Topic: Tax and Budget Policy

Budget Discipline: The Democratic Theme for ‘O6?

Remember when some of us limited-government types were wondering when the Democrats would finally realize voters were fed up with the GOP’s massive federal budgets and start talking about fiscal discipline? Well, it’s finally happened — the talking, at least.  House minority leader Nancy Pelosi just gave an interview to the Wall Street Journal (subscription required) in which she professed that Democrats would launch a campaign to reduce the number of budget earmarks if they won a House majority in November.

She even sounded a bit like Jeff Flake at times: “Personally … I’d get rid of all of them. None of them is worth the skepticism, the cynicism the public has … and the fiscal irresponsibility of it.”  

Most of the time, her message degenerated into standard Democratic tones. Pelosi still hopes to eliminate the Bush tax cuts for high-income taxpayers and hike the minimum wage. Yet even her support for the latter seemed to be focus-group tested: “We will not support a raise for Congress until Congress supports raising the minimum wage.” But that’s hardly a concession to fiscal discipline — it’s a hellacious twofer! (If you like this bad policy, you should love this even worse one!)

Frankly, I can’t help but be skeptical that Pelosi is really interested in getting federal spending under control. Nor am I convinced that she could keep her troops in line in such a battle. She and other Democrats had their chance to rail against earmarks and the GOP spending explosion during the past five years, but most — with very few exceptions, like Rep. Jim Cooper of Tennessee — sat out that fight. 

What Pelosi really wants, of course, is to regain Democratic control of the House. The good news is that she feels like she has to talk even a little like a fiscal conservative in order to do it.   

The GOP spending explosion has been awful to behold. Perhaps the fact that the public’s outrage over it is loud enough to entice a San Francisco Democrat to try to sound a teensy bit like a budget hawk might be worth savoring.

Why Tax Credits Are Better than Vouchers

A recent post at the popular conservative blog RedState argues that government-funded school vouchers are a bad idea. It points out the merits of having people pay for their own children’s education and the problems that government funding introduces. Fair enough.

But what to do for the millions of families who cannot afford a good independent education for their kids?

The answer is a nonrefundable education tax credit system applied to state and local taxes. A complete education tax credit program has two parts: a credit for parents to use against their own expenses, and a credit for individuals and businesses that donate to private scholarship-granting organizations (SGOs). The first part helps middle-income families pay for their own children’s schooling, and the second part ensures that low-income families also have the resources they need to participate in the education marketplace.

Under this system, no one is compelled to fund anything to which they might object, and the direct financial responsibility of parents is maximized. The personal credits involve people spending their own money on themselves, and the donation credits allow taxpayers to choose the SGO that receives their donations. No government money is used, but universal access is assured.

I give an exhaustive treatment of the differences between tax credits and vouchers in a paper titled “Forging Consensus.” Two critiques of that paper, along with my responses, appear here.

It is possible to ensure universal access to the education marketplace without sacrificing the freedom that makes markets work.

Bush Administration’s Reputation for Truth-in-Medicare Sinks. Even. Lower.

I just received a blast email from our friends at the federal Centers for Medicare & Medicaid Services. The subject line reads:

Medicare & Medicaid Spending Projections Are Down Again

Medicare spending is down? HUZZAH! A joyous day for taxpayers, one and all. Wait…what’s that you say? Go beyond the press release and read the actual report the administration released? Okay:

At $2.696 trillion, outlays for 2006 are now estimated to be $12 billion lower than the level estimated in February, accounting for 10 percent of the reduction in the 2006 deficit. The lower estimate of 2006 outlays results primarily from reductions in the projected growth rates for Medicare and Medicaid, particularly estimates of the cost of Medicare’s new prescription drug benefit program… However, in the traditional Medicare fee-for-service programs, projections of increased spending outstrip these savings in the long-term and as a result, total spending in the Medicare and Medicaid programs continues to grow at unsustainable rates.

What? Projections of increased spending outstrip these savings in the long-term? Sometimes I get this wierd feeling that the Bush administration is trying to mislead me.

