Tag: federal budget

What Do the Subsidy Recipients Think about Cutting Subsidies?

Ever since President Trump and budget director Mick Mulvaney released a proposed federal budget that includes cuts in some programs, the Washington Post has been full of articles and letters about current and former officials and program beneficiaries who don’t want their budgets cut. Not exactly breaking news, you’d think. And not exactly a balanced discussion of pros and cons, costs and benefits. Consider just today’s examples:

[O]ver 100,000 former Fulbright scholars, among them several members of Congress, are being asked to lobby for not only full funding but also a small increase.

As a former Federal Aviation Administration senior executive with more than 30 years of experience in air traffic control, I believe it is a very big mistake to privatize such an important government function. 

On Thursday, all seven former Senate-confirmed heads of the Energy Department’s renewables office — including three former Republican administration officials – told Congress and the Trump administration that the deep budget cut proposed for that office would cripple its ability to function.

This is nothing new. Every time a president proposes to cut anything in the $4 trillion federal budget — up from $1.8 trillion in Bill Clinton’s last budget — reporters race to find “victims.” And of course no one wants to lose his or her job or subsidy, so there are plenty of people ready to defend the value of each and every government check. As I wrote at the Britannica Blog in 2011, when one very small program was being vigorously defended:

Every government program is “well worth the money” to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people “who will be most affected” by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers’ pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

A $4 trillion annual budget is about $12,500 for every man, woman, and child in the United States. If the budget could be cut by, say, $1 trillion — taking it back to the 2008 level — how much good could that money do in the hands of families and businesses? How many jobs could be created? How many families could afford a new car, a better school, a down payment on a home? Reporters should ask those questions when they ask subsidy recipients, How do you feel about losing your subsidy?

The Impact of Not Digging Holes

The American Public Transit Association (APTA) has a new report on the economic impact of President Trump’s proposal to stop wasting federal dollars on digging holes and filling them up. Actually, the report is about Trump’s proposal to stop wasting federal dollars building streetcars, light rail and other local rail transit projects, but the two have almost exactly the same effect.

The APTA report says that digging holes and filling them up would provide about 500,000 jobs (though it really means job-years, that is, 500,000 jobs for one year). Since APTA says it would take ten years to dig and fill the holes that Trump wants to stop funding, that’s 50,000 jobs a year.

However, nobody wants a job digging holes and filling them up. What they want is income. Since there is no market for refilled holes, the only source of income for digging and filling holes is tax dollars. So what APTA really wants Congress to do is take money away from workers and then give it back to them and call it jobs. That’s not very productive.

The APTA report also says that refilled holes create economic development that will generate another 300,000 more jobs (which again really means job-years). Supposedly, people like living, shopping, and working next to refilled holes and so they will clamor to have homes, stores, and offices built next to those holes.

I don’t believe that’s true, but let’s say it is. If we don’t dig and refill the holes, people will still need to live, shop, and work somewhere. So the homes, stores, and offices will still be built, though (if you believe in the hole-location theory) they might be built in some part of the city other than next to the undug holes. Thus, digging holes creates zero net secondary jobs.

In fact, digging and refilling holes probably creates negative secondary jobs for the cities digging them because someone has to pay for those holes. The federal capital grants program only pays half the cost of digging and refilling the holes, and the locals have to pay for the rest. After the holes are dug, local taxpayers have to pay most of the cost of maintaining the refilled holes as settling is likely to occur. The local construction and maintenance costs put a huge burden on the local tax base, and some businesses are likely to locate in a city that isn’t obligated to pay for such holes.

In comparing streetcars, light rail, and other forms of rail transit to holes, some people might think I am unfair to holes. After all, holes don’t require annual operating costs like rail transit, and their maintenance costs are also a lot lower. For example, Washington DC used federal dollars to dig some holes and put trains in them, and now it faces a $25 billion maintenance backlog. If they had just left the holes empty, or filled them with dirt–or better yet not dug them at all–they wouldn’t have to worry about who is going to pay for that backlog.

As Will Rogers once said, “If you find yourself in a hole, stop digging.” The rail transit construction of the past 50 years has dug a huge hole that has cost taxpayers hundreds of billions of dollars and coincided with (and arguably contributed to) a decline in per capita transit ridership.

Whether we are talking about holes or building rail transit, the effect is the same. APTA wants Congress to take money from taxpayers so it can give it back to them and claim it is giving them jobs. APTA also wants local governments to take money from taxpayers so they can claim they are making cities more productive. But neither holes nor rail transit produce the income needed to sustain jobs nor do they make urban areas more economically productive. All they do is enrich a few contractors while adding to the overall tax burden. That’s why I think Trump’s policy of ending federal support to holes and other strictly local projects is a good idea.

Taxpayer Democracy, for Each Taxpayer

Today, the day American taxpayers wonder if the federal government is really worth all the money and hassle, I have an article at the Washington Post on how to give taxpayers more control.

Why shouldn’t taxpayers make direct decisions about how much money they want to spend on other government programs, like paying off the national debt, the war in Iraq or the National Endowment for the Arts? This would force the federal government to focus time and resources on projects citizens actually want, not just efforts that appeal to special interests.

