Voice For Liberty

Tag: Government spending

  • Social Security trust fund: a problem in disguise

    A situation that must be resolved soon first requires some understanding and an honest assessment of the facts: Social Security and its trust fund.

    Over the years, the Social Security Administration has collected more in payroll taxes than it has needed to spend on benefits. (Last year that wasn’t the case.) The surplus represents the trust fund.

    But there is disagreement as to the economic meaning of the trust fund. From a naive and uncritical accounting perspective, there seems to be no problem. SSA purchases a special series of bonds from the U.S. Treasury, and these bonds make up the investments of the trust fund. What could go wrong with holding government bonds?

    To answer that question, we have to look at what the government did with the proceeds of selling the bonds. The answer is that government spent the money. There are no bills in a vault. There are no bank deposits. There is only the promise of the U.S. Government to repay the bonds when the SSA needs them. A recent publication by Veronique de Rugy and Jason J. Fichtner of the Mercatus Center (Can We Trust the Social Security Trust Funds?) explains:

    However, the way the federal government accounts for the trust funds masks the true size of costs passing on to future generations. While bonds are real assets to the private market, future generations of taxpayers or borrowers will have to cover the future redemptions of bonds issued today because the federal government has used the money it has received from Social Security to pay for education, wars, and other items. In other words, the government has already spent the money it received in exchange for the IOUs. This is explained in the president’s 2011 federal budget: “The existence of large trust fund balances, therefore, does not, by itself, increase the government’s ability to pay benefits.” (emphasis added)

    But not everyone believes or understands the meaning of having spent the money in the trust fund. The SSA itself seems to, at least a little bit. A document titled Trust Fund FAQs produced by the SSA states: “As stated above, money flowing into the trust funds is invested in U.S. Government securities. Because the government spends this borrowed cash, some people see the current increase in the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future.” So here we have the U.S. Government admitting that the money in the trust fund has been spent.

    So is this a problem? No, says the SSA as it continues: “Far from being ‘worthless IOUs,’ the investments held by the trust funds are backed by the full faith and credit of the U.S. Government.” What the SSA doesn’t tell us here — and it’s not really its job to do so — is that the way these investments will be repaid is by one of three means: more taxes, less spending, or more borrowing.

    It’s good to see the federal government at least starting to recognize the truth behind the trust fund, even if it can’t bring itself to recognize its implication. Most liberal — “progressive,” excuse me — organizations refuse to see the truth. An example is The Center for American Progress, which produced a 72-page report last December titled Building It Up, Not Tearing It Down: A Progressive Approach to Strengthening Social Security. The document mentions the trust fund many times and that the fund is invested in safe government bonds. Never does the report mention that these funds have already been spent on something other than Social Security benefits.

    I can understand how CAP doesn’t want to mention this. The funds have been spent — under both Republican and Democratic administrations — to support the government spending programs that CAP supports. The fact that the spent funds in the trust fund will have to be paid back, possibly through higher taxes? High taxes and progressive taxation don’t bother CAP — that’s its platform.

    Paul Krugman of the New York Times also doesn’t think the trust fund presents a problem: “The Social Security system won’t be in trouble: it will, in fact, still have a growing trust fund, because of the interest that the trust earns on its accumulated surplus. The only way Social Security gets in trouble is if Congress votes not to honor U.S. government bonds held by Social Security. That’s not going to happen.”

    And how does Congress honor the bonds? More taxes, less spending, or more borrowing. Or some combination.

    This is the future we face if we don’t recognize the problem and take steps to start reform now.

  • Less spending, not more taxes, is required to balance the budget

    Last week the Congressional Budget Office estimated that President Obama’s budget will cost more than first thought, leading to larger deficits than originally forecast. If we hadn’t received the news by now, we need to cut federal spending.

    In commentary made available through the Mercatus Center, Antony Davies notes that there are proposals to cut spending, but even proposals by Republicans aren’t enough: “The President initially offered to cut the budget by $6.5 billion, and Republicans responded by asking for 10 times that amount. The truth is, we need 100 times that amount before we come close to balancing the budget. On any given day, the government spends $6.5 billion before lunch.”

    The president estimates this year’s deficit at $1,645 billion. The deficit, of course, is not the total amount of federal spending. It’s the part of federal spending that isn’t being paid for by current year revenue.

    Spending needs to be cut, but the cuts don’t have to be overwhelming, as liberals contend they must. Jason J. Fichtner writes in The 1 Percent Solution that reducing real federal spending by one percent each year would balance the federal budget by 2016. This requires actual cuts in spending, not just cuts in budget requests.

