Topic: Tax and Budget Policy

If You Cut the Budget, The Terrorists Win!

By
Stephen Slivinski

Peter Beinart tells readers of this week’s New Republic that the conservative critics of President Bush need to just get over themselves. 

As Beinart writes:

To listen to Bush’s critics, you would think that discretionary, nonsecurity-related spending has exploded on his watch. [Note: Emphasis is mine — you’ll see why this is important in a minute]. But it hasn’t. As the Center on Budget and Policy Priorities has shown, when you take account of inflation and population growth, it grew a mere 2 percent between 2001 and 2006. And, as a percentage of GDP, it actually fell. What has exploded — rising 32 percent after inflation and population growth — is spending on defense, homeland security, and international affairs. And the people most responsible for those increases are conservatives themselves, who demanded an expansive war on terrorism.*

The first half of the claim boils down to this: If you strip away defense, homeland security, entitlement spending and international aid — what Beinart calls “discretionary, nonsecurity-related spending” — you discover that government hasn’t really grown all that much by historical standards. 

The problem? Those categories account for 80 percent of the entire federal budget.

Call it the “Yeah, but” defense. Yeah, the budget has expanded massively, but if you take away the really big categories — and don’t feel compelled to clarify how you’re defining those big categories — then we come off looking really good! (Of course, as I’ve pointed out elsewhere, the GOP really doesn’t come off looking good. Let’s just assume they do for the sake of argument.) 

What’s missing from this don’t-mind-the-man-behind-the-curtain reasoning is an explanation of why stripping away all those categories yields a more useful comparison than simply looking at overall spending in the conventional and broadly-defined categories. Beinart doesn’t provide one. 

Avoiding such an explanation, however, ignores an important part of the argument he’s trying to critique. One of the more substantial complaints about the modern GOP leaders — a complaint shared not just by fiscal conservatives but also by centrist Democrats who also worry that spending has gotten out of hand — is their unwillingness to pursue offsetting spending cuts elsewhere in the federal budget to pay for the military operations in Iraq and Afghanistan, or Hurricane Katrina relief, or the various and sundry government expansions that Bush and congressional leaders have dreamed up. 

The second part of Beinart’s claim that the ”war on terrorism” is driving defense spending is also flawed. Only 16% of the combined defense budgets of the past six years went to the military operations in Iraq and Afghanistan, according to CBO estimates … and that’s assuming you include the Iraq operations as part of the war on terrorism. Why ignore the remaining 84 percent of the Pentagon budget?

The fiscal conservative critique of the GOP is in part a reaction against the presumption that all categories of spending — from unnecessary defense systems to crop subsidies — must rise or else the terrorists will “win.”  Recall, for instance, that the rhetoric around the 2002 farm bill was heavily laden with various references to national security. A “Dear Colleague” letter from Alabama Republican Terry Everett is indicative of the rhetoric used by supporters of that bill. In the letter, Everett claimed the bill would help “strengthen America’s national security” and “keep America strong.”   

Excluding all entitlement programs is also too nice to the GOP — or any party in power, for that matter. Congress has the power to moderate the growth of these programs, but they haven’t used that power more than once in the past six years and then only to very minimal effect. They could have reformed these programs, too, but they didn’t. Nor did they have to expand Medicare.       

I think government should be doing less. I have deep doubts about the war in Iraq. And I’m not a member of the doing-more-with-less school of efficient-government conservatism. But I and other Bush critics would certainly have less solid ground to stand on if overall government spending had remained tame over the past six years. Remember that under Reagan, despite a massive defense buildup, overall real annual federal budget growth was 2.6% — close to half the rate under George W. Bush so far. The rate was so low in the 1980s — lower than any president since Eisenhower — because substantial tradeoffs were being made in the budget then. Tradeoffs are not being made today.

Stripping out all sorts of different spending categories simply lets the GOP off easy. It also puts Beinart in the strange position of parroting the same defense the White House has used to fend off criticism of the president’s record.

A New Republic writer defending a Republican president’s budget record. Left-of-center analysts rallying to the defense of a GOP Congress. What’s next?  Dogs and cats living together?

* - An argument over whether these numbers are solid has already taken place at The American Scene blog run by Ross Douthat and Reihan Salam, who also use the CBPP numbers to rebut criticisms of President Bush. “War on terror” and “homeland security” expenses are both non-traditional budget categories that are not consistently delineated in the official federal data on spending. Any attempt to disaggregate the data must rely on multiple assumptions about how you classify each sort of spending program. In other words, readers need to take the CBPP estimates with more than a few grains of salt. (For more criticism of their estimates, numbers-junkies can read my Cato study from 2005 and my new book.) 

Topics: 
General, Government and Politics, Tax and Budget Policy

University Lockdown Costs You Plenty

By
Neal McCluskey

Gallaudet University, the only university in the world focused specifically on deaf and hard-of-hearing students, is locked down. Some students — though it’s never clear how many or what percentage of the overall student body — have barred the entrance to the school to protest the pending installation of a new president, Jane K. Fernandes.

