A Washington Post investigation identified dozens of examples of federal policymakers directing federal dollars to projects that benefited their property or an immediate family member. Members of Congress have been enriching themselves at taxpayer expense? In other news, the sun rose this morning.

According to the Post, “Under the ethics rules Congress has written for itself, this is both legal and undisclosed”:

By design, ethics rules governing Congress are intended to preserve the freedom of members to direct federal spending in their districts, a process known as earmarking. Such spending has long been cloaked in secrecy and only in recent years has been subjected to more transparency. Although Congress has imposed numerous conflict-of-interest rules on federal agencies and private businesses, the rules it has set for itself are far more permissive.

Lawmakers are required to certify that they do not have a financial stake in the actions they take. In the cases The Post examined, not one lawmaker mentioned that he or she owned property that was near the earmarked project or had a relative who was employed by the company or institution that received the earmark. The reason: Nothing in congressional rules requires them to do so, and the rules do not address proximity.

With the fox guarding the henhouse, the most one can hope to accomplish is to limit the carnage. Many pundits, politicians, and policy wonks argue that a permanent ban on earmarks would be an effective limit. Unfortunately, that’s just wishful thinking as earmarks are merely a symptom of the real problem: Congress can spend other peoples’ money on virtually anything it wants.

Take the example of Rep. Candace Miller (R-MI):

In Harrison Township, Mich., Rep. Candice S. Miller’s home is on the banks of the Clinton River, about 900 feet downstream of the Bridgeview Bridge. The Republican lawmaker said when she learned local officials were going to replace the aging bridge, she decided to make sure the new one had a bike lane.

“I told the road commission, ‘I am going to try to get an earmark for the bike path,’” Miller said, recalling that she said, “If we don’t put a bike path on there while you guys are reconstructing the bridge, it will never happen.”

A member of the House Transportation Committee, Miller in 2006 was able to secure a $486,000 earmark that helped add a 14-foot-wide bike lane to the new bridge. That lane is a critical link in the many miles of bike paths that Miller has championed over the years. When the bridge had its grand reopening in 2009, Miller walked over from her home.

“People earmark for all kinds of things,” she said. “I’m pretty proud of this; I think I did what my people wanted. Should I have told them, ‘We can never have this bike path complete because I happen to live by one section of it’? They would have thrown me out of office.”

Forget how the federal money made it to Harrison Township, Michigan. As I’ve discussed before, the more important concern is that the federal government is funding countless activities that are not properly its domain:

There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge.

As a taxpayer, it disgusts me that Rep. Miller steered federal dollars to a project in her district that she personally benefited from. But would I be any better off had the money for a bike path in Harrison Township, Michigan come from a grant awarded by the Department of Transportation?

If Harrison Township wanted a bike path, then it should have been paid for with taxes collected by the appropriate unit of local government. Better yet, a private group could have raised the funds. Either way, I don’t see how it’s possible to argue that the U.S. Constitution gives Congress the authority to spend taxpayer money on such activities. Invoking the General Welfare Clause doesn’t pass the laugh test as the bike path obviously doesn’t benefit the rest of the country. The Commerce Clause? Please.

For more on why the federal government should stop subsidizing activities that are properly the domain of the state and local government, see this Cato essay on fiscal federalism.

Earmarks are a Symptom of the Problem is a post from Cato @ Liberty - Cato Institute Blog

Back in 2010, I crunched the numbers from the Congressional Budget Office and reported that the budget could be balanced in just 10 years if politicians exercised a modicum of fiscal discipline and limited annual spending increases to about two percent yearly.

When CBO issued new numbers early last year, I repeated the exercise and again found that the same modest level of budgetary restraint would eliminate red ink in about 10 years.

And when CBO issued their update last summer, I did the same thing and once again confirmed that deficits would disappear in a decade if politicians didn’t let the overall budget rise by faster than two percent each year.

Well, the new CBO 10-year forecast was released this morning. I’m going to give you three guesses about what I discovered when I looked at the numbers, and the first two don’t count.

Yes, you guessed it. As the chart illustrates (click to enlarge), balancing the budget doesn’t require any tax increases. Nor does it require big spending cuts (though that would be a very good idea).

Even if we assume that the 2001 and 2003 tax cuts are made permanent, all that is needed is for politicians to put government on a modest diet so that overall spending grows by about two percent each year. In other words, make sure the budget doesn’t grow faster than inflation.

Tens of millions of households and businesses manage to meet this simple test every year. Surely it’s not asking too much to get the same minimum level of fiscal restraint from the crowd in Washington, right?

At this point, you may be asking yourself whether it’s really this simple. After all, you’ve probably heard politicians and journalists say that deficits are so big that we have no choice but to accept big tax increases and “draconian” spending cuts.

But that’s because politicians use dishonest Washington budget math. They begin each fiscal year by assuming that spending automatically will increase based on factors such as inflation, demographics, and previously legislated program changes.

This creates a “baseline,” and if they enact a budget that increases spending by less than the baseline, that increase magically becomes a cut. This is what allowed some politicians to say that last year’s Ryan budget cut spending by trillions of dollars even though spending actually would have increased by an average of 2.8 percent each year.

