Topic: Tax and Budget Policy

Come to Washington and Do Well

What’s the best business to be in these days? Steel? Automobiles? Maybe not any more. Maybe these days it’s software, or finance. Maybe. But judging from this lead story in this morning’s Washington Post

The three most prosperous large counties in the United States are in the Washington suburbs, according to census figures released yesterday, which show that the region has the second-highest income and the least poverty of any major metropolitan area in the country.

Rapidly growing Loudoun County has emerged as the wealthiest jurisdiction in the nation, with its households last year having a median income of more than $98,000. It is followed by Fairfax and Howard counties, with Montgomery County not far behind.

– it would seem that government is the boom industry of the early 21st century. That’s the point Chris Edwards made in a Tax & Budget Bulletin (pdf) three months ago: that compensation of federal employees was almost twice compensation in the private sector. Then three months later, things changed, as things have a way of doing. Chris was forced to admit that the government’s latest figures showed that federal compensation was no longer almost twice private-sector compensation: it was exactly twice as much. “Average compensation for the 1.8 million federal civilian workers in 2005 was $106,579 – exactly twice the average compensation paid in the U.S. private sector: $53,289.”

Mamas, don’t let your babies grow up to be cowboys,

Don’t let ‘em make software and sell people trucks,

Make ‘em be bureaucrats and fed’rals and such.

In Defense of Gridlock

Over at National Review’s blog, Ramesh Ponnuru wonders why it seems that divided government – aka, gridlock – tends to lead to slower growth in the federal budget.

I mount a defense of gridlock in my new book, Buck Wild: How Republicans Broke the Bank and Became the Party of Big Government. In chapter 8, to be precise. The numbers that Ramesh cites in his post come from a review of my book by Phil Kerpen on the NR website.

By way of jumping into the discussion Ramesh has started, let me clarify a few things first.

In my book I only analyze the real per capita growth rates of government spending in the years 1965 through 2005. I think this is a more useful timeframe for comparison than Ramesh’s seventy-six-year timeframe simply because the post-Great Society welfare state looks vastly different than what existed before. I was mainly curious to see if the correlation holds up within a timeframe that yields more consistency in terms of the entitlement programs being funded in the federal budget.

The methodology I used was modeled after that of Cato chairman William Niskanen and Cato senior fellow Peter VanDoren in the paper they presented to the Public Choice Society meeting in May of 2004. My data falls into the same realm of statistical significance, too. (Incidentally, their analysis goes back to 1949.)

Now on to the fun.

Divided government – gridlock – is the norm, not the exception, in American politics over the past 40 years. The only completely united government scenarios existed during the presidencies of Lyndon Johnson, Jimmy Carter, and George W. Bush. It is obviously true that Democratic united government is more common than Republican united government.

So why might divided government be more conducive to restrained spending? For starters, defense spending varies widely over the past 40 years, but the correlation between wars and united government is quite consistent. American participation in every war involving more than a few days of ground combat was initiated by a united government. You could argue that this is mere coincidence. Or you could argue that united government creates an environment where there is less resistance from Congress when a president wants to exercise his powers as commander-in-chief. The burden of proof is on those who suggest this is simply happenstance.

A president and Congress could certainly offset defense budget increases with cuts in the non-defense budget. Indeed, you often see this in periods of gridlock. The converse is also true: Decreases in defense spending tend to coincide with increases in non-defense budgets under gridlock.

In the periods of united government, however, those sorts of trade-offs disappear. Instead, united government spawns large increases in across-the-board spending on everything. That’s exactly what we saw during the presidencies of Lyndon Johnson, Jimmy Carter, and George W. Bush.

Why this occurs might best be described by the nature of Washington politics. The one thing you can usually count on in DC is partisanship. When Republicans are the beleaguered minority—or a congressional majority fighting a big-spending White House—they are in their element. Big Government is the clear enemy. But once they find themselves in control of it, they are less willing to rein it in.

We can see this by comparing how a GOP Congress treated the proposed non-defense budgets of Bill Clinton and George W. Bush. Remember that once the president’s budget reaches Capitol Hill every year, Congress either increases or cuts the spending request. During the years of divided government under Clinton, the Republican Congress managed to cut Clinton’s domestic spending requests by an average of $9 billion each year between fiscal 1996 and 2001.

Contrast that with the budget outcomes under President Bush—specifically the years in which Congress was held entirely by Republicans. Between fiscal years 2003 and 2006, Congress passed, and Bush refused to veto, non-defense budgets that were an average of $16 billion more than the president proposed each year.

