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:
- Though the Department of Education’s annual budget has more than tripled in real dollars since 1970, that period has not been marked by any tangible improvement in student performance.
- The Department of Housing and Urban Development operates a rural subsidies program even though hundreds of other federal programs benefiting rural constituencies already exist.
- HUD has been characterized by scandalous graft and cronyism under both Republican and Democratic presidents for three decades. The rate at which senior HUD officials have been investigated or prosecuted is chilling, and government watchdogs have found dozens of instances where officials’ private-sector contacts were showered with public money for projects.
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.
Filed under: Foreign Policy and National Security; General
The “Culture of Spending” from the Mouths of Babes
Each semester, when I speak to Cato’s new employees and interns, I give them a quick discussion of some of the reasons that government tends to grow, such as the problem of concentrated benefits and diffuse costs and what James Payne called “the culture of spending.” In his book by that title, Payne noted:
The congressman lives in a special world, a curiously isolated world that is dominated by the advocates of government action. He is subjected to a broad chorus of persuasion that incessantly urges the virtues of spending programs. Year after year he hears how necessary government programs are.
Day after day, year after year, people come to the congressman’s office with stories about why some particular government program is needed — to help their grandfather, their brother-in-law, their community — and rarely if ever does a constituent fly to Washington to urge his congressman to vote against any particular one of the myriad programs that add up to his entire income tax bill.
The Washington Post has a great illustration of this problem in the Sunday paper. The little town of Owego, New York, was excited to hear that Lockheed Martin would build the new presidential helicopter — it’s called Marine One, though fortunately for Lockheed the government wanted 23 of them — at a plant in Owego. But as the price tag ballooned from $6.8 billion to $13 billion, even politicians began to see it as an unnecessary expense. The military canceled the program on June 1. Hundreds of jobs will be lost in Owego. And as the Post writes:
An 11-year-old Owego girl, whose parents are longtime Lockheed employees, recently hand-wrote a letter to Obama. It was published in the local newspaper and quickly became a voice for her shaken community.
“Lockheed is the main job source in Owego,” Hailey Bell, now 12, wrote. “If you shut down the program, my mom may lose her job and a lot of other people too. . . . Owego will be a ghost town. I’ve lived here my whole life and I love it here! Please really, really think it over.”
I’m sure she loves her parents and her town. And there’s no reason to expect Hailey to understand what $13 billion means to taxpaying Americans all over the country. But this is just the kind of story that members of Congress hear all the time: save my parents’ jobs, save my community, save our farms. And it all adds up to a $4 trillion federal budget with a $1.8 trillion deficit. (And by the way, if you Google “fiscal 2009 budget,” you will quickly find the Obama administration’s budget page, which somewhat oddly does not show the actual budget totals but does invite you to “Use the map below to learn more about how the President’s 2010 Budget is restoring long-term opportunity and prosperity in your state.”)
For a more, shall we say, adult view of what it means to direct federal dollars to particular areas, we might turn to an advertisement in the Durango, Colorado, Herald in 1987, which touted the Animas-La Plata dam and irrigation project and made explicit the usual hidden calculations of those trying to get their hands on federal dollars:
Why we should support the Animas-La Plata Project: Because someone else is paying the tab! We get the water. We get the reservoir. They get the bill.
That’s the way they tell it back home, usually without putting it in writing. In public and in Washington, they say, “Without this dam, our little town will waste away. Only you can save us, Mr. Congressman.” And it’s bankrupting us.
What’s a Trillion Dollars Among Friends?
If you’re Barack Obama, money is no object. The national debt exceeds $11 trillion. We’ve had about $13 trillion worth of bail-outs over the last year. The deficit this year will run nearly $2 trillion. The Congressional Budget Office warns of a cumulative deficit of some $10 trillion over the next decade.
Now Obama-style health care “reform” will add another $1 trillion in increased spending over the same period. And the ultimate cost likely would be higher, perhaps much higher. Reports the Congressional Budget Office:
According to our preliminary assessment, enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010-2019 period. When fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million or 17 million.