Needless to say, proponents of big government deliberately use dishonest budget math because it tilts the playing field in favor of bigger government and higher taxes.

There are two important caveats about these calculations.

1. We should be dramatically downsizing the federal government, not just restraining its growth. Even if he’s not your preferred presidential candidate, Ron Paul’s proposal for an immediate $1 trillion reduction in the burden of federal spending is a very good idea. Merely limiting the growth of spending is a tiny and timid step in the right direction.

2. We should be focusing on the underlying problem of excessive government, not the symptom of too much red ink. By pointing out the amount of spending restraint that would balance the budget, some people will incorrectly conclude that getting rid of deficits is the goal.

Last but not least, here is the video I narrated in 2010 showing how red ink would quickly disappear if politicians curtailed their profligacy and restrained spending growth.

Other than updating the numbers, the video is just as accurate today as it was back in 2010. And the concluding message—that there is no good argument for tax increases—also is equally relevant today.

P.S. Some people will argue that it’s impossible to restrain spending because of entitlement programs, but this set of videos shows how to reform Social Security, Medicare, and Medicaid.

P.P.S. Some people will say that the CBO baseline is unrealistic because it assumes the sequester will take place. They may be right if they’re predicting politicians are too irresponsible and profligate to accept about $100 billion of annual reductions from a $4,000 billion-plus budget, but that underscores the core message that there needs to be a cap on total spending so that the crowd in Washington isn’t allowed to turn America into Greece.

New Congressional Budget Office Numbers Once Again Show that Modest Spending Restraint Would Eliminate Red Ink is a post from Cato @ Liberty - Cato Institute Blog

I’m not a big fan of Senator Schumer of New York. As I’ve noted before, he’s a doctrinaire statist who wants the government to have control over just about every aspect of our lives.

But that describes a lot of people in Washington. I guess what also bothers me is his willingness to say anything, regardless of how divorced it is from reality, to advance his short-run political agenda (sort of a Democrat version of Karl Rove).

For example, here’s part of what the Empire State  Senator recently had to say about fiscal policy, as reported by a Washington Post columnist.

Schumer said, “…Republicans came in and said, `We can solve your problem by shrinking government’…We tried their theory…The American people resent government paralysis, but most of them would say that government is doing too little to help them, not too much.”

What’s remarkable about this statement is that it’s so inaccurate that we can’t even decipher what he means. I’ve come up with three possible interpretations of what he might have been trying to say, and they’re all wrong.

1. He’s referring to GOP actions this year. This interpretation might make partial sense because the House Republicans have made a few semi-serious efforts to shrink government, but how can Schumer say “we tried their theory” when every Republican initiative was blocked by the Senate and Obama?

The Ryan budget died of malign neglect since the Senate didn’t even bother to produce a budget, and Republican efforts on the 2011 spending levels and the debt limit also were stymied, resulting at best in kiss-your-sister deals.

2. He’s referring to GOP actions during the Bush Administration. This interpretation might make some sense because the GOP did control the House, the Senate, and the Presidency, but does Schumer understand that “shrinking government” was not part of the Republican agenda during those years?

But don’t believe me. The numbers from the Historical Tables of the Budget unambiguously show that the federal budget almost doubled during the Bush years because of huge increases in domestic spending.

3. He’s referring to GOP actions during the 1990s. This interpretation actually does make sense because the burden of the public sector did shrink as a share of GDP during the Clinton years when Republicans controlled Congress, so it would be accurate to say “we tried their theory.”

But what was so bad about the era of spending restraint during the 1990s? The economy expanded and people were better off, in large part because, to quote Schumer, government was “doing too little to help them.”

Heck, the Clinton-GOP Congress years were so good that I even offered, during a debate on national TV, to go back to Clinton’s higher tax rates if it meant we also could undo all the reckless spending of the Bush-Obama years.

This doesn’t mean I’ve stopped caring about low marginal tax rates. It just means that I understand that the ultimate tax is the burden of the public sector. This video explains more, in case you’re wondering why I’d like to go back to the 1990s.

It goes without saying (but I’ll say it anyhow) that it would be even better to combine Clinton’s spending levels with Reagan’s tax rates.

Senator Schumer’s Feeble Grasp of Fiscal History is a post from Cato @ Liberty - Cato Institute Blog

The House passed a bill last week eliminating the Presidential Election Campaign Fund, which the Tax Foundation calls a “voluntary tax that stirs little enthusiasm.” It would also save a whopping $14 million by eliminating the Election Action Committee and transferring certain functions to other federal agencies.

The Republican-sponsored bill passed on a straight party-line vote with the exception of Rep. Walter Jones’ (R-NC) no vote. Eliminating the fund would result in the transfer of $200 million to the U.S. Treasury for deficit reduction. From a fiscal standpoint, $200 million in deficit reduction isn’t even worthy of a yawn. And based on press reports, floor debate centered on whether Republicans were really just trying to disenfranchise Democratic voters. Seriously, didn’t the GOP leadership have anything more substantial to bring to the floor?

