The GOP’s Penny-wise, Pound-Foolish Spending Cuts
Let’s say that for every dollar you gave me, I gave you a crisp $10 bill in return. Good deal, right? Almost too good. But before you start to ask questions, I’ll remind you that this is my thought experiment. Perhaps I just love dollar bills. Or perhaps I just love you. At any rate, there are no strings attached, and you can take advantage of it more than once.
Now let’s say that you’re in debt and you need to get your finances in order. Do you start handing me more dollar bills? Or fewer?
If you’ve got any sense, you’ll give me more. Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you’re a House Republican.
On March 1, House Republicans voted to cut $600 million from the budget of the Internal Revenue Service for the remainder of 2011, and they want even deeper cuts in 2012. Perhaps that doesn’t surprise you: Republicans don’t like spending — at least when they’re not in power — and they don’t like taxes. Why would they fund the IRS?
Well, as the Associated Press reported, “every dollar the Internal Revenue Service spends for audits, liens and seizing property from tax cheats brings in more than $10, a rate of return so good the Obama administration wants to boost the agency’s budget.” It’s an easy way to reduce the deficit: You don’t have to cut heating oil for the poor or Pell grants for students. You just have to make people pay what they owe.
But deficit reduction is not the GOP’s top priority. It’s a bit lower on the list, somewhere between “get Styrofoam cups back into Congress” — an actual push the Republicans took up to thumb their nose at Nancy Pelosi’s environmental policies — and make “Sesame Street” beg for money. In fact, if you listen to Speaker John Boehner, he’ll tell you himself. “The American people want us to focus on creating jobs and cutting spending,” he has said. And that comment wasn’t a one-off: “Our goal is to cut spending,” he said in another speech.
Cutting spending is related to, but in important ways different from, cutting deficits. For one, it rules out tax increases. That’s how Republicans can lobby to make the Bush tax cuts permanent, at a cost of $4 trillion over 10 years, and yet say they’re fulfilling their campaign promises by making much smaller cuts to non-defense discretionary spending. If you add up what Republicans have offered since the election, the policies they’ve endorsed would increase deficits but also decrease spending, at least in the short term. The IRS example shows that spending cuts don’t always reduce the deficit. But it’s worse even than that: Spending cuts don’t always reduce government spending.
There are three categories of spending in which cuts lead to more, rather than less, spending down the line, says Alice Rivlin, former director of both the Congressional Budget Office and the Office of Management and Budget. Inspection, enforcement and maintenance. The GOP is trying to cut all three.
Let’s begin with the costs of cutting inspection — for example, the Food and Drug Administration and the Agriculture Department. Together, the agencies are charged with ensuring that the nation’s food is safe. That’s increasingly crucial as our interconnected, industrialized system makes contaminated food a national crisis rather than a local problem. In recent years, we’ve seen massive recalls stemming from E. coli in spinach, salmonella in peanut butter and melamine in pet food. Each required the recall of thousands of tons of food and alerts to consumers who, in many cases, were screened or treated.
The problem was bad enough — and the people and pets sick enough— that Congress passed a bipartisan food-safety bill during last year’s lame-duck session. But now Republicans want big cuts in the agencies’ budgets, meaning fewer inspectors and a higher chance of outbreaks and food-borne illness. And those don’t come cheap. They show up in our health-care costs, disability insurance and tax revenue, not to mention in the pain and suffering and even death they cause.
Next up: enforcement. As any budget wonk will tell you, cracking down on “waste, fraud and abuse” won’t cure all our fiscal ills. But waste, fraud and abuse do happen, particularly in Medicare and Medicaid, where they can be costly. Republicans are looking for big reductions in the Department of Health and Human Services, meaning fewer agents to conduct due diligence on health-care transactions. Costs will go up, not down.
Then there’s deferred maintenance. In 2009, the Society of Civil Engineers gave America’s existing infrastructure a grade of D. They estimated that simply maintaining America’s existing stock would require up to $2.2 trillion in investment. But Republicans have been cool to Obama’s calls to increase infrastructure investment. Just “another tax-and-spend proposal,” Rep. John Mica (R-Fla.) said when the initiative was announced. But a dollar in maintenance delayed — or cut — isn’t a dollar saved. It’s a dollar that needs to be spent later. And waiting can be costly. It’s cheaper to strengthen a bridge that’s standing than repair one that’s fallen down.