These new figures do not represent a formal or complete cost estimate for the draft legislation, for several reasons. The estimates provided do not address the entire bill—only the major provisions related to health insurance coverage. Some details have not been estimated yet, and the draft legislation has not been fully reviewed. Also, because expanded eligibility for the Medicaid program may be added at a later date, those figures are not likely to represent the impact that more comprehensive proposals—which might include a significant expansion of Medicaid or other options for subsidizing coverage for those with income below 150 percent of the federal poverty level—would have both on the federal budget and on the extent of insurance coverage.
Then there is the more than $100 trillion in unfunded Medicare and Social Security benefits.
Just who is going to pay all these bills?
Don’t worry, be happy.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
Week in Review: Health Care Battles, Pay Caps and North Korean Prisoners
Will Obama Raise Middle-Class Taxes to Fund Health Care?
President Obama is promoting an expansion in federal health care spending, and Democratic leaders are scrambling to find ways to pay for it. The plan is expected to cost about $1.5 trillion over the next decade, but the administration has promised that health care legislation won’t add to already huge federal budget deficits. In a new paper, Cato scholars Michael D. Tanner and Chris Edwards argue that expanding government health care will likely involve huge tax increases on the middle class.
Tanner warns of “Obamacare” to come, saying that Obama’s new health care plan will give “government control over one-sixth of the U.S. economy, and over some of the most important, personal, and private decisions in Americans’ lives.” Don’t miss Tanner’s in-depth analysis of the new health care plan that is making its way through Congress, which “would dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients.”
A part of the plan would include “public option” (read: government-run) health care, which would allow the government to compete against private health care providers. Tanner says it would be the first step toward wiping out the private insurance market as we know it:
Regardless of how it is structured or administered, such a plan would have an inherent advantage in the marketplace because it would ultimately be subsidized by taxpayers. It could, for instance, keep its premiums artificially low or offer extra benefits, then turn to the U.S. Treasury to cover any shortfalls. Consumers would naturally be attracted to the lower-cost, higher-benefit government program.
…It is unlikely that any significant private insurance market could continue to exist under such circumstances. America would be firmly on the road to a single-payer health care system with all the dangers that presents. That would be a disaster for American taxpayers, physicians, and—most importantly—patients.
Treasury Seeks to Control Executive Pay Across the Private Sector
Fox Business reports, “The Treasury Department on Wednesday took new steps to rein in executive compensation, saying the Obama Administration would introduce legislation that could create stricter limits on pay; it also appointed an official to head up efforts on the issue.”
In a 2008 Policy Analysis Ira T. Kay and Steven Van Putten explain the misconceptions many people have about executive pay, and why the market is a better arbiter than any bureaucrat in Washington:
Such populist sentiments are often based on misunderstandings about the role of corporate executives in the economy and the vigorous competition that exists for these highly skilled leaders. In the past, federal regulatory efforts based on such misunderstandings have generated unintended consequences, which have damaged the economy and hurt the ability of the market for executives to self-regulate over time.
The labor market for executives and the associated pay levels are already subject to high levels of regulation. Indeed, U.S. corporations are subject to more stringent executive pay disclosure requirements than corporations anywhere else in the world. Before additional regulatory and legislative efforts are unleashed, policymakers should examine the rationale for current pay structures and the strong links between executive pay and corporate performance.
In a Washington Times op-ed, Alan Reynolds says efforts to cap executive pay are wholly misguided:
Congressional hearings to barbecue Wall Street executives are as fun as a circus, but with more clowns. Presidential politics is now taking such political distractions to a lower level.
…Most top executives who were actually in charge during the craze of overinvestment in mortgage-backed securities have been fired. Executives who are fired are not in a position to be “giving themselves” anything.
In reality, top executives are mainly paid by accumulating a big stockpile of company stock and stock options. Estimates of annual CEO pay that Congress and the press have been focusing on look as high as they do only because of the high value of restricted stock or stock options at the time.
Writing in 2007 (before the first round of major bailouts), Cato scholars Jerry Taylor and Jagadeesh Gokhale took it a step further: “Pay Bosses More!”:
Excessive executive compensation harms no one but perhaps the stockholders who put up with it. And stockholders put up with it because there’s good reason to believe that sizable CEO compensation packages help — not harm — corporate performance, which redounds to their benefit, and that of the firms’ workers.