    It seems inconceivable that we can’t cut spending by one percent each year. But if we could hold down the rate of spending growth to one or two percent per year, we could still balance the budget in less than ten years.

    Raising taxes won’t work

    There are many who call for raising taxes, especially on the rich, as a way to generate more revenue and balance the budget. But try as we might, raising tax rates won’t generate higher revenues (as a percentage of gross domestic product), due to Hauser’s law. W. Kurt Hauser explains in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.’”

    People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income, and make investments in unproductive tax shelters. There is less incentive to work and invest. These are some of the reasons why tax hikes usually don’t generate the promised revenue.

    The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.”

    Hauser's LawHauser’s Law illustrated. No matter what the top marginal tax rate, taxes collected remain an almost constant percentage of GDP.

  • Because arts are important, government funding should be avoided

    Yesterday’s forum of Wichita City Council and mayoral candidates that focused on the arts found broad agreement among candidates and incumbents for continued funding of the arts by Wichita city government, according to Wichita Eagle reporting.

    The city has a dedicated one mill property tax levy dedicated to arts funding, and it generates about $3 million per year. Then a commission decides how to distribute the funds. This taxation and spending is said to be good for Wichita’s economy. But every special interest group produces economic impact studies that show that government spending on their projects has a magical “multiplier” effect that produces great amounts of wealth and prosperity. These are so commonly produced that they are meaningless. Every group that seeks public funds produces them.

    But besides this factor, there are very important reasons to keep government away from art. Lawrence W. Reed wrote in What’s Wrong with Government Funding of the Arts? of the harm of turning over responsibility to the government for things we value and find worthwhile:

    I can think of an endless list of desirable, enriching things in life, of which very few carry an automatic tag that says, “Must be provided by taxes and politicians.” Such things include good books, nice lawns, nutritious food, and smiling faces. A rich culture consists, as you know, of so many good things that have nothing to do with government, and thank God they don’t. We should seek to nurture those things privately and voluntarily because “private” and “voluntary” are key indicators that people are awake to them and believe in them. The surest way I know to sap the vitality of almost any worthwhile endeavor is to send a message that says, “You can slack off of that; the government will now do it.” That sort of “flight from responsibility,” frankly, is at the source of many societal ills today: many people don’t take care of their parents in their old age because a federal program will do it; others have abandoned their children because until recent welfare reforms, they’d get a bigger check if they did.

    The boosters of government arts funding in Kansas make the case that arts are important. Therefore, they say, government must be involved.

    But actually, the opposite is true. The more important to our culture we believe the arts to be, the stronger the case for getting government out of its funding. Here’s why. In a statement opposing the elimination of the Kansas Arts Commission, executive director Llewellyn Crain explained that “The Kansas Arts Commission provides valuable seed money that leverages private funds …”

    This “seed money” effect is precisely why government should not be funding arts. David Boaz explains:

    Defenders of arts funding seem blithely unaware of this danger when they praise the role of the national endowments as an imprimatur or seal of approval on artists and arts groups. Jane Alexander says, “The Federal role is small but very vital. We are a stimulus for leveraging state, local and private money. We are a linchpin for the puzzle of arts funding, a remarkably efficient way of stimulating private money.” Drama critic Robert Brustein asks, “How could the [National Endowment for the Arts] be ‘privatized’ and still retain its purpose as a funding agency functioning as a stamp of approval for deserving art?” … I suggest that that is just the kind of power no government in a free society should have.

    We give up a lot when we turn over this power to government bureaucrats and arts commission cronies.

    Facing an intense lobbying effort by those seeking taxpayer funds for their special interests, the Kansas Senate last week overturned Governor Sam Brownback‘s order eliminating the Kansas Arts Commission. The KAC must still be appropriated funds if it is to survive, and if appropriated, it faces a potential line item veto by the governor.

  • Federal spending on autopilot

    Federal spending trends

    Many people know that a large portion of the federal budget is effectively out of lawmakers’ hands. Together Social Security, Medicare, Medicaid, and interest on the debt presently consume about 48 percent of federal spending. But if nothing changes, these programs will grow to consume 90 percent of federal spending by 2084.

    This is the conclusion of Mercatus Center Senior Research Fellow Veronique de Rugy. Her analysis is based on data from the Congressional Budget Office, which makes forecasts in its Long-Term Budget and Economic Outlook. Her report is Defense and Non-Defense Spending Programs Squeezed as Autopilot Programs and Debt Interest Explode.