To do this, we’d have to expand the concept of the campaign financing checkoff to all government programs. With this reform, the real expression of popular democracy would take place not every four years but every April 15. A new final page of the 1040 form would be created, called 1040-D (for democracy). At the top, the taxpayer would write in his total tax as determined by the 1040 form. Following would be a list of government programs, along with the percentage of the federal budget devoted to each (as proposed by Congress and the president). The taxpayer would then multiply that percentage by his total tax to determine the “amount requested” in order to meet the government’s total spending request. (Computerization of tax returns has made this step simple.) The taxpayer would then consider that request and enter the amount he was willing to pay for that program in the final column–the amount requested by the government, or more, or less, down to zero.

A taxpayer who thinks that $600 billion is too much to spend on military in the post-Cold War era could choose to allocate less to that function than the government requested. A taxpayer who thinks that Congress has been underfunding Head Start and the arts could allocate double the requested amount for those programs….

Real budget democracy, of course, means not just that the taxpayers can decide where their money will go but also that they can decide how much of their money the government is entitled to. Thus the last line on the 1040-D form must be “Tax refund.”  The form would indicate that none of the taxpayer’s duly calculated tax should be refunded to him; but under budget democracy the taxpayer would have the right to allocate less than the amount requested for some or all programs in order to claim a refund (beyond whatever excess withholding is already due him).

I regret that space considerations required the loss of my historical context:

Ever since Magna Carta, signed 800 years ago this spring, the Anglo-American tradition of fiscal policy has been that the people would decide how much of their money they would give to government. Parliament arose as a representative body to which the Crown would appeal for funds. The monarch had to explain why he or she was seeking more funds–and Parliament frequently rejected the request as frivolous, wasteful, or actually injurious to the commonweal.

Today, of course, we can’t count on the legislative branch to guard our tax dollars, and technology makes it easier for us to direct them ourselves.

More on taxes – and Magna Carta – in The Libertarian Mind. Find ideas for government programs that are unnecessary or too big at Downsizing the Federal Government.

And Next Year There Will Be an Eighth Budget “Showdown”

The Washington Post’s David Fahrenthold counts six budget “showdowns” in Washington over the past two and half year. The looming battle this fall over funding the government and raising the debt ceiling will be number seven. That led Fahrenthold to examine what the six showdowns have accomplished with regard to the size of government. 

In sum: we had big government two and half years ago and today we have…big government.  

Some left-leaning pundits are in a tizzy that the Washington Post would dare run an article that doesn’t speak of “draconian” spending cuts to “popular programs.” Instead, Fahrenthold looked at four measures and concluded that little has changed: federal spending is slightly down, the number of federal employees is slightly down, the number of regulations is up, and the federal government still has a lot of real estate. 

Fahrenthold’s sin (one of them) is that in pointing out that spending has gone flat after the bipartisan spending explosion of the 2000s he didn’t recognize the alleged virtues of increasing government spending to “stimulate” the economy. I’m guessing Fahrenthold didn’t get the memo that a journalist writing for a mainstream news outlet is supposed to supply a quote from some macroeconomic forecasting Nostradamus like Mark Zandi.    

I do wish, however, that Fahrenthold would have explicitly differentiated between the size and scope of government. When it comes to the scope of government activitybasically, what all Uncle Sam doesI don’t know how anyone could argue that it has receded in the past two and a half years. Or the past ten years. Or, well, you get the point. 

Senator Patty Murray Is Right…and Completely Wrong…about the 1990s

I wrote about the Ryan budget two days ago, praising it for complying with Mitchell’s Golden Rule and reforming Medicare and Medicaid.

But I believe in being honest and nonpartisan, so I also groused that it wasn’t as good as the 2011 and 2012 versions.

Now it’s time to give the same neutral and dispassionate treatment to the budget proposed by Patty Murray, the Washington Democrat who chairs the Senate Budget Committee.

But I’m going to focus on a theme rather than numbers.

One part of her budget got me particularly excited. Her Committee’s “Foundation for Growth” blueprint makes a very strong assertion about the fiscal and economic history of the Clinton years.

The work done in the 1990s helped grow the economy, create jobs, balance the budget, and put our government on track to eliminate the national debt.

As elaborated in this passage, the 42nd President delivered very good results.

President Bill Clinton entered office in 1993 at a time when the country was facing serious deficit and debt problems. The year before, the federal government was taking in revenue equal 17.5 percent of GDP, but spending was 22.1 percent of the economy—a deficit of 4.7 percent. …The unemployment rate went from 7 percent at the beginning of 1993 to 3.9 percent at the end of 2000. Between 1993 and 2001, our economy gained more than 22 million jobs and experienced the longest economic expansion in our history.

And the Senate Democrats even identified one of the key reasons why economic and fiscal policy was so successful during the 1990s.

…federal spending dropped from 22.1 percent of GDP to 18.2 percent of GDP.

I fully agree with every word reprinted above. That’s the good news.

So what, then, is the bad news?

Well, Senator Murray may have reached the right conclusion, but she was wildly wrong in her analysis. For all intents and purposes, she claims that the 1993 tax hike produced most of the good results.

