Topic: Tax and Budget Policy

Direct Democracy

Aside from voting for “Congress critters,” Americans in many states today have a chance to directly control government fiscal policy.

They will be voting on whether to approve $80 billlion in government bonds in states and cities across the country, including a huge bond package in California endorsed by Governor Arnold Schwarzenegger. Voters usually approve about two-thirds of proposed bonds, but hopefully they will be more skeptical this year given their generally foul mood toward politicians and government. 

In addition, voters have a chance to approve new budget limits on spendthrift politicians in Maine, Nebraska, and Oregon. Most states already have detailed restrictions on their budgets such as balanced budget requirements. This year’s proposals would impose limits on annual increases in taxes and spending, similar to the successful TABOR limit in Colorado. Such limits recognize the fact that politicians love to spend, but they often lack the discipline to make the needed tough trade-offs in budgeting priorities. 

Here [.pdf] is a useful summary of ballot measures across the country, both fiscal and nonfiscal.

Bonds on the Ballot

Bloomberg is reporting that American voters will be asked to approve a record $80 billion in bonds next Tuesday to fund an array of state and local spending projects. The previous record was $47 billion in proposed debt in 2002.

As I argued in an op-ed yesterday, state and local revenues have been rising rapidly, so voters should be very suspicious about loading even more debt onto the next generation of taxpayers. For background on state debt see here, and here.

Federalism Gone Awry

Many self-proclaimed fiscal conservatives in Congress defend pork-barrel spending by arguing that the practice circumvents the wasteful Washington bureaucracy and allows folks who best know the local community (i.e. congressmen) to steer money where it is most needed.

For instance, in a misguided appeal to federalism Representative Mike Simpson and Senator Larry Craig, both conservative Republicans from Idaho, assert, “We have always believed that better decisions are made by local officials. Who would you rather have making decisions about funding for Idaho? Lawmakers who are accountable to you, or some nameless, faceless bureaucrat in Washington, D.C., who has never stepped foot in Idaho?”

It’s a clever attempt by Simpson and Craig to redefine the term “local officials” and frame the earmarking issue in their favor. But an article in the Raleigh News & Observer tells a different story:

North Carolina’s members of Congress quietly took control of more than $135 million from the state Department of Transportation last year to help pay for dozens of highway projects they favored.

That means other projects deemed more important by state and local officials must be delayed.

The new projects dictated by Congress didn’t have enough support in North Carolina to be included among the 2,337 funded in the state’s 2006-2012 Transportation Improvement Program.

And the problem is worsening:

Within broad guidelines set by Congress, the states have traditionally decided how to spend their share of federal gasoline tax receipts. But that is changing.

The growth of earmarks in the transportation reauthorization bill, which Congress considers about every six years, has been remarkable. It raises questions about who knows best how to spend federal highway money: members of Congress, or state and local officials and the highway planners who assist them.

If Simpson, Craig and their colleagues in Congress truly believe in federalism, they sure have a funny way of showing it.

Income Data Misquoted and Fundamentally Flawed

An op-ed in the Washington Post on Sunday included data purporting to show that the rich are grabbing an increasing amount of the income earned in this country.

Jacob Hacker of Yale University cites data from economists Thomas Piketty and Emmanuel Saez supposedly showing that “the share of national income held by the richest 1 percent of Americans–stable at about 32 percent throughout the middle decades of the 20th century–began to rise sharply in the 1970s and by 2002 had surpassed 40 percent.”

Actually, the Piketty Saez data show that it is the top 10 percent whose share supposedly rose from 32 to 40 percent.

More importantly, a forthcoming Cato paper by Alan Reynolds shows that the Piketty-Saez data, based on federal tax return information, is a deeply flawed source for such income “distribution” analyses.

For example, because of tax law changes since the 1970s, a huge share of business income that used to be reported on corporate returns is now reported on individual returns. Reynolds finds that much of the supposed rise of the share of income at the top is simply a result of this paper shuffling regarding where business income is reported.

This Piketty-Saez data has been frequently misused by Paul Krugman, the Economist magazine, and many other news outlets to draw grand conclusions about how the gains of U.S. economic growth have supposedly only gone to the those at the top. Reynolds study shows that that is probably not true. At least, his findings show that reporters and pundits should be very careful in using any data that claims to show changes in income shares over time.

Certainly, they should not use sloppy language like Hacker’s phrase ”income held by the richest.” Income data shows an annual flow–it is not “held” like wealth. Note that “richest” also refers to wealth holdings, not annual income flows.   

Federal Robbers

The Washington Post ran a short piece on October 26 that reported on $2.6 million flushed down the drain by the Department of Agriculture. Federal auditors looked at housing subsidies handed out after Hurricanes Katrina and Rita and found: “Based on discussions with disaster victims, we concluded that much of the $2.6 million in emergency rental assistance that [the department] provided to disaster victims was unnecessary.” Apparently, officials overlooked basic accounting controls and most of the covered costs were already paid for by another federal agency. 

After reading such stories, I wonder: Will any official get fired? Shouldn’t officials at least apologize to us for wasting our hard-earned dollars? How is this sort of wasteful tax-and-transfer activity any different than bank robbery?