    The key is this is a forecast if nothing changes. The spending on entitlement programs that drive this forecast are under federal legislators’ control. They can act to make changes over the long term, if they wish to.

    But before last year’s elections, few politicians, even Republicans, were willing to confront the problem head-on. One of the few officeholders willing to do so is Wisconsin Congressman Paul Ryan, who is now chair of the House Budget Committee. His Roadmap for America’s future is a plan that recognizes the seriousness of the current situation, not only with Social Security, but in other areas of the federal budget.

    His recommendations, specific as they are, cause consternation among some Republicans who would rather talk about problems in general terms rather than specifics. A recent Washington Post profile of Ryan referred to “… many Republican colleagues, who, even as they praise Ryan for his doggedness, privately consider the Roadmap a path to electoral disaster. Unlike most politicians of either party, he doesn’t speak generically about reducing spending, but he does acknowledge the very real cuts in popular programs that will be required to bring down the debt.”

    Many of the new members of Congress are eager to take on the long-term problem illustrated in de Rugy’s chart. Let’s hope they have success.

  • Kansas’ Huelskamp leads in the House

    By Russ Vought. From RedState.com.

    Yesterday, Heritage Action for America (my employer), Club for Growth, and Family Research Council released a joint statement announcing their opposition to the three-week continuing resolution on floor of the House of Representatives next week, and their decision to “key vote” the extension on their respective scorecards. In doing so, they joined Mark Levin, Erick Erickson, and others, who are calling for conservatives to step up and lead by blocking this legislation.

    Freshman Rep. Tim Huelskamp of Kansas just answered that call. In a bold statement late last night, Huelskamp announced his opposition to the short-term resolution:

    We were elected to make bold changes to federal spending and to reverse our unsustainable deficits. … By allowing President Obama and Senator Reid to stall a budget they should have completed 6 months ago, we are being distracted from even bigger tasks: tackling the $1.1 trillion deficit in the President’s reckless 2012 budget and negotiating real budget reform, such as a balanced budget amendment, within a debt ceiling debate.

    Additionally, this CR omits many of the priorities the American people demanded we pass in H.R. 1: stopping job-killing EPA regulations, defunding Obamacare, and denying taxpayer funding of Planned Parenthood and abortion. By allowing continued funding of these liberal priorities, we are ignoring the mandate of the American people.

    Quite frankly, this is a stunning display of leadership by any member, let alone a freshman. Declaring your opposition publicly this quickly both plants a flag and ensures that you have less of a chance of being picked off in the days ahead. It reminds me of when Pat Toomey got out early to rally his colleagues against the Medicare prescription drug bill, and when Mike Pence sent out an early release to do the same against TARP.

    This is how you lead in the House of Representatives, and Huelskamp deserves a ton of credit for showing how it’s done in his first few months. Let’s see who joins him.

  • Kansas and Wichita quick takes: Wednesday March 2, 2011

    Duplication in federal programs found. Washington Examiner Editorial: “Nobody with even minimal knowledge of how public bureaucracies work should be surprised by the Government Accountability Office’s conclusion that there is a ‘staggering level of duplication’ in the federal government. Duplication is inevitable when professional politicians in both major parties go for decades using tax dollars to buy votes among favored constituencies, and reward friends, former staffers, family members and campaign contributors with heaping helpings from the pork barrel. With the inevitable program duplication also comes an endless supply of official duplicity as presidents, senators and representatives rationalize spending billions of tax dollars on programs they know either don’t work as promised, or that perform the same or similar functions as existing efforts and are therefore redundant.” … And they say it’s tough to cut spending.

    Public school town hall meetings. Walt Chappell, Kansas State Board of Education member, is holding two public meetings in Wichita this week. Chappell writes: “You are cordially invited to share your top 4 priorities for what Kansas K-12 students should learn at a Town Hall meeting this week. Your Kansas State Board of Education is deciding how to improve our schools at a Board retreat on March 7th. As your elected representative on the KSBOE, I look forward to hearing your suggestions before we vote.” The first meeting is Thursday March 3rd from 6:30 pm to 8:30 pm at Lionel D. Alford Library located at 3447 S. Meridian (just north of I-235). A second meeting will be on Saturday March 5th from 2:30 pm to 4:30 pm at Westlink Public Library, 8515 W. Bekemeyer, just North of Central and Tyler.