And there are plenty of examples beyond that. Republicans have proposed massive cuts to the Securities and Exchange Commission, which would make another financial crisis that much likelier. They’ve proposed cuts to the National Oceanic and Atmospheric Administration, which conducts tsunami monitoring. In their zeal to cut spending, they’re also cutting the spending that’s there to prevent overspending. Just as you have to spend money to make money, you also have to spend money to save money — at least sometimes.
There are all sorts of reasons Republicans are being penny-wise and pound-foolish. Cutting $100 billion in spending in one year sounded good on the campaign trail but turned out to be tough in practice. Curtailing the IRS and cutting the Department of Health and Human Services — and, particularly, its ability to implement health-care reform — is a long-term ideological objective for Republicans.
Whatever the reason, the effect will be the same: a higher likelihood of pricey disasters, an easier time for fraudsters, and bigger price tags when we have to rebuild what we could’ve just repaired.
By: Ezra Klein, The Washington Post, March 15, 2011
Public Alert: What If We’re Not Broke?
“We’re broke.”
You can practically break a search engine if you start looking around the Internet for those words. They’re used repeatedly with reference to our local, state and federal governments, almost always to make a case for slashing programs – and, lately, to go after public-employee unions. The phrase is designed to create a sense of crisis that justifies rapid and radical actions before citizens have a chance to debate the consequences.
Just one problem: We’re not broke. Yes, nearly all levels of government face fiscal problems because of the economic downturn. But there is no crisis. There are many different paths open to fixing public budgets. And we will come up with wiser and more sustainable solutions if we approach fiscal problems calmly, realizing that we’re still a very rich country and that the wealthiest among us are doing exceptionally well.
Consider two of the most prominent we’re-brokers, House Speaker John Boehner and Wisconsin Gov. Scott Walker.
“We’re broke, broke going on bankrupt,” Boehner said in a Feb. 28 Nashville speech. For Boehner, this “fact” justifies the $61 billion in domestic spending cuts House Republicans passed (cuts that would have a negligible impact on the long-term deficit). Boehner’s GOP colleagues want reductions in Head Start, student loans and scores of other programs voters like, and the only way to sell them is to cry catastrophe.
Walker, of course, used the “we’re broke” rationale to justify his attack on public-worker collective bargaining rights. Yet the state’s supposedly “broke” status did not stop him from approving tax cuts before he began his war on unions and proposed all manner of budget cuts, including deep reductions in aid to public schools.
In both cases, the fiscal issues are just an excuse for ideologically driven policies to lower taxes on well-off people and business while reducing government programs. Yet only occasionally do journalists step back to ask: Are these guys telling the truth?
The admirable Web site PolitiFact.com examined Walker’s claim in detail and concluded flatly it was “false.”
“Experts agree the state faces financial challenges in the form of deficits,” PolitiFact wrote. “But they also agree the state isn’t broke. Employees and bills are being paid. Services are continuing to be performed. Revenue continues to roll in. A variety of tools – taxes, layoffs, spending cuts, debt shifting – is available to make ends meet. Walker has promised not to increase taxes. That takes one tool off the table.”
And that’s the whole point.
Bloomberg News looked at Boehner’s statement and declared simply: “It’s wrong.” As Bloomberg’s David J. Lynch wrote: “The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.”
Precisely. A phony metaphor is being used to hijack the nation’s political conversation and skew public policies to benefit better-off Americans and hurt most others.
We have an 8.9 percent unemployment rate, yet further measures to spur job creation are off the table. We’re broke, you see. We have a $15 trillion economy, yet we pretend to be an impoverished nation with no room for public investments in our future or efforts to ease the pain of a deep recession on those Americans who didn’t profit from it or cause it in the first place.
As Sen. Al Franken (D-Minn.) pointed out in a little-noticed but powerful speech on the economy in December, “during the past 20 years, 56 percent of all income growth went to the top 1 percent of households. Even more unbelievably, a third of all income growth went to just the top one-tenth of 1 percent.” Some people are definitely not broke, yet we can’t even think about raising their taxes.
By contrast, Franken noted that “when you adjust for inflation, the median household income actually declined over the last decade.” Many of those folks are going broke, yet because “we’re broke,” we’re told we can’t possibly help them.
Give Boehner, Walker and their allies full credit for diverting our attention with an arresting metaphor. The rest of us are dupes if we fall for it.
