Topic: Tax and Budget Policy

Anonymous Earmark Manifesto

Appropriations lobbyists have weathered a rough few years of media scrutiny, and a series of earmarking outrages has put pressure on Congress to pass minor reforms. Luckily there may be fewer vehicles for earmarks this year as Congress will probably pass only one or two appropriations bills for Fiscal Year 2009 and leave the budget mess for a new president to sort out.

Congressional appropriators have well-rehearsed defenses of the earmarking process, and an anonymous appropriations lobbyist has joined the fray to strike back at earmark critics. I obtained a copy of a six-page document defending the earmark system called “Fairness of Congressional Earmarking Report,” which is circulating around Capitol Hill.

Earmark enthusiasts argue that the Congressional system of doling out money to local governments, businesses and special interest groups is better than giving “faceless bureaucrats” the ability to allocate federal funds. The anonymous white paper expands on this argument and tries to make the case that earmarking is a much fairer process than letting federal agencies allocate the money.

The author of the paper is a member of an exclusive clique of former appropriations staffers called the 302(b) Group, according to Washington Post lobbying columnist Jeffrey Birnbaum.

Whether earmarks are useful depends on one’s perspective. To appropriations lobbyists and groups that have difficulty obtaining federal funding through merit-based, competitive grants, earmarks are a welcome bonanza. To taxpayers and advocates of spending restraint, transparent government and federalism, they’re woefully inefficient and pit parochial interests against the national interest.

Let’s look at the debate from the perspective of an appropriations lobbyist, to whom all federal spending is good federal spending:

The most democratic way to distribute these federal dollars is to spread funding across to numerous, meritorious local government projects rather than to concentrate resources to a select few.

Ah, democracy. The implication is that if someone is against earmarking, they must be some sort of dictator-loving democracy hater. The Chronicle of Higher Education published an investigative piece in March showing that the top recipient of educational earmarks for research in FY 2008 was Mississippi State University (Number two? The University of Mississippi). The Bulldogs are not known for a world-class research program, but they happen to have influential representatives and senators on the appropriations committees to steer funds their way. Never mind that educational earmarks receive little to no scrutiny to determine merit by scientists or that millions of dollars winds up at universities with no graduate or research programs in the research areas for which they receive funds. That’s earmark “democracy” in action.

The paper also analyzes the appropriations process during FY 2006 (when Congress used earmarks) and FY 2007 (when Congress did not use earmarks because the appropriations process fell apart and Congress fell back on a series of continuing resolutions that just increased spending across the board).

Generally speaking, federal agencies awarded substantially fewer grants when compared to when Congress earmarked these funds. A few local governments did better; the vast majority did not.

There’s a debate over whether earmarks increase overall spending or if they only divert it. Assuming that overall spending doesn’t change in a given year, earmarks just redirect spending to narrow interests; removing earmarks does not decrease spending. However, the paper seems to argue spending was reduced without considering the money was likely spent on other priorities.

In the bizarro lobbying world, the federal government spending less money on special interest projects is automatically a bad thing. To taxpayers, the notion that the government isn’t indiscriminately spending money because a representative or senator inserts an earmark in an appropriations bill is usually a good thing.

Communities across the nationwide are faced with increased traffic congestion and transportation needs. These local governments must address broken sidewalks, antiquated infrastructure, congested roads, and inadequate bicycle and pedestrian trails.

Setting aside this excerpt’s grammar issues, it’s comically ludicrous to suggest that the federal government needs to bail out local governments so that they can fix broken sidewalks and bike trails. Local governments are more accountable to residents’ spending wants and needs. It’s also more efficient to tax local and state residents to provide local and state infrastructure and services instead of routing the money through the maze of federal bureaucracy.

Reasonable people can disagree about the solution to the earmark problem. An effective argument for appropriators is that until the system is reformed, it’s their duty to get as much money for their district as possible — even if it’s wasteful and inefficient. This anonymous paper, though, is a silly defense of the system. It’s understandable why the author wants to remain anonymous.

Don’t Shoot the Messenger

I’m sorry to bring bad tidings so close to the weekend, but apparently House and Senate conferees have reached agreement [$] on the broad outlines of a Farm Bill.