    Wichita school board candidates. This Friday (March 4th) the Wichita Pachyderm Club features candidates for the board of USD 259, the Wichita public school district. For the at-large seat, the candidates are Sheril Logan, Carly Miller, and Phil Neff. For district 4, the candidates are Michael Ackerman, Jr., Jeff Davis, and Clayton Houston. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Bureaucrats can’t change the way we drive … but they keep trying. More from the Washington Examiner, this time by Fred Barnes. “For most Americans — make that most of mankind — the car is an instrument of mobility, flexibility and speed. Yet officials in Washington, transportation experts, state and local functionaries, planners and transit officials are puzzled why their efforts to lure people from their cars continue to fail.” While Barnes writes mostly about automobiles vs. transit from a nationwide perspective, the issue is important here in Wichita. The revitalization of downtown Wichita contains a large dose of public transit as a way for people to get around downtown. It’s also likely that various streets will be restructured to make them less friendly to automobiles. .. More broadly, a major reason for some to support public funding of downtown is their hatred of “sprawl” and its reliance on the automobile, despite that being the lifestyle that large numbers of Wichitans prefer. They see this as something that government needs to correct.

    Wednesdays in Wiedemann tonight. Today (March 2) Wichita State University’s Lynne Davis presents an organ recital as part of the “Wednesdays in Wiedemann” series. These recitals, which have no admission charge, start at 5:30 pm and last about 30 minutes. … Today is an all-Bach program, and Davis writes: “This is music for the soul, music for when the weather isn’t quite what it needs to be, music to heal our coughs and colds, music to meditate by — however this grand yet simple composer speaks to you.” … The location is Wiedemann Recital Hall (map) on the campus of Wichita State University. For more about Davis and WSU’s Great Marcussen Organ, see my story from earlier this year.

    Americans for Prosperity website attacked. The website of Americans for Prosperity has been attacked by a group that disagrees with AFP’s position on issues. AFP President Tim Phillips issued a statement: “Americans for Prosperity has established itself as a leading voice in one of the great political debates underway in this country over government spending and how best to restore the fiscal solvency of governments at both the state and federal level. Yesterday, a group claimed credit for an attempt to silence our voice and to stifle that debate through an illegal attack on our website. While the political debate over government spending can be heated, we hope that even our opponents will join us in condemning this illegal attack on our free speech rights as unacceptable and irredeemable. Our country cannot meet the great challenges before us if we cannot have a free and open discussion about the threats that we face. Americans for Prosperity will not be intimidated and will not be deterred from our effort to support responsible economic policies, including the efforts of Governor Walker and other democratically elected leaders in that state to balance the budget through common-sense reforms.” … While I agree with Phillips that free and open discussion is necessary to resolve the issues we face, the disruption of AFP’s website is really more a property rights issue than a speech issue.

    Kansas presidential primary pitched as economic development. Washburn University political science professor Bob Beatty: “Why the dash by states to be early on the [presidential primary] calendar? The first is political power and ego. Early primary and caucus states merit attention from the presidential candidates to party big-wigs and power brokers within these early states. But a second reason has rapidly risen in prominence: The economic impact that candidate visits and media coverage of same brings a state. One economist has argued that the economic impact of the Iowa caucuses on the Iowa economy in 2004 was in the neighborhood of $50-$60 million. Other states want a piece of that action.” The complete editorial is Insight Kansas Editorial: Creative Thinking About 2012 GOP Presidential Caucus Can Benefit State.

    Huelskamp joins Tea Party Caucus. Tim Huelskamp, a new member of the United States Congress from the Kansas first district, has joined the Congressional Tea Party Caucus headed by Michele Bachmann. The two other new members of the House of Representatives from Kansas have not joined.

    How government works. The myth of George W. Bush as a small-government conservative, hiding information from the press and public, and the revolving door between government and lobbying. From Rollback: Repealing Big Government Before the Coming Fiscal Collapse by Thomas E. Woods, Jr. “Of the $96.5 trillion in unfunded Medicare liabilities, $19.4 trillion was added by the ‘small government’ George W. Bush administration’s prescription drug benefit, known as Medicare Part D. The story of that bill’s passage is the story of America in the twenty-first century. The White House did not want to risk the bill’s passage by letting accurate estimates of its cost leak out. Richard Foster, Medicare’s chief actuary, reported that its administrator, Bush appointee Thomas Scully, threatened him with his job if he revealed cost estimates to Congress — a claim that email correspondence from a Scully subordinate appeared to corroborate. The pharmaceutical industry was thrilled with the bill, which would yield perhaps an additional $100 billion in industry profits over the next eight years. Ten days after the bill’s passage, Scully left to join a lobbying firm and represented several large pharmaceutical companies. The bill’s principal author, Billy Tauzin, went on to head the drug companies’ main lobbying organization, a position that paid $2.5 million per year.”