Companies pay workers what they must to deliver their products and services to the market, and supply and demand establishes executive compensation packages the same way it establishes consumer prices. Any overcompensation comes out of the firm’s bottom line — at a loss to the shareholders, not the workers.
North Korea Sentences Two U.S. Journalists to 12 Years Hard Labor
Two American journalists were convicted of entering North Korea illegally while on assignment, and exhibiting “hostility toward the Korean people.” This week, a North Korean court sentenced them to 12 years in a labor prison.
Cato scholar Doug Bandow comments:
Washington should publicly downplay the controversy and present the issue to the Kim regime as a humanitarian matter. The Obama administration should indicate its willingness to open a broader dialogue with North Korea, but indicate that positive results will be possible only if Pyongyang responds with cooperation instead of confrontation. Releasing the two journalists obviously would provide evidence of the former.
Regrettably, Laura Ling and Euna Lee are political pawns. As such, Washington’s best strategy to achieve their release is to simultaneously reduce their perceived value to Pyongyang and ease tensions between the U.S. and North Korea. Patience may be the Obama administration’s highest virtue and Ling’s and Lee’s greatest hope.
In a Cato Daily Podcast, Bandow discusses what can be done for the American prisoners, and how the U.S. government should react.
Democratic Deficit Hawks?
In a hagiographic profile of Obama budget director Peter Orszag, Ryan Lizza of the New Yorker writes of the “pressure” he might get from congressional deficit hawks:
The respective heads of the House and Senate Budget Committees, John Spratt, Jr., of South Carolina, and Kent Conrad, of North Dakota, have spent years trying to control the deficit…
Kent Conrad, the chairman of the Senate Budget Committee, has made eradicating the federal budget deficit his life’s work.
Now, you’d think that if the ranking Democrats on the congressional budget committees had made deficit reduction their life’s work, the budget wouldn’t have, you know, skyrocketed over the past decade and more. So let’s go to the tape.
The National Taxpayers Union has given Spratt an F for his votes on federal spending every year for more than a decade. (He had a couple of D’s earlier in his career.) In the past two years, he voted with the taxpayers 5 and 6 percent of the time. He voted for spending bills more often than the average member of the House, and more often than the average Democrat. Some deficit hawk!
Conrad has an almost identical record — almost all F’s, with ratings of 5 and 6 in the past two years.
By another measurement, in the 109th Congress (the most recent for which these calculations are available), Spratt voted for $184 billion in additional spending and voted to cut — drum roll, please — $4.8 billion in spending. Conrad voted to cut $8 billion, but he also voted to hike spending by $362 billion. In what world are these guys “trying to control the deficit”?
NTU does have one analysis that makes Conrad and Spratt look a little better: the bills they have sponsored or cosponsored. Spratt introduced 32 bills that would increase spending and 2 that would cut spending. While that may not sound very thrifty, it compares favorably to, say, Hilda Solis’s 110 bills to increase spending or Barney Frank’s 112. And the total new spending in Spratt’s bills — $7 billion — is positively Randian. Conrad’s record is similar — 36 bills to increase spending by $8 billion, which compares very favorably to, for instance, Hillary Clinton and Thad Cochran.
Apparently Conrad and Spratt don’t introduce too many spending bills, but they vote for all the ones that get to the floor. Not exactly a strategy that holds the budget down. The search for a fiscally conservative Democrat continues.
Does Big Government Breed Corruption and Sleaze?
Washington is riddled with both legal and illegal corruption, but why?
Perhaps it is because government is too big and has too much power. The federal budget redistributes $3.5 trillion through more than 1,800 subsidy programs. The regulatory burden is $1.2 trillion and there have been 51,000 new regulations since 1995. And there are more than 70,000 pages of tax law and regulations.
These are the reasons why Washington is a hornet’s nest of deal-making, influence-peddling, and back-scratching.
In this new video, produced by the Center for Freedom and Prosperity, I argue that reducing the size and scope of government is the only effective way to control Washington sleaze.
