Tag: federal budget

State and Local Subsidies

Earlier this week I criticized the U.S. Conference of Mayors for going to Washington and groveling for more federal handouts. Let me provide some more background for my criticisms with a look at federal budget data. The first chart shows that since 1960, total federal subsidies to state and local government have increased an astounding 1,173%.

Several readers have asked me what particular programs account for this large increase in state aid. The federal budget breaks down the total figures into categories. Not surprisingly, health subsidies — mainly Medicaid — account for almost half of the current total and are the driving force behind the massive overall increase:

However, there have been large increases in other activities as well. Here are the changes by federal budget function in state aid since 1960, in billions of 2010 dollars:

  • Health: $1.5 to $310.7 (+21,128%)
  • Education, Training, Employment & Social Services: $3.7 to $103.3 (+2,723%)
  • Community & Regional Development: $0.7 to $20.3 (+2,674%)
  • Other*: $0.7 to $12.0 (+1,707%)
  • Natural Resources & Environment: $0.7 to $7.8 (+966%)
  • Income Security: $19.0 to $113.8 (+498%)
  • Transportation: $22.0 to $73.5 (+235%)
  • General Government: $1.5 to $4.7 (+221%)
  • Administration of Justice*: $2.6 to $5.3 (+100%)
  • Agriculture: $1.5 to $1.0 (-32%)

*Administration of Justice begins in 1975. “Other” begins in 1965 and consists of grants for national defense, energy, social security, and veterans’ benefits and services.

All of these categories are at or near their high water mark in constant dollars with the exception of Natural Resources & Environment ($13.8 in 1980), Agriculture ($4.5 in 1985), and General Government ($26.9 in 1975).

Rather than being deprived, state and local governments have developed an unhealthy dependency on federal money. In a way, the states have become an extension of the federal government. This is at odds with the Constitution, which clearly intended for the federal government to have specific limited powers. As the 10th amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” There seems to be very little reserved to the states anymore, and even less to the people.

See these essays for more on constitutional basics and the desirability of fiscal federalism.

State of the Union Fact Check

Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.

THE STIMULUS

Obama’s claim:

The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right – the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.

Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.

CUTTING TAXES

Obama’s claim:

Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.

Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”

Visit Cato’s Tax Policy Page for much more on this.

SPENDING FREEZE

Obama’s claim
:

Starting in 2011, we are prepared to freeze government spending for three years.

Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.

“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”

Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.

JOB CREATION

Obama’s claim:

Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.

Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”

Tax Hike Commission

The Senate Homeland Security and Government Affairs Committee is holding hearings today focused on Senator Kent Conrad (D-ND) and Judd Gregg’s (R-NH) idea to set up a special Task Force to draft a deficit-reduction plan. The plan would get fast-tracked through Congress for a vote and “everything would be on the table.”

For taxpayers, this idea creates the threat of large tax increases on top of all the other tax increases being discussed in Congress. While the senators supporting a Task Force express valid concerns about the government’s exploding debt, the plan could launch a drive to impose a European-style value-added tax in America.

In theory, such a Task Force could come up with some meaty and long-overdue cuts to the federal budget. But nine of the senators co-sponsoring the Conrad-Gregg Task Force, including Conrad, voted in favor of the massive spending bill passed by the Senate on Sunday, which increased appropriations by 10 percent in a single year.

In calling for deficit reduction, Senator Conrad says that “it is no longer enough for Congress to simply talk about reform; it is time for action and leadership.” But Senator Conrad certainly hasn’t shown reform leadership on farm subsidies. So until he and his colleagues start restraining their own spending appetites, it’s safe to assume that ”everything on the table” really just means a sneaky, under-the-table tax increase.

Strange Bedfellows?

Jon Walker at FireDogLake says I’ve got the wrong smoking gun:

The smoking gun was a manual put out by the CBO in May…It spelled out exactly how much regulation was “too much” regulation. It explained what was the magical threshold that would cause [CBO director] Doug Elmendorf to declare some private market part of the government budget. Now, I’m angry about this for different reasons than the Cato Institute. I think it is insane that there could be any level of regulation that would make the private market part of the federal budget. Either the money is going through the federal treasury or it is not. I don’t think the the CBO director should have the power to see gray areas on this issue…There is no real logic to it, he simply decided what he thought was enough regulation to make something part of the budget.

To be sure, Walker and I have different ideas when it comes to (1) health care reform.  (Not that you asked, but here are my ideas.)  We likewise disagree that (2) the CBO’s May 27 paper was the smoking gun.  That paper laid out the CBO’s (vague) criteria for including “private” financial transactions in the federal budget (and I duly linked to it in my ‘smoking gun’ post).  But the December 13 memo is the first documented instance of Democrats gaming those criteria.  And I disagree that (3) this was all Elmendorf’s decision, (4) the federal budget should reflect only money that passes through the Treasury (instead of all the money that the feds control), and (5) there’s no logic behind the CBO’s criteria.

All that said, there are a couple of areas where Walker and I agree.  For one, he writes:

More importantly, I don’t think something as important as regulation should be written to trick the CBO. It should be written to produce the best heath care system possible, not the best looking CBO score possible.