By: E. J. Dionne, Op-Ed Columnist, The Washington Post, March 14, 2011
Social Security Hysteria Rebutted, Yet again
The WaPo editorial board apparently despises old people as much as Alan Simpson, given what they’re willing to put on their op-ed pages. Unfortunately, though, Charles Krauthammer doesn’t disintegrate into quite the degree of gibberish as Simpson, though he’s a liar. He particularly attacks OMB director Jacob Lew, and Lew’s assertion that Social Security is solvent until 2037 and doesn’t add to the deficit. Krauthammer’s argument: the Treasury bonds Social Security funds are invested in are “worthless” and Lew’s arguing otherwise is “a breathtaking fraud” because the “Social Security trust fund is a fiction.”
Dean Baker refutes.
It’s nice that Mr. Krauthammer thinks that government bonds are worthless…. While he is welcome to believe anything he wants, the bonds held by the Social Security trust fund are backed by the full faith and credit of the U.S. government. Krauthammer may want to default on bonds that belong to the nation’s workers, but his desires are not the same as reality.Selling these bonds to fund Social Security no more raises the deficit than the decision of a rich person to sell bonds to finance their consumption raises the deficit. The deficit was incurred when the money was lent to the Social Security trust fund in the first place.
The size of the deficit, including the money borrowed from Social Security — the on-budget deficit — is reported in every budget document put out by the government (e.g. here and here). Krauthammer might try to learn a bit about how the budget works before he goes off ranting about Jack Lew and Social Security….
In reality, the projected shortfall in the program is relatively distant and minor. The country has far more urgent concerns, like putting 25 million unemployed or under-employed people back to work. This should be the focus of our political leaders right now.
And Jacob Lew defends his, and Social Security’s honor:
Krauthammer is correct when he writes that there is no “lockbox” that keeps the money sent in by workers for until they retire. By design, when more taxes are collected than are needed to pay benefits, funds are invested in Treasury bonds and are held in reserve for when revenue collected is not enough to pay the benefits due. Yet these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are, making them anything but ”worthless IOUs” as Krauthammer suggests. The government has just as much obligation to pay back the bonds in the Social Security trust fund as we do to any other bondholders.Responsibly honoring that obligation – one that we planned for and always knew was there –entails undertaking fiscal policies that would make it easier, not harder, to meet these obligations. When I last was OMB Director at the end of the Clinton Administration, the Congressional Budget Office estimated $5.6 trillion in budget surpluses over the next decade because of fiscally responsible measures that Democrats and Republicans, working together, had taken….
This is the most important point: the problem is not with Social Security, but in the near term the mismatch between what we take in and what we spend in the rest of the budget. Working people had payroll taxes taken from their salaries to pay for future benefits, and instead the money was used to pay for tax cuts and other initiatives. It is hardly fair now to say that those working people caused the problem just when they are ready to collect benefits.
Krauthammer’s argument is inside out. We should not blame Social Security for our current fiscal problems when it is the irresponsible fiscal behavior of the past that has presented the country with future challenges to fund our commitments, including Social Security over the next two decades.
That irresponsible fiscal behavior was unfortunately extended by the tax-cut deal and intensifed by the payroll tax holiday, making it even easier for Social Security to be the target of deficit peacocks and the Very Serious People who believe “shared sacrifice” means everybody but the rich and corporations sacrifice. That aside, Lew is absolutely correct. Social Security is not the problem. Massive tax cuts for the rich and two unsustainable wars are the problem.
By: Joan McCarter, Daily Kos, March 12, 2011
Wisconsin Gov. Scott Walker Shows Why Ideologues Can’t Govern
Ideologues make lousy politicians, even worse office holders. The ideological straight jacket does just what you would expect–it constricts movement. Everything is nice and neat and tight but not conducive to serious efforts to move forward. Politicians such as Scott Walker, who put themselves in ideological straight jackets, either live to regret it or are thrown out on their ear, or both.
Intellectuals sometimes make good ideologues, cultural commentators make very thought provoking arguments, philosophers have the luxury of being way out on the edge at times, but those who go into office find that they are rejected very quickly by the public when all they have is their ideology.
Scott Walker is the latest example of an ideologue–combined with a self righteous, bullying approach, not backed up by intellectual rigor.
My guess is that the events of the last month will not only harm him politically in the short run but will result in a serious problem for those who follow in his footsteps.