Filed under: Government and Politics; Tax and Budget Policy
The President’s Make-Believe Fiscal Conservatism
At first, I thought the calendar was wrong and it must be April 1 and the White House was playing an April Fool’s joke. That seemed like the only logical explanation for a story in today’s Washington Post stating that the President wants all government departments to identify $100 million in supposed budget cuts. With 14 cabinet-level departments, that adds up to $1.4 billion of savings — and those savings almost certainly be measured against an ever-increasing budget baseline, which means that they would merely be reductions in planned increases. This is a shallow and insincere stunt to trick taxpayers. This is the same President, after all, that just squandered nearly $800 billion on a so-called stimulus bill. And this is the same President that just rammed through a $3.5 trillion budget. This chart provides a useful comparison.
For those who appreciate irony (or perhaps a late April Fool’s joke), the Washington Post story makes for interesting reading:
President Obama plans to convene his Cabinet for the first time today, where he will order members to identify a combined $100 million in budget cuts over the next 90 days, according to a senior administration official. Although the cuts would account to a minuscule portion of the federal budget, they are intended to signal the president’s determination to trim spending and reform government, the official said. …In his radio and Internet address Saturday, Obama repeated his vow for his administration to scour the federal budget “line by line” to reduce spending.
Update: Some people have written to say that Obama is asking his team to come up with a combined $100 million, not $100 million from each department. So my initial post gave him 14 times too much credit. This is almost beyond parody.
Filed under: Government and Politics; Tax and Budget Policy
New at Cato, Tax Day Edition
Here are a couple of dishes Cato Institute scholars cooked up for Tax Day:
- Writing for National Review Online, Chris Edwards warns against the dangers of rapidly increasing government spending:
When filling out your tax forms, you might want to think for a second about where all that money is going. After federal spending roughly doubled in the Bush years, it is growing by leaps and bounds under President Obama. What’s more, the federal government is increasing the scope of its activities — it is intervening in many areas that used to be left to state and local governments, businesses, charities, and individuals.
There are now a staggering 1,804 subsidy programs in the federal budget. Hundreds of programs were added this decade, and the recent stimulus bill added even more. The result is that we are in the midst of the largest federal gold rush at taxpayer expense since the 1960s.
- At Townhall, Dan Mitchell rails against the current tax code:
Beginning as a simple two-page form in 1913, the internal revenue code has morphed into a complex nightmare that simultaneously hinders compliance by honest people and rewards cheating by Washington insiders and other dishonest people.
But that is just the tip of the iceberg. The tax code also penalizes economic growth, distorts taxpayer behavior, undermines American competitiveness, invites corruption and promotes inefficiency.
- At CNSNews.com, Edwards argues that policymakers should give Americans the low and simple tax code that they deserve.
- Also, don’t miss the new Cato video that reveals how troubling the American tax system really is.
Chuck Schumer Endorses Hoover Plan
On Meet the Press last Sunday, Sen. Chuck Schumer (D-NY) said
Those on the hard right say, “Cut government spending, let’s go back to the old Reagan days.” Well, the last president who did this when we were in this type of situation was Herbert Hoover. Herbert Hoover said the government should do nothing when we were in a recession, not a depression. We did nothing and it related [sic] to a depression.
Reality check: Did President Hoover cut federal spending during the recession that became a depression? Not by a long shot.
Source: OMB
Federal spending was $3.1 billion (those were the days!) in 1929, the year Hoover took office and the stock market crashed. It rose modestly for two years, then shot up in 1932. It dropped a bit in nominal terms in 1933, though deflation meant that the real budget increased. Then, presumably reflecting Roosevelt’s policies, it shot up again in 1934. In real terms, the federal budget was almost twice as high after Hoover’s four years as it was when he took office.
President Bush, President Obama, and Senator Schumer are all supporting Herbert Hoover’s failed policy of increasing spending to fight recession. Let’s hope they don’t have the same results and turn a recession into a Great Depression.
Cato adjunct scholar Ilya Somin dissects the “Herbert Hoover did nothing” fallacy at Volokh.com.
