Tag: spending

Freedom Caucus and Spending Cuts

Federal spending will rise more than 7 percent this year and annual deficits will soon top $1 trillion. The government’s rising debt could generate a major financial and economic crisis. Members of Congress know about these problems and may feel uncomfortable about loading $22 trillion of debt onto young people.

But Congress is not taking any action to address overspending and debt. The Republican president rarely addresses the issue and most congressional Republicans follow his lead. As for Democrats, they seem consumed by their political battles with the president and do not focus on fiscal restraint.

What about the Freedom Caucus? These are 32 House Republicans whose raison d’etre is cutting the government. If anyone in Congress is focused on the deficit problem and pushing spending cuts, it should be these folks.

My intern, David Titus, and I examined the congressional websites of Freedom Caucus members hoping to find discussions about deficits and proposals for cuts. But we found little about those topics on member websites. We looked through the “issues” and “about” parts of member websites and we examined member press releases back to January 2017.

Some Freedom Caucus members are leaders of government restraint in areas such as foreign policy and civil liberties. But on spending cuts, most members have little to say, at least on their official websites.

The table below tallies the number of different programs Freedom Caucus members identify to cut or reform on their websites, and it tallies the number of general statements about the need for spending cuts. We summed these two items for an overall score. We think we counted fairly but don’t claim scientific precision. This is a rough tally.

The federal government runs 2,300 different subsidy or benefit programs. Yet, on average, Freedom Caucus members only mention four that they want to cut or reform. For example, Rep. Morgan Griffith suggests reforms to Medicaid, food stamps, flood insurance, and Obamacare. Some members only identify smaller programs to cut, such as Planned Parenthood.

On average, member websites include just three general statements about overspending. For example, Rep. Justin Amash says he “believes government overspending is one of the biggest threats to our economic health and national security, and he has introduced an innovative balanced budget amendment.” Amash identifies one program to cut, the Export-Import Bank.

Member websites are just one way that members interact with the public. They also talk to reporters, speak at hearings, and use social media. It is also true that the Republican Study Committee has proposed detailed spending reforms here.

However, as Amash says, “overspending is one of the biggest threats.” As such, every concerned member of Congress should be using their websites to inform the public about the threat and proposing detailed and specific solutions.

A Freedom Caucus member might say, “I’d like to cut many specific programs, but since those reforms wouldn’t get through the House or Senate, I won’t stick my neck out.” But that creates a vicious cycle. We won’t get momentum to pass cuts if members don’t propose them and push them. And if members don’t push specific cuts, the media won’t report on them and we won’t move the public discussion forward.

President Trump has proposed substantial cuts in his annual budgets. Those proposals are often discussed in the media for a while before they die. Why do Trump’s proposed cuts die? Because Republicans don’t defend and advance them on Capitol Hill. I noted here, for example, that Trump’s proposed cuts often don’t garner support from GOP members in committee hearings.

Many Freedom Caucus members have good voting records from a small-government perspective. But we also need them—and other members concerned about deficits—to press for specific spending cuts. Members can find cut ideas at Downsizing Government and in the Heritage Foundation’s Blueprint for Balance publication.

Retired and Raking It In

President Trump’s budget yesterday provides the latest evidence of out-of-control entitlement spending. In the baseline projections, Social Security spending will grow 5.9 percent in 2020 and Medicare spending will grow 8.8 percent. Social Security will grow at a 5.8 percent compound annual rate over the coming decade, while Medicare will grow at 7.8 percent. By contrast, inflation is expected to average 2.3 percent annually over the coming decade.

Social Security and Medicare are the first- and third-largest programs in the federal budget, and they are pushing the government toward a fiscal crisis. Medicare spending this year, net of premiums, is $645 billion, while the second-largest program, defense, is $674 billion. But Medicare spending will surpass defense in the next year or two, and by 2029 Medicare at $1.36 trillion will dwarf defense at $787 billion, at least in the baseline projection.