(My colleague Jagadeesh Gokhale will evaluate the Bush administration’s claims about Medicaid spending in a subsequent post.)

Hey Doc, Does It Hurt When I Do This?

According to PoliticalMoneyLine.com:

Federal lobbying of the legislative and executive branches totaled $1.2 billion ($1,201,255,222) during the last six months of 2005. This is the first period lobbying expenditures have averaged over $200 million a month. For all of 2005 the total spent was $2,363,102,190.

Lobbying by health care interests led the pack ($183,324,757 spent in the last half of 2005), just as it has for the last 10 or so years.  That might have something to do with the fact that government purchases about half of all health care in the United States and controls the other half indirectly.

The American Medical Association was among the top five organizational spenders ($9,720,000 spent in the last half of 2005) in part because they successfully lobbied to block Medicare payment cuts, which had already been enacted into law and were scheduled to take effect this year.  That would be the third or fourth year in a row that providers have staved off those payment cuts.

Jagadeesh Gokhale and I have a theory.  It is that politicians have no intention of reducing how much Medicare pays providers, but instead use the threat of payment cuts to extract political contributions from doctors and hospitals.

The Incredible Shrinking Deficit

The federal budget deficit projection for 2006 shrank to $296 billion (story here).  White House insiders are reporting that this is a good thing.

Compared to what?  Well, compared to last year’s deficit, of course.  Or compared to where the deficit was expected to go.  But being proud of an accomplishment like that is a bit like congratulating yourself for successfully not driving your car into a brick wall. 

Before anyone accuses me of being Eeyore incarnate, I’d like to note that the economy has been growing faster than many people expected, and surprises like that are always welcome.  That’s the main reason the federal government has collected so much revenue – and it’s unlikely that the Bush tax cuts didn’t have something to do with that.

Yet it’s hard to find much solace in data that also show the federal budget has grown by a staggering 45 percent during the Bush presidency so far.  (The national economy as measured by GDP has only grown by 30 percent.)  And you just might realize the good news is also the bad news.  On the one hand, the government collected more tax money.  On the other hand, the government collected more tax money. 

Government spending is still chewing on close to 21 percent of GDP.  That’s still bigger than the 18 percent it consumed when Bush took office.  In fact, that’s the biggest the budget has been in over 10 years – which is, conveniently, a point in history right before the Republican Revolution. 

If the federal budget had grown from the day George W. Bush was inaugurated at the same annual rate it had for the six years before he came to office, the federal budget would swallow only 17 percent of GDP today.  Balanced or not, seems to me a budget of that size would be much better than what we’ve got now.  Maybe we should stop the bidding there next year. 

In the meantime, the unfunded liabilities of federal entitlements have rocketed to over $85 trillion.  That’s obviously a much bigger number than the current year deficit.  And obviously a much bigger problem.  Yet you don’t seem to hear too much about that from policymakers anymore.

Okay, enough of the gloom.  You may now return to your regularly-scheduled happiness.

Porkers Get Prime Seats

This morning I attended President Bush’s speech on the release of the midsession budget review at the White House.  Bush first tied his tax cuts to the strong economic growth the nation is experiencing, and he was on solid ground. He then delivered some fine rhetoric about restraining spending and cutting special interest pork.  Perhaps his new budget and Treasury chiefs–Rob Portman and Henry Paulson–can actually get him to follow through on those frequently made promises.  But I would be more convinced if the White House hadn’t invited two of the Senate’s biggest pork barrelers–Ted Stevens and Conrad Burns–to sit right in the front row for the speech!  

Gray Power and State Tax Competition

At my neigborhood Fourth of July block party yesterday (in Fairfax County, Virginia), a 40-year resident gave a going-away speech to the crowd. She and her husband were sick and tired of the high state and local taxes in Fairfax and had looked into alternate warm states that had more pocketbook-friendly tax regimes. They settled on a small town in North Carolina. Interestingly, she appeared to be a hard-core Democrat.

Expect to hear lots more about comparative state tax rates as tens of millions of baby boomers begin retiring in coming years.