I went looking for bills introduced in the House that would eliminate programs. The conservative Republican Study Committee’s Sunset Caucus has a list of bills sponsored by their members that would cut spending (see here). Although there are some worthy bills that the GOP leadership ought to at least get to the floor, I wasn’t overwhelmed by the offerings.

One that did look particularly good is a bill from Rep. Duncan Hunter (R-CA) that would “eliminate ineffective and unnecessary federal education programs.” I’d say that describes the entire Department of Education. However, as soon as I saw the bill’s title – The Setting New Priorities in Education Spending Act – I immediately knew that it would be a joke. Sure enough, the Congressional Budget Office’s scoring of the bill shows that I was, unfortunately, correct:

H.R. 1891 would amend the Elementary and Secondary Education act of 1965 to eliminate more than 40 discretionary grant programs. For 2011, the Department of Education allocated $413 million in funding from amounts appropriated in the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10) to programs that would be eliminated by H.R. 1891. Under current law, however, the funds allocated to those programs may be used for other grant programs that would not be eliminated by the bill.

Because annual appropriations to the Department of Education can be used for other programs, enacting the bill would not have a significant effect on spending from the appropriation provided for 2011. Furthermore, the authorizations for all of the programs specified in the bill have expired, so CBO estimates the bill would have no impact on such authorization levels. However, savings would accrue – as compared to 2011 appropriations levels – if the total amounts provided in 2012 and subsequent years are lower than the current-year funding for the department.

Note to Duncan Hunter: Why bother?

Looking for Serious Program Terminations is a post from Cato @ Liberty - Cato Institute Blog

Nuclear weapons have played a major role in U.S. force planning for many decades. But we have never had a thorough accounting of the total cost of these weapons, and we still don’t. (The best to date is probably this study by Stephen I. Schwartz and Deepti Choubey, but they don’t claim to capture every nickel spent on nuclear weapons.)

The Washington Post‘s Glenn Kessler published a fact checker article earlier this week that challenged the claim that we would spend $700 billion on nuclear weapons over the next decade. Since then, other organizations have come forth to decry the lack of transparency within the nuclear weapons budget, and call for the government to do a much better job of documenting all of the costs associated with our many nuclear weapons programs. This would include an understanding of the full life-cycle costs for fissile material, warheads, and delivery vehicles, from design and development, to production, to retirement and waste removal and abatement. As with the rest of the Pentagon’s budget, which has never been subject to a complete audit of its assets and liabilities, the nuclear weapons portion (much of which resides in the Department of Energy) remains shrouded in secrecy.

I hope that the latest dust-up over what we are actually spending creates additional pressure on the bureaucracy to open up its books.

This an excerpted version of a longer post from “The Skeptics” at the National Interest.

Debate Needed on Nuclear Weapons Spending is a post from Cato @ Liberty - Cato Institute Blog

Today Politico Arena asks:

Should Obama have led the supercommittee?

My response:

Whether or not Obama had led the supercommittee in its effort to trim a pittance from our federal deficits and debt, the effort was doomed from the start for the reasons committee co-chairman Jeb Hensarling stated in this morning’s Wall Street Journal:  “Ultimately, the committee did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society, the proper purpose and design of the social safety net, and the fundamentals of job creation and economic growth.”

Obama has proven himself clueless about economics from the time he first entered public life, as evidenced by the economic disaster surrounding him and his party. Their vision was soundly rejected by the voters a year ago. If it is rejected again a year from now, we may start the slow climb out of the hole that they, as well as Republicans who share their vision, have put us in. But if the voters give us a mixed result, it’s only a matter of time before our creditors exact the price of our economic irresponsibility. These lessons, the subjects of children’s books and learned lectures, are as old as humanity itself. We have only to heed them.

It Goes Beyond the Supercommittee is a post from Cato @ Liberty - Cato Institute Blog

Desperate to fend off cuts in military spending, the defenders of the status quo are claiming that potential reductions included in the debt ceiling deal’s sequestration provision would result in huge job losses. In September, Leon Panetta suggested that cuts of up to $1 trillion would increase the nation’s unemployment rate by a full percentage point, and put up to 1.5 million people out of work.

Early last week, the Aerospace Industry of America (AIA) jumped in claiming that “more than one million American jobs could be lost as a result of defense budget cuts if the deficit reduction select committee fails to reach agreement on alternative balanced budget solutions….”

The media picked up on the AIA’s press release, but their documentation was flimsy, at best: AIA offered up a five-page summary of the research conducted by George Mason University professor Stephen S. Fuller, and a video of the press conference in which Fuller, AIA CEO Marion Blakey, and Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, railed against the “devastating impact” (Blakey) of military spending cuts and the “economic turmoil” (Buffenbarger) that would result.

Yesterday, nearly seven weeks after the secretary issued his dire warning, Panetta’s office released the findings of a report from Interindustry Forecasting at the University of Maryland (INFORUM) to buttress their claims.