Social Security and Medicare are not the only programs for the elderly in the federal budget. A chart from CBO’s latest update shows the share of overall noninterest federal spending going to the old. The share is expected to rise from 40 percent in 2018 to 50 percent by 2029. Spending on the elderly will create sustained pressure on federal finances and taxpayer wallets in the years ahead.

Poll: 74% of Americans Support Federal Paid Leave Program When Costs Not Mentioned—60% Oppose if They Got Smaller Pay Raises in the Future

The Cato 2018 Paid Leave Survey, a new national poll of 1,700 U.S. adults, finds that nearly three-fourths (74%) of Americans support a new federal government program to provide 12 weeks of paid leave to new parents or to people to deal with their own or a family member’s serious illness. A quarter (25%) oppose establishing a federal paid leave program. However, support slips and consensus fractures when costs are considered.

Read about the full survey results here.

The survey found 54% of Americans would be willing to pay $200 a year in higher taxes, a low-end estimate, in exchange for a 12-week federal paid leave program. If the program were to cost them $450 in taxes a year—the mid-range estimate—52% of Americans would oppose it, while 56% would oppose if it cost them the high range estimate of $1,200 in taxes. (Low, mid, and high range cost estimates are based off of potential costs of the Family and Medical Insurance Leave Act (FAMILY Act). See here for further explanation of cost estimates).

What Trade-Offs Would Americans Make for Federal Paid Leave?

The survey also investigated Americans’ willingness to deal with other potential or likely trade-offs that research finds could result from establishing a federal paid leave program. Americans would oppose establishing a federal paid leave program if it had the following effects:

  • If it required the government to cut funding for other programs such as Social Security, Medicare, and education: 76% oppose and 21% favor
  • If it reduced employer-provided benefits such as health care benefits and vacation days: 68% oppose and 29% favor
  • If people who don’t use the program still had to pay higher taxes to fund it: 62% oppose and 36% favor
  • If people would receive smaller pay raises in the future: 60% oppose and 38% support
  • If it caused the national deficit to rise: 57% oppose and 40% favor

Research from OECD countries suggests federal paid leave programs may slow the pace of women’s career advancement. Thus, the survey investigated if Americans feel this would be an acceptable trade-off for establishing a federal program. The survey finds 69% would oppose and 29% would favor a federal paid leave program if women became less likely to get promoted and become managers as a result.

Partisan Consensus on Paid Leave Breaks Down When Costs Considered

At first, majorities of Democrats (88%), Republicans (60%), and independents (71%) all support establishing a new government program to provide 12 weeks of paid family or parental leave. However, consensus breaks down once the costs and trade-offs of the program are considered. 

Democrats turn against a federal paid leave program for the following reasons: if it meant they’d receive smaller pay raises in the future with 49% in favor and 49% opposed; if the program caused fewer women to get promoted and become managers (63% opposed); if it meant employers would reduce benefits workers receive like health care benefits and vacation days (63% opposed); or if government spending on Social Security, Medicare, or other programs had to be cut (74% opposed). However, Democrats say they’d be willing to pay higher taxes, as high as $1,200 per year to establish the program, with 60% in favor. In contrast, Republicans turn against federal paid leave if it costs them $200 a year or more, with 63% opposed. Independents are split on raising their taxes $200 a year but turn against the program if it cost them $450 or more a year, with 56% opposed.

Americans Are Cautious of 6-Month Federal Paid Leave Program

Americans are more cautious of establishing a 6-month federal paid leave program. Even before considering costs, 48% of Americans support and 50% oppose creating a 6-month federal paid leave program. Support drops to about a third if a 6-month program cost the average employee $525 a year (66% oppose, 32% in favor), or $750 a year (68% oppose, 31% in favor), or $2,100 a year (69% opposed, 28% in favor) in higher taxes.

New Parents: Childcare Costs and Flexible Work Arrangements More Important than Paid Leave 

Nearly two-thirds (63%) of new mothers say that more affordable daycare (24%), more flexible work schedules (22%), and the ability to work remotely (17%) are more important than more paid parental leave (12%) to help them balance work and family. New mothers also report that the ability to work part-time hours (10%) and have extended afterhours childcare (10%) would best help them balance work and family obligations. The survey included an oversample of mothers of children under the age of 3 to enhance precision of these results. Parents of children under 18 also prioritize more flexible work schedules (26%), ability to work remotely (23%), and more affordable childcare (20%) ahead of more paid parental leave (10%). 