The complaints against Fernandes are myriad, ranging from displeasure with her purported top-down management style to accusations that the presidential search process was not racially inclusive. No one issue, though, appears to be an overriding concern, nor do the reported issues, together, seem to justify students taking the school over Taps style, with football players providing muscle at the gates and even Gallaudet’s elementary and high schools shut down.

As overblown as all this seems, though, it shouldn’t be of much concern outside the university, right? After all, isn’t Gallaudet a private college, meaning that whether or not students shut it down should ultimately be a matter between the students, the school, and maybe a few parents who’d like to know what their tuition payments are going for?

If only.

For one thing, almost all American institutions of higher education receive substantial funds from taxpayers, whether it’s state money going directly to public colleges or federal dollars going to research grants, student aid, or just plain pork at public and private schools. As a result, almost any college shutdown not only costs students and schools time and money, but taxpayers as well.

The Gallaudet situation, however, is even worse. Two universities in the nation receive huge, direct appropriations from the federal government every year, and Gallaudet is one of them. (Howard University is the other.) For FY 2006, Gallaudet received a direct federal appropriation of more than $104 million, plus another $3 million in government grants and contracts. That same year, the school’s total revenues were slightly less than $149 million, meaning that 71 percent of Gallaudet’s money came directly from federal taxpayers. That makes Gallaudet, for all intents and purposes, a federal university.

Who knew? 

Unfortunately, now you know, and what seemed to be just Gallaudet’s problem, it turns out, is yours as well.  

Topics: 
Education and Child Policy, Tax and Budget Policy

This is Progress?

By
Stephen Slivinski

The news of the incredible shrinking deficit is sure to be added to the list of accomplishments that Republican candidates – eager for any good news they can use to their advantage – will tout on the campaign trail.

Although the deficit is certainly smaller, it’s not because the White House and Congress suddenly have a newfound respect for spending discipline. Federal spending grew in excess of 7 percent this fiscal year. That’s faster than the expected growth in GDP of 6.5 percent. Besides, the federal budget is chomping on 20 percent of GDP. It consumed 18.5 percent of GDP when George W. Bush was inaugurated. And unfunded liabilities of entitlement programs continue to grow. Remind me again how this is progress?

Prediction: For the next few weeks, Republican candidates will be engaged in an attempt to persuade fiscally conservative voters to forget everything that annoyed them about the GOP’s rush to expand government and instead welcome a much larger federal budget simply because it’s closer to being balanced.

It’s more than enough to make you wonder whether the Republicans are really a party of smaller government anymore.

Topics: 
General, Tax and Budget Policy

Medicaid & the Free-Market Movement

By
Michael F. Cannon

This weekend, something pretty important happened, at least with regard to how the free-market movement approaches Medicaid and medical care for the needy. 

Saturday was the final day of the State Policy Network’s 14th annual meeting in Milwaukee. The State Policy Network provides guidance to 48 state-focused free-market think tanks in 42 states. Part of the annual meeting was a panel on Medicaid, the joint federal-state program originally created to provide medical care to the truly needy. 

Of course, Medicaid has swelled well beyond that goal. The program now covers 52 million people even though there are only 36 million U.S. residents below the poverty line. Medicaid also destroys private markets for health insurance and medical care, and induces low-income Americans to become dependent on government. For example, policymakers universally acknowledge that a welfare check induces dependence on government. Yet average Medicaid benefits for the program’s least expensive enrollees (the non-elderly) are worth twice as much as the average welfare check. Moreover, there are 10 times as many people who receive Medicaid benefits.

For years, several market-oriented groups have advanced Medicaid reforms that, in the name of empowering Medicaid enrollees or improving their quality of care, would expand enrollment and make Medicaid’s problems even worse. Principally, the reforms involve introducing health savings accounts and vouchers into Medicaid. Those groups have fed the rest of the free-market movement a steady diet of those bad ideas, often with some success. A few states have even experimented with those reforms.

On Saturday, I sat on a panel with one of the leading advocates of those proposals. We each presented our side to an audience comprised of the leaders of dozens of state-focused think tanks. I think one audience member probably spoke for many in the room when he said he felt conflicted. My paraphrase: “Part of me wants to improve Medicaid, but that would increase enrollment. And part of me wants to blow it up, but that’s a tough sell politically.” 

He’s right. That is a tough political sell. But it would be substantially easier were the free-market movement to abandon the fool’s errand of trying to improve the program and instead educate the public about the full range of harms Medicaid causes:

  • A per-capita tax burden that is currently over $1,100 and growing
  • An annual deadweight economic loss of some $70 billion
  • Crowd-out of private efforts to provide medical care for the poor, including private insurance, private charity, and self-help
  • Increased dependence on government
  • Higher prices for private health coverage and medical care, which makes Medicaid dependence more likely
  • Lower-quality care than is provided through private markets
  • The indignity of states having to beg Washington for permission to spend their own money as they wish

(For what it’s worth, free-market think tanks should acknowledge that Medicaid does a lot of good: it provides medical care to many who desperately need it. Yet that fact will hardly carry the day, considering that researchers have difficulty finding where Medicaid has any positive overall effect on health.)