President Clinton’s 1993 tax deal…brought in new revenue from the wealthiest Americans and…our country created 22 million new jobs and achieved a balanced budget. President Clinton’s tax policies were not the only driver of economic growth, but our leaders’ ability to agree on a fiscally sustainable and economically sound path provided valuable certainty for American families and businesses.

First, let’s dispense with the myth that the 1993 tax hike balanced the budget. I obtained the fiscal forecasts that were produced by both the Congressional Budget Office and the Office of Management and Budget in early 1995 because I wanted to see whether a balanced budget was predicted.

As you can see in the chart, both of those forecasts showed perpetual deficits of about $200 billion. And these forecasts were made nearly 18 months after the Clinton tax hike was implemented.

So if even the White House’s own forecast from OMB didn’t foresee a balanced budget, what caused the actual fiscal situation to be much better than the estimates?

The simple answer is that spending was restrained. You can give credit to Bill Clinton. You can give credit to the GOP Congress that took power in early 1995. You can give the credit to both.

But regardless of who gets the credit, the period of spending restraint that began at that time was the change that produced a budget surplus, not the tax hike that was imposed 18 months earlier and which was associated with perpetual red ink.

But spending restraint tells only part of the story. With the exception of the 1993 tax hike, the Clinton years were a period of shrinking government and free market reform.

Take a look at my homemade bar chart to compare the good policies of the 1990s with the bad policies. It’s not even close.

You may be thinking that my comparison is completely unscientific, and you’re right. I probably overlooked some good policies and some bad policies.

And my assumptions about weighting are very simplistic. Everything is equally important, with a big exception in that I made the government spending variable three times as important as everything else.

Why? Well, I think reducing the burden of government spending during the Clinton years was a major achievement.

But maybe we shouldn’t rely on my gut instincts. So let’s set aside my created-at-the-spur-of-the-moment bar chart and look at something that is scientific.

This chart is taken directly from Economic Freedom of the World, which uses dozens of variables to measure the overall burden of government.

As you can see, the United States score improved significantly during the Clinton years, showing that economic freedom was expanding and the size and scope of government was shrinking.

In other words, Patty Murray is correct. She is absolutely right to claim that Bill Clinton’s policies “helped grow the economy, create jobs, balance the budget.”

Now she needs to realize that those policies were small government and free markets.

Will the CR Delay ObamaCare?

Rep. Nita Lowey (D-NY) fears it will:

Lowey Statement on 2013 Continuing Resolution

Congresswoman Nita Lowey, Ranking Democrat on the House Appropriations Committee, today delivered the following statement on the House floor regarding the FY2013 Continuing Resolution and Defense and Military Construction/VA Appropriations bills:

Mr. Speaker, the bill before us contains a defense bill and a military construction/Veterans Affairs bill adjusting the FY 2012 funding levels to meet FY 2013 needs. It is unacceptable that federal agencies and departments covered by the 10 remaining bills would be forced to operate under full-year continuing resolutions based on plans and spending levels enacted 15-18 months ago.

Congress’ failure to do our jobs and pass responsible, annual spending bills limits our ability to respond to changing circumstances, implement other laws enacted by Congress, and eliminate funding that is no longer necessary.

Specifically, this bill will delay implementation of the Affordable Care Act, scheduled to begin enrolling participants in October. Without IT infrastructure to process enrollments and payments, verify eligibility and establish call centers, health insurance for millions of Americans could be further delayed.

But wait. The Obama administration says ObamaCare will roll out on schedule. Does Lowey know something?

Are Spending Cuts Good Politics?

Grover Cleveland says “yes.”

Calvin Coolidge says “yes.”

Chris Edwards says “yes.” From Downsizing the Federal Government: 

Another myth is that policymakers cannot make budget cuts without a backlash from voters. Yet reform efforts in the 1990s did not lead to a voter rebuke. In 1996, the Republicans were denounced viciously when they were reforming welfare. But they stuck together and succeeded, and today the achievement is widely hailed. Also in the 1990s, the Republicans proposed reductions to many sensitive programs including Medicare, Medicaid, education, housing, and farm subsidies. In their budget plan for 1996, House Republicans voted to abolish more than 200 programs including whole departments and agencies. 

The Republicans who led on these reforms were not thrown out of office, despite many of them being specifically targeted for defeat in 1996. The most hardcore budget cutters in the 104th Congress were freshmen who were reelected with larger vote margins than they had received in 1994. They included John Shadegg and Matt Salmon of Arizona, Joe Scarborough of Florida, David McIntosh and Mark Souder of Indiana, Steve Largent and Tom Coburn of Oklahoma, Mark Sanford of South Carolina, Van Hilleary of Tennessee, and Mark Neumann of Wisconsin. Indeed, many budget-cutting Republican freshman got reelected in districts that went for Bill Clinton on the presidential ticket in 1996. The high-profile leader of the House budget cutters, John Kasich (R-Ohio), consistently won reelection throughout the 1990s with two-to-one margins. In sum, cutting the budget can be good politics when done in a serious and up-front manner. 

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