By then, the counteroffensive was already in full swing. Bill Hartung has one of the better assessments that I’ve seen because it includes Bill’s insight into the inner workings of the military-industrial complex, blended with his characteristic wit. The bottom line, he explains, is that the contractors are doing just fine, and they will be in the future. The claims of massive job losses are just the latest in a string of scaremongering tactics aimed at allowing them to hold onto their loot.

Other opinion writers and columnists have fixed on aspects of the jobs argument that suit their broader purpose. Paul Krugman pushed a predictably Keynesian line (all government spending is good, but non-military spending is better). Others pointed to the hypocrisy of the situational Keynesians, people who generally oppose government spending when it buys road and bridges, but who embrace military spending for its supposedly magical stimulative effects. These are the “believers in the military spending fairy,” explains Dean Baker at the Center for Economic Policy Research.

None of this debate is new. In the late 1940s, Keynesians assailed Harry Truman for questioning whether excessive military spending might drag down the economy. Nonsense, they said. We can afford much more spending, and it will have wonderful stimulative effects, to boot. Many of these same Keynesians claimed that Dwight Eisenhower’s fiscal restraint was forcing the country to fight the Soviets with one arm tied behind its back. (Truman eventually relented, which has earned him the undying respect and admiration of liberal and conservative hawks alike; Ike’s fiscal conservatism, by contrast, has generated only scorn from the same group).

Ronald Reagan was no Keynesian, but he seemed to agree with them when it came to military spending. “Defense is not a budget issue,” he said, “You spend what you need.” And yet, not even the Gipper spent as much as we do today on our military. We are spending more, in inflation-adjusted terms, than at any time since World War II. More than during Korea, more than during Vietnam, and more, even, than in the early 1980s. It is likely that total military spending will be lower in 2012 than 2011, but most of these savings will come from the troop reductions in Iraq and Afghanistan. The Pentagon’s base budget may yet emerge unscathed.

Military spending advocates routinely skirt around such inconvenient facts. Looking at absolute spending, even if adjusted for inflation, they say, obscures the reality that spending as a share of GDP is relatively modest, in historical terms. But the hawks can’t have it both ways: they can’t claim on the one hand that military spending constitutes a very small share of the total economy (and therefore we can spend as much, or more, with ease), and at the same time wail about the massive job losses that would result from cuts in military spending.

In the end, it all comes back to opportunity costs. Unless one believes that every dollar saved from the Pentagon’s budget will be thrown into a huge government money hole in the New Mexico desert, the reality is that at least some–and likely most–of the taxpayers’ dollars that are currently dedicated to the military could be better employed elsewhere. My preference would be for each of us to keep a bit more of the money that we earn, money that we will then choose to spend as we see fit. This new private spending would more than offset the cuts in government spending, given the government’s inherent inefficiencies, dead-weight losses, etc. Yes, some workers might lose jobs in the near term, but, as Gordon Adams notes, the economy has recovered from a number of previous military build downs, which were deeper and faster than those envisioned today.

Finally, we should embrace the discipline that even modest fiscal constraints can have on our grand strategy. The most “draconian” cuts envisioned under sequestration would take the military’s budget back to 2007 levels–hardly a “lean” year for the defense industry–but policymakers are likely to pay more attention to how they allocate resources if they perceive that they have less of them.

During his last few months as the Chairman of the Joint Chiefs of Staff, Adm. Mike Mullen explained that the Pentagon had forgotten how to prioritize during more than a decade of ever-rising budgets. The White House and others in the national security community have as well. I’m confident that shrinking budgets will infuse a measure of prudence and restraint that is long overdue.

Cross-posted from the Skeptics at the National Interest.

The Pentagon and Jobs is a post from Cato @ Liberty - Cato Institute Blog

An amendment to a Senate appropriations bill introduced by Sen. Tom Coburn (R-OK) that would have reduced funding for rural development subsidies at the Department of Agriculture by $1 billion was easily voted down today. Only 13 Republicans voted to cut the program. Thirty-two Republicans joined all Democrats in voting to spare it, including minority leader Mitch McConnell (R-KY), ranking budget committee member Jeff Sessions (R-AL), and tea party favorite Marco Rubio (R-FL).

This was a business-as-usual vote that will receive virtually no media attention. However, it is a vote that symbolizes just how unserious most policymakers are when it comes to making specific spending cuts. That’s to be expected with the Democrats. On the other hand, Republicans generally talk a good game about the need to cut spending and they rarely miss an opportunity to criticize the Obama administration for its reckless profligacy. Republicans instead fall back on their support of a Balanced Budget Amendment and other reforms like biennial budgeting.

I think most Republicans are in favor of a BBA because they believe it gets them off the hook of having to name exactly what they’d cut. There are several reasons why Republican policymakers won’t get specific: 1) they really don’t want to cut spending; 2) they’re afraid of cheesing off special interests and constituents who benefit from government programs; 3) they’re more concerned with being in power and getting reelected; 4) they’re just plain ignorant of, or disinterested in, the particulars of government programs.