Republicans, Democrats, and Appropriators…and Pork
I’m sympathetic to the oft-repeated saying that there are really three parties in Washington: Republicans, Democrats, and Appropriators. This situation is likely to be demonstrated this evening when Republican members of the Senate Appropriations Committee provide enough votes for Democratic Sen. Harry Reid to close off debate and proceed to final passage of the pork-laden $410 billion fy2009 omnibus appropriations bill.
Greasing the skids for bigger government will be almost $8 billion in earmarks contained in the bill. Fox News is pointing out that almost all of the Republican Senators expected or likely to support the Democratic measure stand to deliver quite a bit of pork to constituents and special interests. Not coincidentally, all of the senators named, except Sen. Snowe of Maine, are appropriators. As a matter of fact, if you look at the top 20 senators (both parties) in terms of dollars of earmarks secured for this bill, 15 are appropriators.
Bottom line: Appropriators love spending and they particularly love pork. Sen. Snowe just likes the government spending other people’s money.
**Update: Cloture was invoked on a 62-35 vote and the legislation subsequently passed by voice vote. Every single Democratic member of the Senate Appropriation Committee voted for cloture. Republican appropriators Sens. Cochran, Specter, Bond, Shelby, Alexander, and Murkowski voted yes; Sens. McConnell, Gregg, Bennett, Hutchison, Brownback, Collins, and Voinovich voted no. Thus, without the support of these Republican appropriators, the bill would have been effectively killed. Of the top 20 recipients of earmarks in the bill, only 2 — Sens. Inhofe and McConnell — voted no.
Defense Cost Overruns
Wow, a bipartisan effort to actually do something about government waste. From the Washington Post today:
A bill to end cost overruns in major weapons systems would create a powerful new Pentagon position — director of independent cost assessments — to review cost analyses and estimates, separately from the military branch requesting the program.
Those reviews, unlike in the current process, would take place at key points in the acquisition process before a weapons program can proceed, according to legislation sponsored by Sen. Carl M. Levin (D-Mich.) and Sen. John McCain (R-Ariz.)
This seems like a step forward, but cost overruns are a big problem across the entire federal government, not just at the Pentagon. Federal financial management of energy, highway, and computer projects has been appalling, for example. I’ve written about this here and elsewhere.
The government needs to buy weapons, and so we should try to improve the Pentagon process as best we can. However, the federal government does not need to buy highways, airports, air traffic control computers and many other things that have chronic cost overruns. Those items should be privatized.
Here’s an Idea: Don’t Do Either!
One of the biggest pieces of news coming from President Obama’s budget preview is that he’d kill federal guaranteed student lending — in which the feds subsidize private lenders — and move everything to direct lending straight from the government. He promises that cutting out the middle man would save about $4 billion a year.
In the short term, that savings figure might be possible, though whether or not that is the case is likely to be hotly contested. Washington does spend a lot subsidizing loans so that they carry almost no risk to the lenders and are, hence, low-interest and abundant. Eliminating those subsidies could save some dough. That said, there is absolutely no reason to believe that making Washington the monopolist student lender will produce any long-term efficiencies. In fact, all it will do is ensure gigantic bloat, as is the case with any government monopoly.
A recent story in the New York Times, coupled with a blog entry I wrote in November, illustrates why neither guaranteed nor direct federal lending should ever be expected to produce efficient outcomes.
On the blog I wrote about how, in order to keep things rolling during the “credit crunch,” the Bush Administration was essentially going to buy up any student loans that lenders thought were too insecure. At the time, the Education Department kept declaring that whatever the feds ended up doing it would be “cost neutral” – we wouldn’t feel a thing as they kept banks and students in the money. I wondered, skeptically, how exactly that would be done, but couldn’t find anything explaining it. All I found were Education Department promises that it would be made clear…eventually.
It turns out, I was very likely right to be suspicious. As the Times reported on Wednesday:
The program is supposed to cost taxpayers nothing, but the Obama administration has asked for additional analysis.
