Downsizing Blog

Another Government Bailout

The House is scheduled to pass another $26 billion bailout for state and local governments on Tuesday. The legislation provides another $10 billion for education and $16 billion to extend the increased share of Medicaid being paid for by the federal government since passage of the stimulus.

Congressional Democrats say the measure is paid for with a combination of spending cuts elsewhere and tax increases. However, the new spending is front loaded and much of the spending cuts wouldn’t be realized until after 2013. For example, the Congressional Budget Office’s score of the legislation shows savings from the food stamps program of $12 billion from 2014-2018. Congress can come back any time before that and rescind the cuts.
 
Regardless of whether the bailout is paid for, it represents a continuation of bad policy. White House chief of staff Rahm Emmanuel claimed “We had a choice…Either teachers could be in the classroom or they could be on the unemployment lines.” Not to be outdone with the demagoguery, Education secretary Arne Duncan called Wednesday’s passage of the bill in the Senate “a great vote for American children.”
 
It might have been a great vote for the public teacher unions. However, America’s children are being set up for a lower standard of living thanks to the mounting debt the administration is fueling. The federal government is already on track to spend a record $61.5 billion on K-12 education subsidies this year despite the fact that federal involvement in education has been a complete failure.
 
Two charts from Andrew Coulson illustrate why mortgaging our children’s future to protect public employees is a rotten deal:
 
 
 
 
Neal McCluskey explains what the charts make obvious:
 
Now, let’s be clear: This is not some wonderful crusade all about helping “the children.” It is pure political evil, a naked ploy to appease teachers’ unions and other public school employees that Democrats need motivated for the mid-term elections. It has to be, because the data are crystal clear: We’ve been adding staff by the truckload for decades without improving achievement one bit. Since 1970 (see the charts below) public school employment has increased 10 times faster than enrollment, while test scores have stagnated.
 
Click here for more on federal K-12 education subsidies. Also see this paper on public sector unions and the costs of employee compensation.

 

Posted by Tad DeHaven on August 6th, 2010

Convoluted Highway Funding

A common theme with federal programs that fund state and local activities is that the distribution formulas are highly complex and politically-driven. The result is that policymakers at the federal and state level are constantly jockeying for more money, while the general public remains largely ignorant as to where the money comes from and how it’s spent.

A good example is federal highway aid to the states, which is supposed to be paid for by user taxes on fuels and other fees. To give a simplistic example, fuel taxes generated by a driver filling up in Kansas are sent to Washington where it’s designated to a trust fund. Money is then taken out of the trust fund and sent back to Kansas (and other states) via a formula for roads, transit, bicycle paths and all kinds of other stuff.
 
You might ask yourself, “Why doesn’t Kansas just tax the fuel and keep the revenues for its own roads?” The short answer is federal policymakers generally like spending money, and state policymakers like to receive “free” money from the Feds.
 
Every few years, Congress writes a bill to reauthorize transportation funding. The chief controversy that arises is the question of “donor” versus “donee” states, which leads to further tinkering with the formula and more complexity.
 
The Government Accountability Office examined the issue of states receiving less than their highway users send to Washington (donor states) versus those state that receive more (donee states). All states (except Texas) receive more money back from Washington that what their highway users pay. A major reason why is because Congress has recently authorized and apportioned more money to be spent than designated highway taxes have been bringing in. To fill the gap, Congress has transferred $30 billion in general funds to the highway trust fund in recent years.
 
However, as the GAO report details, when the distribution is looked at in terms of the states’ share received versus the share each state paid in highway-related taxes, significant differences emerge.
 
For example, Indiana is a donor state because the share it receives is only 91 percent of the share its highway users pay in highway-related taxes. In contrast, Alaska’s share received is 429 percent of the share its users pay in. The result is 28 states that lose, and 23 states (including the District of Columbia) that win.
 
Transportation expert Ronald Utt notes the problem:
These formulae, however, embody a number of serious flaws that cause many states (called donors) to consistently receive shares that are less than they pay in while others (called donees) consistently receive more. This deficiency in turn exacerbates regional transportation problems because the shortchanged states are typically those with above-average population growth and transportation needs that exceed those of the slower-growing states, which often receive shares that are greater than the amounts that they pay in.
A Cato essay on federal highway funding discusses this issue and other reasons why federal highway financing and control should be devolved to the states and, even better, the private sector.