As for biennial budgeting, Republicans would have us believe that appropriating money every other year will give policymakers more time to conduct oversight of government programs. I think it’s another cop-out. Coburn’s office put out plenty of information on the problems associated with USDA rural development subsidies (see here). A Cato essay on rural development subsidies provides more information, including findings from the Government Accountability Office that are readily available to policymakers.

(Note: I worked for both Jeff Sessions and Tom Coburn.)

Senate Spares Rural Development Subsidies is a post from Cato @ Liberty - Cato Institute Blog

Texas governor Rick Perry’s “Cut, Balance, and Grow” plan is out. Dan Mitchell discussed Perry’s proposed tax reforms so I’ll offer my take on the proposed spending reforms:

• Perry says he wants to “preserve Social Security for all generations of Americans” but state and local government employees would be allowed to opt-out of the program. Perry says that younger Americans would be able to “contribute a portion of their earnings” to a personal retirement account. I’d like to be able to completely opt-op without having to work in government. I suspect that other younger Americans who recognize that Social Security is a lousy deal will feel the same.

• Other proposed reforms to Social Security include raising the retirement age, changing the indexing formula, and ending the practice of using excess Social Security revenues to fund general government activities. Proposing to put an end to “raiding” the Social Security trust fund might be a good sound bite for the campaign trail, but excess Social Security revenues will soon be a thing of the past anyhow. Bizarrely, Perry cites the Highway Trust Fund as “the model for how to protect funds in a pay-as-you-go system from being used for unrelated purposes.” As a Cato essay on federal highway financing explains, only about 60 percent of highway trust fund money is actually spent on highways. The rest is spent on non-highway uses like transit and bicycle paths. The bottom line is that the federal budget’s so-called “trust funds” generally belong in the same category as Santa Claus and the Toothy Fairy. Perry should just stick with calling Social Security a “Ponzi scheme.”

• As for Medicare, Perry says reform options would include raising the retirement age, adjusting benefits, and giving Medicare recipients more control over how they spend the money they receive from current taxpayers. No surprises there.

• I’m a little confused by Perry’s language on Medicaid reform. On one hand, he says that the 1996 welfare reform law should be used as the model. The 1996 welfare reform law block granted a fixed amount of federal funds for each state. On the other hand, Perry says “Instead of the federal government confiscating money from states, taking a cut off the top, and then sending the money back out with limited flexibility for how states can actually use it, individual states should control the program’s funding and requirements from the very beginning.” I believe that the states, and not the federal government, should be responsible for funding low-income health care programs (if they choose to offer such programs). However, I don’t think that’s what Perry is actually proposing.

• Perry calls for a Balanced Budget Amendment to the Constitution and a cap on total federal spending equal to 18 percent of GDP. Federal spending will be about 24 percent of GDP this year. What agencies and programs would Perry cut or eliminate to reduce federal spending by 6 percent of GDP? He doesn’t really say. That leaves me to conclude that he embraces a BBA for the same reason that most Republicans embrace it: he wants to avoid getting specific about what programs he’d cut. One could argue that his entitlement reforms are sufficiently specific, but compared to Ron Paul’s plan, which calls for the elimination of five federal departments, Perry’s plan leaves too much guesswork.

• Other spending reform proposals don’t make up for the lack of specifics on spending cuts. For example, Perry proposes to eliminate earmarks. That’s already happened. He says he’d cut non-defense discretionary spending by $100 billion, but that’s a relatively small sum and letting military spending off the hook is disappointing. Proposing to “require emergency spending to be spent only on emergencies” sounds nice but would a President Perry stick to it if Congress larded up “emergency” legislation for a natural disaster in Texas or some military adventure abroad?

In sum, there’s some okay stuff here, but I don’t think it’s anything those who desire a truly limited federal government can get excited about. That said, Perry could have done a lot worse.

Spending Reform in Rick Perry’s Plan is a post from Cato @ Liberty - Cato Institute Blog

Under the U.S. Constitution, the federal government was assigned specific limited powers, and most government functions were left to the states. To ensure that people understood the limits on federal power, the Framers added the Tenth Amendment: “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.” Those delegated powers are “few and defined,” noted James Madison.

But the Tenth Amendment has disappeared. No one has seen it in recent decades. But I’ve found some statistics that make me very suspicious that the Canadians stole the Tenth. Look at the pie charts below. The top pie shows that 71 percent of total government spending in the United States is federal, while 29 percent is state/local. (See BEA tables 3.1, 3.2, 3.3 for 2010 data).

Back when we still had the Tenth, that ratio was the other way around—like how the bottom chart looks for Canada today. In Canada, federal spending accounts for just 38 percent of total government spending, while provincial/local spending accounts for 62 percent. (See Canada Yearbook for 2010/11 data.)

Actually, the real culprit for the missing Tenth is not the Canadians, but the U.S. Congress. In recent decades, Congress has undertaken many activities that were traditionally reserved to state and local governments. A primary method has been through “grants-in-aid.” These are federal subsidies combined with regulatory controls that micromanage state and local affairs. In United States, federal grants are about 4.1 percent of GDP (in fiscal 2011), while in Canada they are about 3.3 percent of GDP.