“We have reviewed the analysis with the staff here, and we do not have confidence in the bottom line,” said a senior official at the White House Office of Management and Budget, who insisted on anonymity, citing administration policy. Referring to differences between agreements entered into by the departing Bush administration and public descriptions of the program, the official added, “The documents on their face raise serious questions about whether it’s cost-neutral.”
So it seems likely that the government essentially lied to America. “Oh yeah — ‘cost neutral.’ Sorry. We thought you wouldn’t notice.”
What this little episode illustrates is something we frankly already knew: Government officials will happily deceive us if that’s what it takes to enact policies that they think will make them look good, especially in the short term (meaning, until the next election). With that in mind, whether the feds are working with a middle man or giving students the money directly, it almost certainly doesn’t matter: money will be lost, and probably in much bigger amounts than the public will be led to believe.
So what is government to do about student loans? Nothing! Washington should get out of the loan business and leave promising students and profit-seeking lenders to find each other in pursuit of mutual gain. (A student with high earning potential? A bank looking to make some bucks? Why, it’s a perfect match!) Then we wouldn’t have to choose between the frying pan and the fire, nor would we continue to encourage tons of people to pursue college educations they don’t need, can’t handle, or both. In other words, we’d return both some sanity and taxpayer justice to the world of college finance.
New Mandatory Savings Plan?
I haven’t seen any media attention paid to it yet, and I don’t recall the president mentioning it in his speech Tuesday night. Regardless, p.37 of today’s budget blueprint calls for “Making Saving for Retirement Easier as the Economy Recovers.” Although it sounds innocuous, I believe the contents could be cause for alarm:
“Over the long-term families need personal savings, in addition to Social Security, to prepare for retirement and to fall back on during tough economic times like these. However, 75 million working Americans—roughly half the workforce—currently lack access to employer-based retirement plans. In addition, the existing incentives to save for retirement are weak or non-existent for the majority of middle and low-income households. The President’s 2010 Budget lays the groundwork for the future establishment of a system of automatic workplace pensions, on top of and clearly outside Social Security, that is expected to dramatically increase both the number of Americans who save for retirement and the overall amount of personal savings for individuals. research has shown that the key to saving is to make it automatic and simple. Under this proposal, employees will be automatically enrolled in workplace pension plans—and will be allowed to opt out if they choose. Employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. The result will be that workers will be automatically enrolled in some form of savings vehicle when they go to work—making it easy for them to save while also allowing them to opt out if their family or individual circumstances make it particularly difficult or unwise to save. Experts estimate that this program will dramatically increase the savings participation rate for low and middle-income workers to around 80 percent.”
Here are my concerns just off the top of my head:
Obviously, it represents yet another government encroachment upon individual liberty. While employees would be “allowed” to opt out, employers would not. More ominously, while there is no mention of government subsidization of individual plans or forced contributions by employers, how long will it take for activists and their congressional allies to go down those roads? I can already envision hordes of politicians bemoaning the inability of low- and moderate-income workers to direct any portion of their wages toward their accounts. And don’t just think this will be limited to leftist politicians. When I worked for the U.S. Senate a conservative senator once asked me to design a mandatory savings plan for all citizens in which the government and employers would “contribute.”
I guess the bright side here is that the administration is implicitly acknowledging that Social Security isn’t the wonderful retirement nest egg defenders have wanted us to believe. I also can’t help but chuckle at the political reintroduction of savings as being beneficial. Over the past year we’ve been repeatedly warned that savings is bad and spending is good. Anyhow, this issue is going to be one to watch going forward.
FY2009 Deficit = FY2000 Spending
Total federal spending in FY2000: $1.79 Trillion.
Total estimated FY2009 deficit according to today’s budget blueprint: $1.75 Trillion.
Obama’s $1.3 Trillion Tax Hike
Here are some notes on the tax proposals in the new federal budget: (See Table S-6; All figures are 10-year totals)
- There are $770 billion in “tax cuts for families and individuals.” However, the fine print on page 129 shows that $326 billion of that is actually spending, or the “refundable” portion of the tax changes. That leaves a net $444 billion in tax cuts for individuals.
