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.

Changes in Federal Sentencing

The U.S. Sentencing Commission is going to give thousands of drug offenders an opportunity to reduce their sentences.   Yesterday’s move is in reaction to the disparate manner in which federal law handles persons dealing in powder cocaine vis-a-vis persons dealing in crack cocaine.  This is a modest step in the right direction.  The drug war represents a gross misallocation of limited resources (police, courts, jails) and it should be ended immediately.

For Cato work on the drug war, go here.  For Cato work on federal sentencing, go here.  For more information on yesterday’s development, go to Families Against Mandatory Minimums

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 Richard Lugar, R-IN, and Frank Lautenburg, D-NJ, the amendment would have repealed Depression-era farm programs that deliver huge subsidies to a relatively small number of farmers who grow so-called program crops—corn, cotton, rice, wheat and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!

More Cost-Ineffective Security: Criminalizing Tourism

I’ve written in the past about the costliness of the Western Hemisphere Travel Initiative compared to its small security benefit.

Here’s more cost-ineffective security: Fingerprinting visitors to the U.S.

The Department of Homeland Security announced this week that it would begin collecting 10 fingerprints from foreign visitors to the United States, an extension of the US-VISIT program. This looks like another self-injurious overreaction to the threat of terrorism.

I don’t think collecting ten fingerprints in the US-VISIT program violates civil liberties. People have a diminished right against search and seizure at our international borders. But it is a serious privacy concern for visitors to the U.S.

Their biometrics are entered into a U.S. government database and they have no idea what may be done with that information in the future. DHS keeps that data for 75 years. Yes, lawful visitors to this country, who come to snap pictures of the Statue of Liberty and teach their kids about the United States, go into a U.S. government database for the rest of their lives. It’s just insulting to the millions of good people who want to visit us.

With that, let’s do a rough cost-benefit analysis of collecting 10 fingerprints from foreign visitors to the U.S. It appears to be another security program whose costs outweigh its benefits.

On the costs side of the ledger:

- First, it treats international visitors to the U.S. like criminals. This erodes the goodwill that the United States enjoys in the world, meaning we are less able to convince foreign governments to work with us on all kinds of very important issues. That cost is not easily quantified, but it is substantial. If we can’t get cooperation from Russia on Iran’s nuclear program, for example, that could cost us hundreds of billions or more in the next decade or two.

- More easily quantified is the reduction in lawful trade and travel: The findings of a House bill meant to encourage foreign tourism recite a 56,000,000, or 17 percent, drop in international visitors to the U.S. versus what was expected from 2001 to 2006. Let’s say 10% of this is caused by fingerprinting in the US-VISIT program – people don’t want to come here if we insult them on arrival. The Commerce Department estimates that these visitors would have spent $98,000,000,000 (valued in 2007 dollars) in the U.S. Ten percent of that is $9.8 billion in lost revenue – a significant loss to the economy caused by our harsh treatment of visitors.

- Then there are the costs of running the program – I don’t know what they are, but they’re probably in the tens of millions to $100 million+ per year in Americans’ tax dollars.

Is it worth it? Let’s look at the benefits:

The DHS release says that since 2004, collecting fingerprints in the US-VISIT program has been used “to prevent the use of fraudulent documents, protect visitors from identity theft, and stop thousands of criminals and immigration violators from entering the country.” It gives no hard numbers, but it would have said “tens of thousands” if it was in that range, so let’s say it’s 10,000 violators they’ve caught. ($9.8 billion/10,000=$980,000) Each violator would have had to do almost a million dollars in damage for this security measure to be cost-effective. The average document fraudster, ID fraudster, and immigration violator does nothing near that much harm.

But perhaps the program prevented a single terrorist, or a small group of them, from entering the country, people who would have done $10 billion in damage. This could only be true if we knew in advance exactly which terrorists were coming into the country. But terrorists are fungible. A terrorist organization can select people to send to the U.S. that have no prior participation in terrorism, people who can pass through US-VISIT. With two exceptions, this is what Al Qaeda did for the 9/11 attacks – sent people without any history of terrorism.

US-VISIT can’t prevent a terrorist organization from infiltrating the country – at best, it might delay their activities a couple of weeks while they select the right people to send. Delaying a terrorist attack that causes $10 billion in damage by a month is worth about $42 million. Obviously, spending $9.8 billion to avoid $42 million in damage is not cost-effective security.

My conclusion is that US-VISIT does more harm to the country than it prevents. I welcome suggested refinements to these numbers. Again, this is very back-of-envelope.

Now, should we pass the legislation to make people feel better about us? I’m not sure that’s the solution. The Senate version of legislation to improve our esteem in the world costs $1.80 per person in the United States - $5.64 per U.S. family.

Why spend this money to make people feel better about us when we could make people feel better about us by spending less! US-VISIT doesn’t significantly add to our protections. Given its costs, we should drop it.

Cato Launches Innovative Web-based Programs

The Bush administration made the promotion of democracy and freedom a key part of its foreign policy but has become far more muted on the subject of the benefits of political liberty overseas in recent months as it became clear that democracy can be messy and lead to the elevation of those who do not necessarily share the policy goals of the United States. While strongly opposed to the neo-conservative vision of the Bush administration and its actions in the Middle East, the Cato Institute believes that the promotion of the classical liberal ideals of liberty, free markets and peace is an essential effort.

As a result, on December 12, Cato launched six innovative foreign-language web-based programs. These new programs will publish in Chinese, Portuguese, French, Persian, Kurdish, and on the continent of Africa in English and Swahili. They join our other three highly-successful programs in Spanish, Arabic and Russian.

Correction: There Is No Such Thing as Mandatory Out-Year Entitlement Spending

Astute Cato@Liberty reader Mark Close challenged my assertion that there is no such thing as mandatory federal spending – and won.

Since Congress can reduce spending on Social Security, Medicare, Medicaid, etc. at will, I made the strong claim that all federal spending is discretionary. I was even willing to describe interest payments on the national debt that way. I know, I know, the consequences of reneging on the debt would be catastrophic. But the (short-term) consequences of repealing Social Security & Medicare could be catastrophic for many people, too. (Imagine thousands of unemployed bureaucrats with no marketable skills! Won’t somebody please think of the surgeons??) Yet Social Security & Medicare spending is clearly discretionary.

If the difference between mandatory and discretionary spending is determined by the amount of economic dislocation that results from shutting off the spigot, I reasoned, where to draw the line? If it’s just a matter of degree, how can there be any definition of “mandatory” that isn’t just arbitrary?

Mr. Close suggested a very defensible place to draw that line: if reneging on a spending commitment would subject the U.S. government to legal action, then such spending is effectively mandatory. Examples include current-year entitlement spending, as well as current and future contractual obligations (e.g., interest payments on the national debt). Future outlays for Social Security, Medicare, etc. are not mandatory because reneging on those commitments would not subject the U.S. government to legal action.

Of course, one could still argue that interest payments on the national debt are discretionary, because Congress could always change the law to eliminate the threat of such legal action. But that’s pretty far-fetched. Even if it weren’t, Mr. Close has provided a non-arbitrary way to distinguish between mandatory and discretionary spending.

So to recap … when government officials refer to future Social Security, Medicare, and Medicaid expenditures as “mandatory spending,” they’re still lying. The U.S. government, its officers, and its agents should describe such spending as automatic, not mandatory. And the new rallying cry for the Sub-Boomer generations shall be:

There Is No Such Thing as Mandatory Out-Year Entitlement Spending!

Not quite as punchy as the original, is it? I am consoled by the fact that such smart people read Cato@Liberty.