Even more striking: while we’ve got a complex mess of more than 1,000 state grant programs, Canada seems to have just a handful, and they are simple block grants. As I understand it, Canada’s federal grants to lower governments mainly just include:

• A health care block grant
• A social services block grant
• An “equalization” block grant to help the poor provinces.

There is a smattering of other aid, but that’s just about it. There are no federal subsidies for K-12 education in Canada, for example. There are a few large block grants and not much else.

On October 27, I’m on an Urban/Brookings panel looking at “What Can the United States Learn from Canada.” Perhaps we can learn how to get our decentralized federation back. While we’re at it, we could get some tips on how to cut government spending, as the Canadians did in the 1990s.

Did Canada Steal Our Tenth Amendment? is a post from Cato @ Liberty - Cato Institute Blog

Some interesting links on agriculture in the news today.

First, a terrific front-page article in the New York Times, about what my friend Vince Smith so accurately calls the “bait-and-switch” farmers are proposing in their offer to give up direct payments (subsidies that flow to farmers regardless of prices or production) in exchange for a new revenue insurance program.  As Vince so rightly points out, because the new revenue targets will be based on today’s current record crop prices, “If farm prices move back towards what are widely viewed as more normal levels than their current levels, farmers will be compensated for going back to business as usual.”  Vince blogs here about the proposed new revenue assurance program, and how it could end up costing us just as much as the current set of programs.

Farmers and their congressional sponsors are still blathering about “proportionality,” essentially saying that they should not have to contribute any more to budget cuts than any other area of the federal government. Here, for example, is a corn farmer, towing the party line:

“We are very much aware of the budgetary constraints of the federal government,” said Garry Niemeyer, an Illinois farmer who is president of the National Corn Growers Association. “We want to do our part as corn growers to help resolve those issues, but we only want to do our proportional part. We don’t want to have everything taken out on us.” [emphasis added]

This is wrong-headed. I’ve said it before, I’ll say it again: “proportionality” implies that everything the federal government currently does is equally valid. That is nonsense.  Some programs are legitimate, some less so. Some—like farm subsidies—not at all. Spending cuts should be made on the basis of legitimacy, not by some abstract formula equally applied. We should be reshaping (in a downward direction) the federal government here, not trimming a topiary hedge.

Second, Bloomberg.com has a good overview on the current state of the negotiations between the Congressional agriculture committees and the deficit-reduction supercommittee regarding the cuts to farm programs. The leaders of the agriculture panels have written a letter to the supercommittee, saying that cuts to agriculture programs should be limited to $23 billion and those cuts ”should absolve the programs in our jurisdiction from any further reduction.” So there.

Finally, here are Senators Mark Kirk (R-Ill.) and Sen. Jeanne Shaheen (D-N.H.)  on the wasteful and expensive sugar program.

Tuesday Agriculture Links is a post from Cato @ Liberty - Cato Institute Blog

The Wall Street Journal notes today that the federal government spent more money in the just-concluded 2011 fiscal year than in any year in history, and no one noticed. What happened to all that austerity and all those spending cuts that we heard about all year? Well, some of us warned over the past year that they were all smoke and mirrors.

Now that the year’s over, you can see in this chart from the Journal that the federal government spent more and borrowed more in 2011 than in any previous year—$900 billion more than just four years ago, and $150 billion more than last year:

The Biggest Budget in History is a post from Cato @ Liberty - Cato Institute Blog

The New York Times weighs in this morning with a timely and sensible editorial on military spending. The main focus is on the increasingly outdated pay and benefits system for the nation’s troops. Some choice excerpts:

Military pay, benefit and retirement costs rose by more than 50 percent over the…decade (accounting for inflation). Leaving aside Afghanistan and Iraq, those costs now account for nearly $1 out of every $3 the Pentagon spends.

Much of that is necessary to recruit and retain a high-quality, all-volunteer military….But current military pay, pension systems and retiree health care benefits are unsustainable and ripe for reform.

[...]

The retirement system is both unfair and increasingly expensive. Most veterans, including many who have served multiple combat tours, will never qualify for even a partial military pension or retiree health benefits. These are only available to those who have served at least 20 years. Those who do qualify can start collecting their pensions as soon as they leave service, even if they are still in their late 30s, making for huge long-term costs.

So far, so good. Two essential points bear repeating.

First, the rise in military spending over the past decade has not been driven solely by the costs of the wars in Iraq and Afghanistan. Pentagon costs are growing, and the rate of growth is rising. Programmatic reform is needed to reign in those costs; avoiding stupid wars won’t solve the problem (although it won’t hurt).

Second, the current system disproportionately rewards individuals who stay in the service for 20-plus years, and undercompensates those men and women who serve several tours, but who do not qualify for military retirement. A better system would allow anyone who has served to retain some of what they paid (or what taxpayers paid for them) into a portable retirement account that they control. Private industry has been steadily moving away from a fixed-benefit, pension-style system for years. I have heard the arguments against such a move, but I don’t find them particularly convincing.