  • Charles G. Koch: Why Koch Industries is speaking out

    In today’s Wall Street Journal, Charles G. Koch, who is chairman of the board and CEO of Koch Industries, writes that economic freedom — not government spending and intervention — leads to prosperity and economic well-being for all, even for our poorest citizens.

    Koch describes an “economic crisis” of increased spending and debt, at both the federal and state levels. The spending cuts currently being considered by Congress, he says, are “relatively minor,” with few proposals for necessary cuts to military and entitlement programs. He describes Wisconsin Governor Scott Walker as someone who takes seriously the challenge of controlling government spending.

    Mismanagement of our finances by both Democrats and Republicans, along with their and President Obama’s refusal to tackle the problem of existing debt and the unfunded liabilities of Social Security, Medicare and Medicaid, means we are looking at “looming bankruptcy,” Koch writes.

    On the relationship between government and business, Koch writes that too many business firms have practiced “crony capitalism”: lobbying for special favors, subsidies, and regulations to keep competitors — who may be more efficient — out of the way.

    While it’s more difficult than practicing cronyism, competing in open markets assures that firms that efficiently provide goods and services that consumers demand are the companies that thrive, Koch writes. It is these efficient firms that raise our standard of living. When politically-favored firms are propped up and bailed out, our economy is weakened: “Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.”

    He concludes: “I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.”

    Why Koch Industries Is Speaking Out

    Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better.

    By Charles G. Koch

    Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year — double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.

    Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.

    For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.

    Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.

    Continue reading at The Wall Street Journal (subscription not required)

  • Public workers and their pay

    In the controversy over public sector unions and worker pay, the political left argues that government workers are not overpaid. Evidence from California, however, shows that when everything is considered, public sector employees are paid much more than similar private sector workers.

    Research by Andrew Biggs of American Enterprise Institute and Jason Richwine of Heritage Foundation was summarized in the Wall Street Journal. Some findings:

    • In terms of salary, the California study found that private and public sector workers earned salaries that were almost equal.
    • State and local governments often guarantee a certain level of return on workers’ retirement savings. The article cites eight percent in California. (In Kansas, workers who joined KPERS before 1993 are guaranteed eight percent interest on contributions. For those who joined later, the rate is four percent.)
    • Job security is a benefit. A private sector worker has a 20 percent chance of losing a job during a year. For state and local government workers, the rate is only six percent. The authors estimate this to be worth about a 15 percent boost in compensation, especially since public sector workers have been found to be more risk-averse than other workers and value job security highly.

    Adding it all together, the authors estimate that California government workers are paid 30 percent more than comparable workers workers in large private firms, a value thought to be similar to other states with powerful public worker unions.

    The full working paper by Biggs and Richwine is available at Are California Public Employees Overpaid?.

  • Kansas government arts supporters: some numbers

    In the debate over Kansas government funding of the arts and the elimination of the Kansas Arts Commission, a few things stand out.

    First, when government-funded arts supporters say that loss of funding will result in the loss of events or institutions, this assumes that nothing changes. It assumes that arts organizations can’t — or won’t — react in some way to compensate for the loss of funding.

    An example is an editorial in the University Daily Kansan, which is the student newspaper at the University of Kansas. In it, the editorialist writes: “KAC provided the Spencer Art Museum with $21,286 and the Lied Center with $16,286 for the fiscal year of 2011. Without funding from the KAC, the Spencer Art Museum would likely have to make cuts, including one full-time art education position.”

    Now if the Spencer Museum of Art were to lose this funding, are we to believe that the museum is so feckless that it can’t do something to compensate?

    And what the museum would have to do to compensate might be quite small. I learned that the museum attracts between 120,000 and 140,000 visitors each year. Using the lower figure, if the museum could figure out a way to coax just 18 cents from each visitor, it could make up for the loss of Kansas Arts Commission funding. I might suggest a small admission fee that could be voluntary. Or a tip jar.

    Or consider Music Theater of Wichita. According to its website, it has a budget of over $2 million per year. It received a grant of $7,808 from the Kansas Arts Commission, representing just 0.4 percent of its budget. Are we to believe government-funded arts supporters when they claim that organizations like this will fold if they don’t receive their government funds?

    Even for arts events in small towns, the government funds could easily be made up in many ways. In particular, organizations can start charging admission, or increase it slightly if they already charge admission. In this way the people who benefit from arts pay for the enjoyment, just like we expect people to do with other activities they enjoy. It will also force arts organizations to be more accountable to their customers instead of government bureaucrats. That’s a good thing.