- The budget would impose a $646 billion tax increase from new “climate revenues,” which would create a burden on families in the form of higher energy prices. Thus, there is a net tax hike on “families” of about $202 billion, even aside from the income tax increases at the top end.
- Income tax increases on those with higher incomes total $637 billion. Note that these hikes land on both individual filers and the huge number of small businesses that file through the individual system.
- Other tax hikes on businesses total a net $183 billion.
- Finally, Obama proposes to limit deductions for higher earners to raise $318 billion.
- Thus, President Obama proposes to hike taxes by a net $1,340 billion, or about $1.3 trillion, over the next decade. That’s the last thing we need to recover from recession and to compete in the global economy in coming years.
Filed under: Government and Politics; Tax and Budget Policy
Obama Budget Irresponsibility Inconsistency
Page 14 of the President’s FY2010 budget “blueprint” contains a section called “Fiscal Irresponsibility” that deserves scrutiny:
“Another manifestation of irresponsibility is the large budget deficits we are inheriting. These deficits, over time, will harm economic growth and impose burdens on our children and grandchildren.”
True.
“Between 2000 and 2008, real Government outlays increased at a 3.6 percent annual average rate, three times the 1.2 percent annual average rate between 1992 and 2000…Furthermore, the amount of debt held by the public has nearly doubled to $6.4 trillion from 2001 to 2008. We are now living with the fallout of this deep fiscal irresponsibility.”
True.
“Unfortunately, we are also inheriting the worst economic crisis since the Great Depression—which will force us to increase deficit spending temporarily as we try to jumpstart economic growth.”
Time-out. The administration accurately states that federal spending and debt have increased at a detrimental pace this decade. Then it says we’re in the worst economic crisis since the Great Depression.
And the solution to the economic downturn caused in part by too much spending and debt is to increase deficit spending and further run up the national debt? By the administration’s own logic, shouldn’t we be experiencing economic growth with all the deficit spending it “inherited?”
How to Spend a Trillion Dollars without Waste and Fraud
You can’t.
And the federal government knows it. On Tuesday,
Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud….
Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”
With the government having already allocated $700 billion for TARP, and $787 billion for “stimulus,” and President Obama now calling for $635 billion for health care and a federal budget soaring to $3.6 trillion — well, you’d think two government reports on the likelihood of fraud and waste would be news. But this testimony didn’t make the New York Times or the Washington Post. There was a small inside story in the Wall Street Journal.
One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:
you cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.
Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”
Saying “nobody messes with Joe” is not a solution to the inevitability of waste and fraud when an unaccountable bureaucracy is spending trillions of other people’s dollars.
Filed under: Government and Politics; Tax and Budget Policy
President Obama’s Budget: Higher Taxes & Bigger Government
“As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day… Not because I believe in bigger government — I don’t. Not because I’m not mindful of the massive debt we’ve inherited — I am.”
–President Obama to congressional joint session, February 24
President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.
Americans have a fundamental choice to make in coming months: Do they want President Obama and Congress to impose huge increases in the size of government, perhaps as dramatic as occurred in the 1930s and 1960s?
Apart from defense, federal spending has hovered around 16.5 percent of the economy since 1980, through both Democratic and Republican administrations. But under President Obama, nondefense spending is soaring to 23 percent of the economy this year and will remain at historic high levels in the future.
Even after current stimulus spending is supposed to end, nondefense spending is expected to be more than 19 percent of the economy — or 25 percent more than the size of government during the later Clinton years.
Americans need to decide whether they want the European-sized government that President Obama is promising — with all its damaging effects on individual freedom and economic growth — or whether they want to return to the greater prosperity of the smaller-government Clinton years.
Filed under: General; Government and Politics; Tax and Budget Policy
Cato Scholars Address Obama’s First Speech to Congress
President Barack Obama’s first address to Congress laid out a laundry list of new spending contained within the stimulus legislation and provided hints as to what will be contained in the budget – a so-called “blueprint for America’s future” – he’ll submit to the legislature. Cato Institute scholars Chris Edwards, Jim Harper, Gene Healy, Neal McCluskey, David Rittgers, John Samples and Michael D. Tanner offer their analyses of the President’s non-State-of-the-Union Address.
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