One point from the Times editorial, however, calls out for clarification. The editors claim on two separate occasions that current military spending patterns are “unsustainable.” They conclude:

The United States already has a comfortable margin of [military] dominance….The Pentagon’s ambitions expanded without limit over the Bush era, and Congress eagerly wrote the checks. The country cannot afford to continue this way, and national security doesn’t require it. (emphasis added)

The latter point, “national security doesn’t require it,” is crucial, correct, and should be repeated at every opportunity. The former assertion, “the country cannot afford” it, is false. Repeating that claim plays into the hands of the inveterate hawks who never saw a war, or a weapon system, that wasn’t deserving of more lives/money.

The hawks are correct to point out that the United States has in the past, and could in the future, choose to spend as much or more on our military. Current spending levels amount to about five percent of GDP (when including the costs of the wars), and military spending as a share of total government spending has been falling steadily for years. According to the hawks, it is other spending, or too little revenue, that is putting our children and grandchildren into debt.

I wish that the Times had spent more time hammering the point that such spending is unnecessary. Contrary to anecdote and the evening news, the international system is remarkably stable and peaceful. The United States need not spend more than we did at the height of the Cold War in order to be secure from most threats. And those few genuine threats to our security could be handled with a smaller, more efficient military—if we offloaded some responsibilities to other countries that have sheltered under the U.S. security umbrella for decades.

The Times doesn’t directly address that last point. By focusing most of their attention on programmatic reforms to pay and benefits, and a bit on costly procurement of unnecessary weapons, but not enough to the underlying flawed assumptions that drive military spending, the editors contribute to the misconception that the U.S. military should continue to be the world’s policeman, and find ways to do this on the cheap.

That is unfortunate. Spending more than we need to doesn’t make us stronger. Ignoring our favorable strategic circumstances is simply stupid. We spend too much on our military because we ask our troops to do too much. To spend less, we must do less. The good news is that we can. The bad news is that too few people understand that.

Strength vs. Stupidity is a post from Cato @ Liberty - Cato Institute Blog

Over at Downsizing the Federal Government, we focused on the following issues this past week:

• Over the last decade, annual average military wages rose 6.6 percent, federal civilian wages rose 5.0 percent, and private sector wages rose 3.0 percent.
• A rule-of-thumb to remember is that total federal spending is 3 to 4 percentage points of GDP larger than usually reported by officials.
• Imagining that more federal infrastructure spending will be a panacea for the economy is a liberal fairy tale, detached from the actual experience of most federal agencies over the last century.
• We’ve nearly tripled the cost of sending a child all the way through the K-12 system, while performance near the end of high school has been stagnant (reading and math) or even declining (science).
• Small Business Administration to close? Unfortunately, no.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

This Week in Government Failure is a post from Cato @ Liberty - Cato Institute Blog

If you looked at the new CBO report on the budget, you may have noticed that federal spending this year will be $3.6 trillion.

In fact, federal spending this year will top $4 trillion. But virtually all reporters and budget wonks (including me) routinely use the lower number when discussing total federal spending. I don’t think the higher $4 trillion number even appears anywhere in the CBO report.

The $3.6 trillion figure is “net” outlays. But “gross” outlays, or total spending, is quite a bit higher. The difference is caused by “offsetting collections” and “offsetting receipts.” These are revenue inflows to the government that are netted against spending at the program level, agency level, or government-wide level. Some examples are national park fees, Medicare premiums, and royalties earned on mineral deposits. There are hundreds of these cash inflows to the government that offset reported spending.

Details on these revenue offsets can be found in Chapter 16 of OMB’s Analytical Perspectives (pdf). In fiscal year 2010, net federal outlays were $3.456 trillion, but gross outlays were $4.057 trillion. Thus, gross outlays were 17 percent larger than widely reported net outlays.

In FY 2011, OMB expects gross outlays to be about 15 percent larger than net outlays. Thus, gross outlays this year will be $4.1 trillion, compared to net outlays of $3.6 trillion. As a share of GDP, gross outlays will be about 27.3 percent of GDP, compared to net outlays of 23.8 percent.

Accounting for offsets in this manner is a long-standing convention, but it is one of the sneaky ways that Washington tries to hide its large intrusion into the economy. Certainly, the CBO and OMB should include more prominent presentations of gross outlays in their regular budget updates.

For citizens and reporters, a rule-of-thumb to remember is that total federal spending is 3 to 4 percentage points of GDP larger than usually reported by officials.

Federal Spending Hits $4.1 Trillion is a post from Cato @ Liberty - Cato Institute Blog

The mortgage interest income tax deduction is popular among homeowners (read: likely voters) despite its role in distorting housing and related markets, its contribution to the housing bubble and its enabling of additional household debt. Never mind that there isn’t much evidence that the deduction boosts home ownership in the United States. Consider also that the tax break largely benefits affluent homeowners living in expensive urban areas.

As Mark Calabria notes in today’s Cato Daily Podcast, it’s well past time for the mortgage interest deduction to be replaced by lower marginal tax rates for all earners.