Americans Support Parental Leave Savings Accounts

More than three-fourths (78%) of Americans support cultivating a culture of saving for parental and family leave through establishing a new tax-advantaged saving account for family and medical leave. Twenty percent (20%) oppose this proposal. Establishing family and medical leave savings accounts enjoys rare bipartisan support with majorities of Democrats (82%), Republicans (80%), and independents (69%) in support of offering tax advantages to people who set aside money for this purpose.

Estimating Costs of a Federal Paid Leave Program

The survey also measured how many Americans might use a federal paid leave program and how many weeks they might use, if it were available to them. The survey found that 24.8% of current workers said they wanted or needed to take leave in the past 1 year, after the birth or adoption of a child, to care for an ill family member, or to deal with their own serious medical condition. If Americans were offered 66% of their current pay, but not more than $1000 per week, they say they would have taken the following:

  • Those taking parental leave would have taken an average of 9 (median) or 13 (mean) weeks
  • Those taking leave to care for a family member would have taken an average of 9 (median) or 12 (mean) weeks
  • Those taking leave to deal with their own serious medical condition would have taken an average of 9 (median) or 14 (mean) weeks of leave

These data show that while people overwhelmingly support the general idea of more paid leave, they aren’t willing to accept most of the costs necessary with establishing a new federal government program for this purpose. You can learn more about how women and men think differently about federal paid leave and its costs along with other findings from the survey here.

Read about the full survey results and analysis here.

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

Methodology

The Cato Institute 2018 Paid Leave survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online during October 1-4, 2018 from a national sample of 1,700 Americans 18 years of age and older. Restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of error for the survey is +/- 2.4 percentage points at the 95% level of confidence. 

Should a Balanced Budget Amendment Also Determine the Size of Government?

The House of Representatives are set to debate and vote on introducing a Balanced Budget Amendment to the Constitution of the United States. Such a move is almost certain to fail, as it requires a super-majority in both chambers of Congress, and three-quarters of the states—38 out of 50—would need to ratify it. Coming hot on the heels of the recent spending-cap busting omnibus bill, it’s difficult not to see this as a form of Republican fiscal virtue-signalling.

As I wrote in my recent paper on fiscal rules, the best way to build support for fiscal conservatism is to deliver it. That means constructing an argument about the supply and demand for government, getting public and political buy-in for a new fiscally responsible budgeting framework, and taking the necessary steps to get to a stage where the budget is balanced, ideally though spending cuts. Neither party has shown an appetite for this so far – in fact, quite the opposite.

Rule design is an incredibly important part of acceptance, and then adherence to a rule, too, though: critics and economists have a point about some of the downsides of a pure year-on-year BBA (as proposed). Evidence from around the world suggests rules that are too inflexible to changing circumstances and recessions prove less durable.

Big Spenders Dominate

Congressional leaders have agreed to a 2,232-page omnibus spending package that allocates federal discretionary spending for 2018. Defense and nondefense spending levels are jacked up, budget caps are blown through, and the deficit is soaring.

You could say that the (nominally spendthrift) Democrats took the (nominally frugal) Republicans to the cleaners. But the real problem is that the great majority of members in both parties love federal spending. They think it unambiguously helps people; they are oblivious to constitutional federalism; they are willing to load more debt onto young people; and they have no idea about the negative consequences of government spending, such as the crowding out of private-sector activities.

It is amazing how many liberal priorities are included in the omnibus, despite the Republicans having the White House and majorities in both chambers. The Democrats highlighted some of their big-spending wins here:

  • Nondefense discretionary spending up $63 billion in 2018.
  • More for Head Start.
  • More for the child care and development block grant.
  • More for K-12 subsidies.
  • More for college subsidies.
  • More for renewable energy subsidies.
  • More for Amtrak subsidies.
  • More for urban rail subsidies.
  • More for community development subsidies.
  • More for the EPA.
  • More for public housing subsidies.