We will have to wait until Monday to get the full, disgusting details but broadly, we know this about the proposed bill:

  • it will raise the target prices and loan rates for northern crops (i.e., wheat, soybeans, other feedgrains) beginning in 2010
  • raise the sugar loan rate three-quarters of a cent
  • include a sugar-to-ethanol program (whereby the USDA would buy sugar that would otherwise threaten the domestic minimum price and sell it, presumably at a loss, to ethanol plants)
  • an additional $4 billion for conservation programs
  • $10.361 billion extra for domestic and international food aid programs
  • The bill also includes the new “permanent” disaster program (some thoughts on that here), albeit at $250 million less than the original $4 billion request

To pay for this, your representatives in Congress cut the $5.2 billion per year direct payments program (that is the program that pays farmers on the basis of past production and yields, regardless of what they produce now) by 2 percent per year for four years. Recall that the direct payments program, while an offence to taxpayers everywhere, is at least less trade distorting than the price-linked subsidies that the conferees have agreed to increase. And in the final year, when it really counts for purposes of planning future spending levels (i.e., the baseline), the direct payments will go back up again.

The one possible bright light at the end of this sewer-pipe: a presidential veto. No word from the administration on this latest deal, but it does not fit their past definition of an acceptable amount of reform and thus, assuming intestinal fortitude on the part of President Bush (I know, I know), would likely elicit a veto threat.

Happy weekend, everybody.

A “Crisis” of Their Own Making

A National Conference of State Legislatures report released today is sparking gloom-and-doom headlines about states in fiscal crises. Conspicuously absent from the news stories is any mention of the root cause of the “shortfalls” supposedly wrecking havoc in state capitols.  Over the last few years, state lawmakers forgot the lessons of the 1990s, and decided to add new programs and significantly expand general fund spending on existing programs.

Now, according to NCSL:

Current state fiscal conditions are being driven by weak revenue performance. State officials expected revenue growth to slow in FY 2008, but not as dramatically as it has. […] Because most FY 2008 budgets were built on revenue forecasts that are not materializing as expected, budget gaps have grown.

This reminds me of a short story by J.D. Salinger in which the main character describes the tragic lives of “bananafish:”

Well, they swim into a hole where there’s a lot of bananas. They’re very ordinary-looking fish when they swim in. But once they get in, they behave like pigs. […]  Naturally, after that they’re so fat they can’t get out of the hole again. Can’t fit through the door.

In FY 2007 alone, states raised general fund spending by 9.3 percent, well above the 30-year average of 6.4 percent.  18 states saw spending rise by at least 10 percent.  The only real news here is that state governments are finding themselves in a fiscal “hole” because they gorged on revenues when times were good, and now they have been fat so long they forgot how to go on a diet.

Yon Goicoechea Named Recipient of the 2008 Milton Friedman Prize for Advancing Liberty

Yon Goicoechea, leader of the pro-democracy student movement in Venezuela, has been awarded the 2008 Milton Friedman Prize for Advancing Liberty. Under Goicoechea’s leadership, the student movement organized mass opposition to the erosion of human and civil rights in Venezuela and played the key role in defeating Hugo Chávez’s bid for a constitutional reform that would have turned the country into a dictatorship. Goicoechea’s vision of optimism, tolerance, and modernity has breathed new life into efforts to defend basic freedoms in Venezuela and elsewhere in Latin America where freedom is threatened.

Full Details

Happy Tax Freedom Day!

Taxpayers can breathe a sign of relief. According to the Tax Foundation, April 23 is Tax Freedom Day. That means that the average American has finally earned enough to pay estimated federal, state, and local taxes for 2008. One of the most depressing finding in the Tax Foundation’s report is that Americans pay more in tax than they do for food, clothing, and shelter combined. To compensate for being the bearer of bad fiscal news, the Tax Foundation released an amusing video. It doesn’t quite equal this classic tax video, but it’s worth watching.

Money Meddling

Are you an entrepreneur who deposits a regular amount of your business revenues in the bank? Watch out, the government might come after you for illegal “structuring.”

Are you a high earner who regularly pulls out a substantial amount of cash from your bank account? Watch out, your bank could be sending ”suspicious activity reports” about you to the government, as former senator Bob Dole’s bank did.

Have you ever deposited or withdrawn more than $10,000 from your bank? Watch out, because your activities were recorded on a government database of “currency transaction reports,” which is growing by 16 million new reports each year.

Did you overstate your income on a loan form when you bought your house? Watch out, the government could nail you for both ”bank fraud” and “money laundering.”

Forbes focuses on government encroachments on our civil liberties in a series of articles this month. See here, here and here

As a tax wonk, the IRS angle in these articles caught my eye. But like many people, I find it very disturbing that continual expansions in federal power are shrinking the realm of privacy and individual automony in modern society.  

No District for Fishermen

The Washington Examiner reports on how carefully your taxpayer dollars are spent by both federal and local governments:

The District of Columbia has agreed to pay $1.75 million to head off a lawsuit alleging that the city bilked the federal government out of money to educate children who didn’t exist, The Examiner has learned.

For decades, District schools took in millions of dollars in grants to educate the children of migrant farmworkers and fishermen. But, as first reported by The Examiner in August, a 2005 audit discovered there were no such children in the system.