End the Mortgage Interest Deduction is a post from Cato @ Liberty - Cato Institute Blog

Greg Sargent cites a CNN poll question:

As you may know, the agreement would cut about one trillion dollars in government spending over the next ten years with provisions to make additional spending cuts in the future. Regardless of how you feel about the overall agreement, do you approve or disapprove of the cuts in government spending included in the debt ceiling agreement?

Approve 65

Disapprove 30

Sargent continues:

Sixty five percent approve of deal’s spending cuts. But it gets worse. Of the 30 percent who disapprove, 13 percent think the cuts haven’t gotten far enough, and only 15 percent think the cuts go too far. One sixth of Americans agree with the liberal argument about the deal.

About 20 percent of Americans self-identify as liberals. This would suggest that all non-liberal Americans and one-fourth of self-identifying liberals approve of the deal or think the cuts have not gone far enough. It could also mean that some non-liberal Americans disapprove of the deal and more than one-quarter of liberals approve of it. Either interpretation will not encourage those who believe government should be larger.

Still, the political agenda is defined as cuts, and the public seems willing to go along. 2008 seems like a generation ago.

A Turning Point? is a post from Cato @ Liberty - Cato Institute Blog

These are the times that try budget analysts’ souls—especially budget analysts who’d like to see Washington dramatically cut spending. The debate over lifting the debt ceiling has produced a number of proposals from Capitol Hill—none of them have been worth celebrating. We can now add House Speaker John Boehner’s latest proposal to the pile.

Boehner’s proposal boils down to the following: cap discretionary spending over 10 years to achieve $1.2 trillion in savings; have (another) bipartisan group of policymakers come up with $1.8 trillion in “deficit reductions” over ten years; and get a vote on a balanced budget amendment. In exchange, the president would get to increase the deficit by $900 billion this year and by another $1.6 trillion next year.

Here are some thoughts on Boehner’s plan:

• Under the Congressional Budget Office’s optimistic spending baseline, the federal government will spend $46 trillion over the next ten years. Obviously, reducing spending by $1.2 trillion oven ten years is relatively small.

• The same dysfunctional congress that treats entitlement programs like lit sticks of dynamite is supposed to come up with $1.6 trillion in “deficit reduction.” Note that we’re not even talking specifically about spending cuts here, so that figure would likely include tax increases assuming they’re able to even come up with something.

• Under the Boehner plan, spending and debt will continue to rise. At the most, the plan would produce an average of $300 billion a year in cuts in exchange for increasing the debt ceiling by $2.5 trillion over the next two years.

• Boehner’s bill includes language that tightens up the definition of what constitutes “emergency” spending. Congress regularly slaps the “emergency” designation on all sort of non-emergency spending bills. I have no faith that the new language will stop the foxes guarding the henhouse from continuing to devour chickens.

• Where are the immediate spending cuts? Once again, we have the promise of cuts but no specifics. Even if the discretionary caps hold the line on that portion of spending, total federal spending (and debt) will continue its unsustainable upward climb. Entitlement spending is the biggest driver of our long-term budgetary problems but entitlement spending isn’t capped under the Boehner plan.

In sum, this plan is another stinker. But with Harry Reid controlling the Senate and Barack Obama sitting in the White House, the votes just aren’t there to get a plan passed that sufficiently addresses our fiscal mess by reining in the size and scope of government.

Thoughts on the Boehner Plan is a post from Cato @ Liberty - Cato Institute Blog

I testified to the Senate Finance Committee today regarding federal spending and debt.

Here are some of the points I made:

• Last night, President Obama called for a “balanced solution” to our fiscal problems, including tax increases and spending cuts. However, CBO projections do not indicate that we face a “balanced” problem. Instead, projections show that the deficit problem is caused all on the spending side of the budget.
• The United States has sadly become a big-government country. Until recently, government spending in this country was about 10 percentage points less than the average of OECD countries. That smaller-government advantage has now shrunken to just 4 percentage points.
• In recent years, policymakers have given us the largest deficit-spending “stimulus” since World War II, yet we are suffering from the slowest economic recovery since World War II.
• Rising government spending suppresses GDP because the government’s “leaky bucket” gets leakier and leakier as spending increases.
• Leaders in Congress are talking about cutting spending by $3 trillion over 10 years, or roughly $300 billion per year. The result would be that spending would rise from $3.6 trillion this year to $5.4 trillion in 2021, rather than the currently projected $5.7 trillion. That would be only a 5 percent cut. Interest savings would reduce spending a little more—but, come on Congress, you can do better than that!

Senate Finance Hearing on Debt is a post from Cato @ Liberty - Cato Institute Blog

I’m a few days behind on this, but over at The Corner Yuval Levin has written an important post about how health care entitlements are the real cause of the debt crisis facing the federal government. Using Congressional Budget Office projections, Levin creates this magnificent chart, which I plan to steal over and over again:

If Republicans want to conquer the federal debt, they need to embrace health policy like they embrace tax cuts.

Health Care Entitlements Are the Real Debt Bomb is a post from Cato @ Liberty - Cato Institute Blog