrutinized more closely.

In a Washington Post op-ed today, the former president rightly protests the egregious U.S. farm bill for its continuation of lavish subsidies to American commodities’ producers.  Carter explains how subsidies breed overproduction, which suppresses world commodity prices, thereby reducing the incomes of poor farmers in countries where commodities dominate the economy.

Carter favors proposed amendments to the current farm legislation that would replace subsidy programs with crop insurance programs to protect farmers against excessive loss, which is an improvement, though not a solution.

But, in the last paragraph of his article, Carter contradicts everything he writes before that, revealing himself to be no friend of poor farmers abroad or simply ignorant of economic processes.  He writes:

I am still a cotton farmer, and I have been in the fields in Mali, where all the work is done by families with small land holdings.  Cotton production costs 73 cents per pound in the United States and only 21 cents per pound in West Africa, so American farmers do need protection in the international marketplace.

Now wait a second.  This is a very curious statement.  If cotton production is so much cheaper in West Africa than in the United States, then more production should happen there and less should happen here.  If Carter is really interested in the well-being of West African farmers, “whose scant livelihood depends on cotton production,” he should advocate free trade in cotton.  Why instead does he advocate that U.S. farmers be protected in the international market place?  West African incomes will continue to suffer if U.S. subsidy programs are replaced by U.S. tariffs, which is what Carter seems to be advocating.  How does it help Malian farmers lift themselves out of poverty if they can’t effectively compete on their advantages?  Higher U.S. tariffs would only drive down the world price (as subsidies do) and likely compel other importer nations to raise tariffs to protect their own producers, shrinking the market further for Malian farmers.

Meanwhile, does Carter have any empathy for America’s lower income families?Apparently, not enough.  Protection of U.S. cotton farmers artificially raises the prices of textiles, which means that clothing and shoes are more expensive than they would be otherwise.  Expenditures on necessities, like clothing and food, account for a higher proportion of the budgets of lower income families.  Thus, artificially raising the prices of those products is akin to a regressive tax – it burdens those with less income disproportionately.

Perhaps Carter is not writing as the founder of the Carter Center, an international NGO, as the byline indicates, but as a small cotton farmer from Plains, Georgia, who believes the current subsidy system unfair because the big farms get most of the largesse.

There Is No Such Thing as Mandatory Federal Spending

Sometimes, governments lie.  For example, the U.S. government describes outlays for Social Security, Medicare, and Medicaid as “mandatory” spending, in contrast to “discretionary” spending on things like national defense and bridges to nowhere.

Yet “mandatory” spending is not really mandatory.  It too is discretionary, and everyone knows it.  The only thing that makes “mandatory” spending different is that Congress creates legislative formulas that automatically determine spending levels, instead of determining spending levels each year through the regular appropriations process.  Congress can change those formulas at its discretion, which means that such spending is actually … discretionary.  Calling such spending “mandatory” is therefore a lie that serves only to conceal the choices Congress has made.

The U.S. government, its officers, and its agents should describe federal spending as either “automatic” or “appropriated.”  There is no such thing as mandatory federal spending.

Update: I stand corrected.

Three Cheers for Whoopi

It’s no fun when the IRS take a big bite out of your paycheck. But it’s even worse when the taxman makes you pay additional layers of tax on the same income. And the ultimate outrage is when the government imposes another layer of tax just because you die. Plenty of economists have complained that the death tax is a punitive form of double taxation that penalizes capital formation, but Whoopi Goldberg probably did more to advance the cause of death tax repeal when she pointed out the moral injustice of the current system during a recent episode of ABC’s The View.

Senate Farm Bill By the End of the Week?

The Senate re-commenced debating the farm bill on Friday, after Democrats and Republicans struck an agreement over the amendments process (see my earlier blog entry here). Senate leaders are hoping that they can get a bill passed by the holiday recess, and on to conference early in the new year.

Although President Bush has threatened to veto the bill that emerged from the Senate Agriculture Committee (the bill being debated now), as well as the House Farm Bill passed in July, powerful members of Congress don’t seem too rattled. According to a recent article, Colin Peterson (chair of the House Agriculture Committee) is fairly confident that he and President Bush can get together, just the two of them nice and cozy, and come to an agreement. The money quote:

…if we can get all of these other people out of this thing and just sit down and say, ‘Look, for the betterment of the country, hopefully we can work this out.’ That’s my plan.

By “all these other people”, Mr Peterson presumably means you and I, and anyone else who is unhappy with the current state of agriculture policy in America. So sit tight, everybody, and wait for the check (currently $288 billion worth).