Only after we prepare the ground will we be able to achieve serious reform, which should emphasize three things: block grants, block grants, and block grants. Replacing Medicaid with a system of block grants was a component of the 1996 welfare reform law until President Clinton insisted on its removal. Nowadays, no politicians are talking about block-granting Medicaid, largely because free-market groups have abandoned the field. (Until we get block grants, state-level reforms will not make much difference, though free-market groups should oppose those that make Medicaid more attractive and support those that make it less attractive.)

In short, this emperor has no clothes. If the free-market movement does not carry that banner, no one will. 

This weekend’s SPN meeting should be the start of a debate within the movement over how to approach Medicaid. (More details on my approach can be found here.) Thanks to Tracie Sharp of SPN and Mary Katherine Stout of the Texas Public Policy Foundation for getting the ball rolling.

Topics: 
Cato Publications, General, Health Care, Tax and Budget Policy, Trade and Immigration

A Disservice to the Poor

By
Brandon Arnold

There’s much ado at the Legal Services Corporation (LSC), the federally funded organization intended to provide legal assistance to the poor.

Last month, the AP catalogued a pattern of excessive spending at the LSC. Then, as I indicated in my National Review Online article, the LSC Board contemplated firing the employee who had unearthed much of the extravagance. This employee, LSC Inspector General Kirt West, has also found other questionable practices at the LSC and begun an investigation of the Board itself. 

Earlier this week, at a congressional hearing, the chairman of the LSC Board denied that board members had considered dismissing West. This was shocking given strong evidence to the contrary — namely, meeting transcripts from January in which the board’s vice-chair said of West, “[H]e’s got to shape up or we will ship him out.” At the same meeting, another board member said flatly, “He doesn’t belong as the Inspector General of this organization.” 

This is yet another sorry chapter in the history of the LSC. For over 20 years, this organization has continued to misuse taxpayer dollars to advocate political causes. Is it time to pick up the mantle of Ronald Reagan and finally abolish the LSC?

Topics: 
Government and Politics, Tax and Budget Policy

Tell Me That’s Not Your Final Answer

By
Michael F. Cannon

The congressionally chartered “Citizens’ Health Care Working Group” today released its final recommendations on how to reform America’s health care sector. (I commented on their interim recommendations here and here.)

As with many GOP-led health care reform efforts, this one began with leftist premises about the role of government. Recommendation #1 is that the federal government should “Establish Public Policy that All Americans Have Affordable Health Care.” Recommendation #2 is that the feds should “Guarantee Financial Protection Against Very High Health Care Costs.” (The group inadvertently neglected to cite any passage from the U.S. Constitution that actually grants Congress the power to do such things.)

Given those premises, there was little doubt that the group would recommend left-wing reforms. For example, the group claims to have developed both a “market–based model” and a “social insurance model” for achieving universal coverage. Yet the former is a mirror image of the statist Massachusetts health plan. What kind of “market-based model” increases taxes and government spending while forcing individuals to purchase government-defined insurance policies? Good grief.

I would give my right eye for a health care reform panel that would make this its charter:

To make health care of ever-increasing quality available to an ever-increasing number of people.

To me, that doesn’t just seem simple and non-controversial, it seems to be what everyone involved in health policy wants.

Moreover, a mission like that would force the panel to consider not just the goodness of its intentions, its knowledge of today’s health care sector, or its ability to do math, but also the incentives that its recommendations would create, and their long-term impact.

Let’s hope some enterprising panel-creator is reading this.

Topics: 
Cato Publications, General, Health Care, Law and Civil Liberties, Tax and Budget Policy

Aside from That, Mrs. Lincoln, How Did You Enjoy the Show?

By
Michael F. Cannon

A website called TheBudgetGraph.com offers a visual representation of federal spending based on President Bush’s proposed budget for fiscal year 2007. (Click here, then click on “View the Graph.”) It is truly a monstrosity.

But look more closely and you’ll notice that it only counts budget items to which Congress must fix a dollar amount every year. It completely ignores those parts of the federal budget where the dollar amount is set automatically by formula. (Those two categories are usually called “discretionary” versus “mandatory” expenditures, but that bifurcation is misleading. Nearly all expenditures are discretionary, with the possible exception of interest payments on the national debt.)

That latter category — which includes Social Security, Medicare, Medicaid, interest payments on the debt, etc. — comprises 63 percent of the federal budget. That makes “The Budget Graph” more like “a visual guide to where one-third of your federal tax dollars go.”

Were the graph to count the entire budget, heck, I’d probably buy the poster.

(HT: Frederic Sautet.)

Topics: 
Finance, Banking & Monetary Policy, General, Health Care, Tax and Budget Policy

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