First and foremost, his approach to governing won’t work. Cutting taxes for ideological reasons, rather than pragmatic ones, prohibiting local governments from paying for education with their own decisions on local taxes, cutting services to the bone, breaking collective bargaining with unions, making them a scapegoat, just won’t wash.
Look at the governors who are putting forth a balanced, reasonable approach to focusing on the dual realities of too much spending and too little revenue. They are not engaging in a hard and fast ideological battle. They are pragmatic. They do not focus only on slash and burn cuts but, rather, are flexible enough to include tax and fee increases.
What was Walker thinking, cutting taxes by $117.2 million as his first act when his state faced a deficit of $137 million? I guess I get the million dollars he included to encourage businesses to move to Wisconsin but I sure as heck don’t understand a $49 million tax cut for health savings accounts. The rich will take advantage of that boondoggle and it won’t create jobs.
That was ideology, not pragmatism.
Look at Gov. Jerry Brown in California, or Mark Dayton in Minnesota, or John Kitzhaber of Oregon, John Lynch of New Hampshire, Pat Quinn in Illinois, or Andrew Cuomo in New York. These are governors, many of whom have a lot tougher problem than Wisconsin, who are struggling and succeeding, not resorting to hard ideology, not refusing to look at the revenue side of the equation.
If members of Congress take lessons from the states, they should learn a whopper from Wisconsin. Don’t follow in Walker’s footsteps, look to the governors listed above.
In fact, they can even look to Ronald Reagan who as governor way back in 1967 raised taxes by $1 billion in California as well as cut the budget. As president, he raised taxes in every year but one, when it was necessary. He learned very quickly about “never saying never.” He didn’t put himself in the ideological straight jacket that many now fantasize about. I am not a Reagan fan, but I do recognize he was pragmatic.
Walker is in way over his head. Sadly, he has been a train wreck for his state. Let’s not let his style and approach be a train wreck for the nation.
By: Peter Fenn, U.S. News and World Report, March 11, 2011
Meanwhile…Washington’s Budget Folly
The Senate on Wednesday voted down the House budget bill, with its string of $61 billion in mostly political cuts through Sept. 30. That formally puts an end to the House’s grandstand play. But the Senate also rejected its Democratic leaders’ own plan to cut $6.5 billion. The government’s financing is due to run out in eight days. To prevent a shutdown, the two chambers will probably have to agree to yet another short-term financing bill.
That would be politically and fiscally irresponsible. But the House Republicans will be happy to agree, as long as Democrats agree to a vigorish of $2 billion a week in cuts to vital government programs.
Unless the White House and Democratic lawmakers start pushing back a lot harder — and do a better job of explaining the disastrous effects on the economy and everyday life — the Republicans will win the argument. If it keeps going on this way, they will get the $61 billion they demanded.
The White House again threatened on Wednesday to veto the House bill, and said it supported the Democratic bill that did not even draw a simple majority. It has been hosting what appear to be unproductive talks among legislative leaders; Vice President Joseph Biden Jr., who is nominally in charge of the talks, is now visiting Eastern Europe and tried to mediate by telephone.
President Obama has yet to take a firm public stand and make clear his bargaining limits and priorities. Understandably, he does not want the government to shut down and is hoping that quiet negotiations will produce better results than loud declarations of principle. But there is no sign that the House freshmen have an interest in compromise, or that Representative John Boehner, the House speaker, has any control of his caucus.
A brief shutdown, painful as it would be, would be far less damaging than a sudden withdrawal of tens of billions in government spending from the economy, which would lead to widespread layoffs.
Mr. Obama could well follow the example of Senator Charles Schumer of New York, the third-ranking Democrat in the Senate, who on Wednesday called for a “re-set” of the negotiating process. The only way to have a meaningful discussion of the budget, he said in a speech, is to consider all of its parts at once over the long term, not for a few weeks or months at a time. That includes all the issues the Republicans wouldn’t deal with in their bill: cuts to the entitlement programs and to the Pentagon budget and ways to raise revenues at the same time.
The Republicans, as Mr. Schumer noted, aren’t really interested in lowering the deficit. If they were, they would never have insisted on $800 billion in tax cuts for the wealthy without paying for them, or on repealing the health care law, which saves $230 billion over a decade.
They are only interested in slashing government, no matter the cost to the country. It is time for the president — and responsible Congressional leaders of both parties — to reject their tactics and their goal.
By: Editorial, The New York Times, March 9, 2011
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