Aside from these increases in traditionally liberal programs, there were spending increases on many other programs that are also not properly federal activities, such as state-local policing and state infrastructure. If we are ever going to tackle massive federal deficits, we have to start cutting federal subsidies for state-local activities. But those subsidies keep rising.

More evidence on the bipartisan spending disease came Tuesday as HUD Secretary Ben Carson defended the administration’s budget to the appropriations committee. Carson did a fine job. He had many facts at his disposal, he generally defended the administration’s proposed cuts, and he deflected seemingly unfair accusations about his office expenses.

What struck me was that in the hearing’s Q&A, not a single Republican member spoke out in favor of the administration’s proposed HUD budget cuts. This is a department chock full of 1960s-style liberal interventionist programs, such as public housing and community development. If Republican members were conservatives, they would have lauded the proposed HUD cuts, but they did not.

It is sad reality that we get much more resistance to spending on Capitol Hill when Republicans are in the minority.

The Wall Street Journal Declares “Creditor Emptor”

Last week the Wall Street Journal’s editorial page criticized the investors who lent money to Puerto Rico as being naive about political risks and suggested that they more or less deserve the massive haircuts currently being proposed.  However, this is a puzzling perspective that misconstrues the legal issue at hand—and bodes poorly for the next government that gets in such a mess.

Disregarding the Commonwealth’s constitutional requirement to prioritize general obligation debt above other obligations is not a regrettable necessity, as the Journal seems to suggest, but a violation of the law. Such a step is not only unnecessary but also portends long-run ramifications that would be to the detriment of the island’s residents.

The Journal mistakenly places its faith in the island’s recently announced fiscal plan, which bases its sparse debt repayments on the island’s supposedly ongoing economic contraction. In fact, Puerto Rico’s nominal GDP is at an all-time high (as are tax revenues), having grown 20% over the last decade. While the Journal praises the fiscal plan’s ostensible parsimony, spending actually grows by 12% over the next decade—it’s the 80% reduction in debt payments that makes it appear as if Puerto Rico’s government has restrained anything. To essentially forego any serious spending reforms when there is a fiscal oversight commission in place to take the political heat is mystifying—as is the Wall Street Journal’s facile praise of this approach. It’s also worth remembering that Puerto Rico’s government employs a much greater proportion of its workforce than any state in the union, so this notion that there’s nothing to cut in their budget doesn’t hold water.

If Puerto Rico does succeed in escaping its obligations to secured creditors, look for a stampede in the bond markets, as lenders come to realize there is no such thing as a safe government bond or an ironclad legal protection. What happens in Puerto Rico is going to be perceived by the bond markets as the model for Illinois—and Kentucky and California before too long.

What Puerto Rico threatens to establish is that regardless of any contractual agreements or constitutional pledges, all bets are off when a government not covered by Chapter 9 bankruptcy can’t pay its debts.

Infrastructure Investment: A Look at the Data

Hillary Clinton says that “we are dramatically underinvesting” in infrastructure and she promises a large increase in federal spending. Donald Trump is promising to spend twice as much as Clinton. Prominent wonks such as Larry Summers are promoting higher spending as well. But more federal spending is the wrong way to go.

To shed light on the issue, let’s look at some data. There is no hard definition of “infrastructure,” but one broad measure is gross fixed investment in the BEA national accounts. 

The figure below shows data from BEA tables 1.5.5 and 5.9.5 on gross investment in 2015. The first thing to note is that private investment at about $3 trillion was six times larger than combined federal, state, and local government nondefense investment of $472 billion. Private investment in pipelines, broadband, refineries, factories, cell towers, and other items greatly exceeds government investment in schools, highways, prisons, and the like.

One implication is that if policymakers want to boost infrastructure spending, they should reduce barriers to private investment. Cutting the corporate income tax rate, for example, would increase net returns to private infrastructure and spur greater investment across many industries.

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