 

Posted by Tad DeHaven on August 5th, 2010

The Two GOPs

As the fall elections approach, two factions within the congressional GOP have emerged. The first faction, which generally controls the Republican leadership, is short-term oriented and just wants to return the GOP to power in Congress. Riding the wave of voter discontent over the government’s finances is a means to an end – the end being power.

The second, and considerably smaller faction, is more ideas driven and views the upcoming election as an opportunity to push for substantive governmental reforms. Whereas the “power first faction” offers platitudes about smaller government, the “ideas first faction” isn’t afraid to offer relatively bold suggestions for confronting the federal government’s unsustainable spending. 

The ideas first faction is willing to publicly recognize that runaway entitlement spending must be reigned in and offer solutions to address the problem. Representatives Ron Paul, Michelle Bachmann, and Paul Ryan, for example, aren’t shying away from advocating a phase-out of the current Social Security system, which is headed for bankruptcy. In contrast, the power first faction lambasted Democrats for wanting to “cut Medicare” during the recent legislative battle over Obamacare.
 
In Ryan’s case, he has given the power first faction heartburn by pushing his “Roadmap for America’s Future,” which confronts the entitlement crisis head-on. Although Ryan’s Roadmap is not the ideal from a limited government standpoint, it’s a credible offering with ideas worth discussing. Even though the Ryan plan has received some favorable notice by the mainstream media, the power first faction would probably prefer Paul and his Roadmap went away.
 
From the Washington Post:
Of the 178 Republicans in the House, 13 have signed on with Ryan as co-sponsors.
Ryan's proposals have created a bind for GOP leaders, who spent much of last year attacking the Democrats' health-care legislation for its measures to trim Medicare costs. House Minority Leader John A. Boehner (R-Ohio) has alternately praised Ryan and emphasized that his ideas are not those of the party.
Ryan has not helped to make it easy for his leaders. He is a loyal Republican, but he is also perhaps the GOP's leading intellectual in Congress and occasionally seems to forget that he is a politician himself.
At a recent appearance touting the Roadmap at the left-leaning Brookings Institution, someone asked Ryan why more conservatives weren't behind his budget plan. “They're talking to their pollsters,” Ryan answered, “and their pollsters are saying, ‘Stay away from this. We're going to win an election.’”
His remarks illustrate the tension among Republicans over their fall agenda. Some strategists say the GOP should focus on attacking the Democrats; others want the party to offer a detailed governing plan.
Ryan’s ideas can be contrasted with those of the House Republican Conference Committee, which is a key power first organization. The HRCC just released a platitude-filled August recess packet for Republican House members to recite in talking to their constituents. Entitled “Treading Boldly,” the cover prominently features Teddy Roosevelt, which should immediately send chills down the spines of anyone believing in limited government.
 
The document is not “bold.” Take for example the five proposals to “Reduce the Size of Government”:
 
  • Freeze Congress’ Budget. This has populist appeal but does virtually nothing to reduce the size of government. The legislative branch will spend approximately $5.4 billion this year. That’s less than the federal government spends in a day. 
  • Eliminate Unnecessary or Duplicative Programs. This proposal is so vacuous that even House Speaker Nancy Pelosi supports it. If the GOP isn’t willing to name a dozen or so substantial “unnecessary” programs to eliminate, then this promise can’t be taken seriously. 
  • Audit the Government for Ways to Save. Yawn. Isn’t that what the $600 million Government Accountability Office does? The document says “Congress should initiate a review of every federal program and provide strict oversight to uncover and eliminate waste and duplication.” Nothing says “not serious” like calling for the federal government to eliminate “waste.” Waste comes part and parcel with a nearly $4 trillion government that can spend other’s people money on pretty much anything it wants to. 
To be fair, there are sound proposals contained in the document such as privatizing Fannie Mae and Freddie Mac. But on the issue of entitlements, the HRCC punts: 
The current budget process focuses only on about 40 percent of the budget and just the near-term – usually the next twelve months. We know that we have significant medium and long-term fiscal challenges fueled by the demographic changes in our country. The Government Accountability Office estimates that we have $76 trillion in unfunded liabilities. Rather than simply ignoring these challenges, Congress should reform its budget process to ensure that Congress begins making the decisions that are necessary to update our entitlement programs to secure them for today’s seniors and save them for future generations. 
Had the Republicans not swept into office in 1994 on a promise to reduce government only to make it bigger, the power first faction’s “trust us” argument might be more credible. However, given that it already views the GOP’s ideas first faction as skunks at the party, voters who are expecting a new Republican congressional majority to downsize government might not want to hold their breath. 

 

Posted by Tad DeHaven on August 4th, 2010