Hear, hear.  Yet congressional Democrats have been doing just that, gaming the CBO’s rules to hide the implicit subsidies their legislation would provide to large private insurance companies.

For another, he and I both agree that that legislation is little more than a bailout of large private insurance companies and would be worse than doing nothing.

My question for Walker, and for Howard Dean, and for Markos Moulitsas is: will they join me in calling for the Senate to obtain a CBO cost estimate of the off-budget part of the insurance-industry bailout (i.e., the individual and employer mandates)?  Do they think Senate Majority Leader Harry Reid should at least be up front with his base about what he’s asking them to swallow?  Do they think that We, the People deserve to know the whole truth about this bill?

Bland CBO Memo, or Smoking Gun?

This weekend, the Congressional Budget Office released “a very strange memo” titled, “Budgetary Treatment of Proposals to Regulate Medical Loss Ratios.”  You wouldn’t know it from the title, but that little memo is the smoking gun that shows how congressional Democrats have very carefully hidden more than half the cost of their health care bills.

First, a little history.  Like both the House and Senate bills, the Clinton health plan would have mandated that individuals and employers purchase private insurance.  In its 1994 score of the Clinton plan, Bob Reischauer’s CBO included those mandated “private” payments in the federal budget –- i.e., as federal revenues and federal expenditures.

And yet, none of the CBO scores of this year’s bills include the costs of similar individual/employer mandates as federal revenues or federal spending.

My read of the CBO’s score of the Clinton health plan is that the private-sector mandates accounted for around 60 percent of the Clinton health plan’s total cost, the remainder being (traditional) government spending.  So how is it that the CBO made the full cost of the Clinton health plan apparent to the public in 1994, but may now be revealing only 40 percent of the cost of the Obama health plan?

For some time, I’ve suspected the answer is that congressional Democrats have very carefully tailored their individual and employer mandates to avoid CBO’s definition of what shall be counted in the federal budget. Democrats are still smarting over the CBO’s decision in 1994.  By revealing the full cost of the Clinton plan, the CBO helped to kill the bill.

Since then, keeping the cost of their private-sector mandates out of the federal budget has been Job One for Democratic health wonks.  While head of the CBO, Obama’s budget director Peter Orszag altered the CBO’s orientation to make it more open and collaborative.  One of the things about which the CBO has been more open is the criteria it uses to determine whether to include mandated private-sector spending in the federal budget.  The CBO even published a paper on the topic.  Read this profile of Orszag by Ezra Klein, and you’ll see that those criteria were also a likely area of collaboration with lawmakers.

The Medical Loss Ratios memo is the smoking gun.  It shows that indeed, Democrats have been submitting proposals to the CBO behind closed doors and tailoring their private-sector mandates to avoid having those costs appear in the federal budget.  Proposals that would result in a complete cost estimate – such as the proposal by Sen. Rockefeller discussed in the Medical Loss Ratios memo – are dropped.  Because we can’t let the public see how much this thing really costs.

Crafting the private-sector mandates such that they fall just a hair short of CBO’s criteria for inclusion in the federal budget does not reduce their cost, nor does it make those mandates any less binding.  But it dramatically reduces the apparent cost of the legislation.  It is the reason we’re all talking about an $848 billion Reid bill, rather than a $2.1 trillion Reid bill.

If someone sold you a house, or a car, or a mutual fund this way, we would put them in jail.

Cato Launches New Web Site Exposing Wasteful Government Spending

Did you know that the average American family spends $1,000 each year on the U.S. Department of Agriculture, whether or not it consumes that agency’s services?  Or that the federal government annually spends $1,500 per household on net interest costs alone?

In an ongoing effort to shed light on runaway government spending and expose wasteful government programs, Cato launched a new Web site today that examines the federal budget department-by-department to see which agencies can be reformed or terminated. DownsizingGovernment.org describes which programs are wasteful, damaging and obsolete in an era of trillion-dollar deficits.

The research exposes that many public outlays—though vigorously defended by the politicians who created them and the constituencies they purport to help—are remarkably ineffective at achieving their core aims.

Here are just a few examples:

Appearing on CNBC Monday, DownsizingGovernment.com editor Chris Edwards explained more about the site:

Plus, keep track of where your tax dollars are going by following DownsizingGovernment.com on Twitter (@DownsizeTheFeds) and Facebook.

Obama Is Right to Stare Down Congress Over the F-22

If Congress votes to build even more F-22s in the 2010 Defense Authorization bill, it will be a sad example of parochial interests overriding our nation’s security. The move would defy the wishes of the Pentagon and Defense Secretary Gates, who have wisely called for the program to come to an end.

The Raptor’s whopping price tag—$356 million per aircraft counting costs over the life of the program— and its poor air-to-ground capabilities always undermined the case for building more than the 187 already programmed.

In the past week, Congress has learned more about the F-22’s poor maintenance record, which has driven the operating costs to more than $44,000 per hour of flying, which is well above those of any comparable fighter. And, of course, the plane hasn’t seen action over either Iraq or Afghanistan, and likely never will.

If Obama is serious about getting a handle on the enormous federal budget deficit, confronting Congress over the clear wastefulness of the F-22 is certainly a good place to start.