The rules of partisanship imply that a Big Government scheme proposed by a Republican president is more likely to be accepted by a Republican Congress than if it were proposed by a Democrat. That’s exactly what happened with the Medicare drug benefit. It seems quite likely such a drug benefit would not have passed if it were proposed by, say, President Al Gore or President Hillary Clinton. And if the Medicare expansion did get traction in Congress, Republican leaders would probably have been more interested in slowing it down or tacking on substantial reforms instead of abandoning the reform elements in the hope of speeding its passage as they did in 2003.

All the gridlock combinations that have persisted for longer than two years produce average (real per capita) budget growth rates that are half that of the united government average. This includes Republican presidents facing Democratic congresses – like Reagan, Nixon, and Ford – as well as a Democratic president like Clinton combined with a GOP congressional majority in both houses.

It seems to me the main question now becomes this: Even if someone doesn’t believe we would be better off with gridlock, is it still reasonable to believe – based on the historical evidence – that we’d be worse off?

New Uninsured Estimate, Same Old Story

Today, the Census Bureau reported that in 2005 the number of Americans without health insurance inched up yet again.  This annual ritual, repeated every August, gets old after a while. 

The Official Uninsured Estimate – now 46.6 million residents – comes from a survey that is not designed to measure insurance coverage.  The Official Uninsured Estimate includes people who are covered by Medicaid, who lack coverage today but will regain it tomorrow, and who make over $50,000 per year.  The Congressional Budget Office reports [.pdf] that the number of chronically uninsured (who lack coverage for a year or more) is more like 20-30 million – and still many of them are covered by Medicaid.

Part of this ritual is that Medicaid wins plaudits for “picking up the slack” when employment-based coverage falls.  Yet Medicaid encourages employers not to offer coverage, encourages workers to avoid private coverage, and makes private coverage more expensive for both employers and workers.  Medicaid doesn’t just catch people who fall off the economic ladder – it shakes the ladder.

Just about the only useful aspect of The Official Uninsured Estimate is the trend it displays over time.  When compared to the trend in the poverty rate (also released today), a stark contrast emerges.

  • Ten years ago, Congress reformed the welfare system.  It stopped the practice of just throwing more money at the problem of poverty.  What happened?  Poverty fell and remained lower in 2005 than at any point in the 17 years leading up to welfare reform. 
  • But Congress kept throwing more money at health care by expanding government programs (e.g., SCHIP).  The result?  Unlike the poverty rate, The Official Uninsured Estimate continues its steady climb.

Maybe we should stop throwing money at the problem?

Role Reversal?

Remember when the Republicans would advocate smaller government and less federal spending?  

Freshmen members were typically the most vocal proponents of limited government, as they often brought optimism and a strong ideology to Capitol Hill.  After time, some of these GOP ideologues tended to succumb to the culture of Washington and lose their moorings. But this process usually took years.

Lately this phenomenon appears to be happening much more rapidly. Speaking about the recent explosion of pork-barrel spending, Rep. Jeff Flake (R-AZ) noted, “We’ve developed a culture, unfortunately, over a number of years where incoming freshmen are conditioned to believe that this is the only way to get reelected.”

Now, it seems even candidates for Congress are talking like inside-the-Beltway porkers.  In a hotly contested race for an open congressional seat in Illinois, a “fiscally conservative” Republican is pledging to bring home the bacon if elected. 

The Daily Herald said of Pete Roskam, “The 6th Congressional District GOP nominee said he’d support continuing the so-called practice of “earmarks” if elected to Congress to make sure projects like fixing the dangerous railroad crossing at Irving Park and Wood Dale roads continue to get funded.”

Meanwhile, Tammy Duckworth, the Democratic nominee for the Illinois congressional seat, has taken a strong anti-pork stance. She notes, “One of the easiest steps Congress can take to reduce the deficit and reform ethics is to immediately end the practice of earmarking.” Duckworth has even created an “Outrageous Earmark of the Week” section on her campaign website.

It sounds a lot like Congressman Flake’s “Egregious Earmark of the Week.” That is to say, she sounds a lot more like a fiscal conservative than the Republican candidate.

Native Illinoisan Ronald Reagan, who once vetoed a highway bill because it contained too many earmarks, must be spinning in his grave.

Welfare for Wineries?

In researching government budgets, I come across dubious spending projects all the time, but one recent example struck me as particularly idiotic and unjust.

The title of a recent press release from New York governor George Pataki says it all: “GOVERNOR ANNOUNCES $500,000 IN GRANTS AVAILABLE FOR NEW YORK WINERIES TO IMPROVE THEIR WEBSITES.”

So, New York is taxing the hard-earned wages of truck drivers and retail clerks and giving it to well-heeled winery owners and web services companies?

Come on Americans, wake up. Far too much of what our federal, state, and local governments do these days is just pure theft.