Clarification From Carney Interview

In his interview with Congressman Chris Carney, Gort managed to work in a question regarding the patch for the Alternative Minimum Tax (AMT) and pay-as-you-go (paygo) budgeting rules:

Our friend Local Values has a question on the pay go rules. The AMT patch actually violated the pay go rule and even Steny Hoyer voted against it but you voted for it. Any comment.

The pay go rule? Which one, what time? It was also part of the sweetener package in the last bailout. It did comply with pay go because they did identify the pay for in the next budget. The pay for was identified in the first one but was not identified in the bailout bill which is one of the reasons I voted against it. Values guy is wrong.

He’ll be glad to hear it.

First and foremost, I'm very thankful that Gort was able to plug one my questions into the conversation. I will likely never have the opportunity to interview these candidates so I appreciate Gort considering such a question. Second, I am grateful that the Congressman legitimately attempted to answer the question. He provided a substantive response which is very admirable in his tough reelection campaign.

However, it is important to clarify that "Values guy" is not wrong.

I will give the Congressman the benefit of the doubt that he misunderstood the statement, yet I stand by the content in my original question because everything was factually accurate.

The question that is in question:

2) As a Blue Dog Democrat, you have stated your commitment to pay-as-you-go (paygo) budgeting rules and their importance in reaching a balanced budget. However, your votes have not always reflected this as a priority. For instance, last December you voted for an un-offset Alternative Minimum Tax (H.R. 3996). This decision was a violation of paygo rules and was estimated by the CBO to cost $50 billion in 2008. Others, like Majority Leader Steny Hoyer of the Blue Dogs, refused to accept an unpaid for offset and voted against the bill. We all know that an AMT patch is an important priority for middle class taxpayers, but with deficits expected to reach record levels, what assurances can you make regarding your commitment to fiscal responsibility and the weight it will receive in your decision making?

Again, in fairness to Chris Carney, I believe he was referring to the AMT patch for the upcoming year that was just passed as an add-on to the bailout bill and not to his vote from last December as the question indicates. His vote from last December was in fact a vote in favor of waiving pay-as-you-go budget rules.

For those unfamiliar, paygo rules are budget neutral and were implemented to prevent the nation's fiscal condition from getting worse. In fact, they were instrumental in the early '90s as Congress traveled the difficult path to reach budget surpluses. The rules require that any change in taxes be offset with either spending cuts or increased taxes elsewhere. Since Congress continues to enact AMT patches on an annual basis to prevent the middle-class from getting hit, the patches are subject to paygo rules and are expected to be offset.

Last year, the House successfully passed two versions of the AMT with offsets. However, in the Senate it was amended and stripped of the offsets. This was a violation (or waiving) of paygo rules.

Before the Senate amended the legislation, Congressman Carney stated in a press release:

"I came to Congress with a goal of providing middle class tax relief. I was proud to vote for this fiscally responsible legislation to provide middle income families relief from the Alternative Minimum Tax. This legislation adheres to the pay-as-you-go (PAYGO) standard of fiscal discipline, I am a firm believer that Congress must not continue to pass more debt onto our grandchildren"

However, the bill was without revenue-raising offsets after the actions in the Senate. Majority Leader Steny Hoyer highlighted this on December 18, 2007 after the events played out in the Senate:

House Majority Leader Steny Hoyer released the following statement tonight after Senate Republicans blocked for a second time a fiscally responsible patch of the Alternative Minimum Tax. Senate Democrats again supported the House-passed fiscally responsible AMT bill: ...

"House and Senate Democrats have tried twice this year to enact responsible legislation that would protect 23 million Americans from the AMT while not adding to the deficit by closing unfair tax loopholes for the wealthiest Americans. Republicans in the Senate blocked each bill, while the President bolstered their fiscal irresponsibility by threatening vetoes."

When the bill came back to the House after it was amended in the Senate, Hoyer voted against the un-offset bill to prove a point. Carney, on the other hand, did not. Both are members of the Blue Dog Coalition, yet Hoyer believed it was more important to do the fiscally responsible thing while Carney placed a greater emphasis on passing an AMT patch before Congress adjourned.

From a CNN story recapping the vote:

The House on Wednesday voted in favor (352-64) of a one-year AMT "patch" that the Senate had already approved earlier this month...it's the first time House Democrats gave the nod to a "clean" bill, meaning it has no provisions to pay for the patch's estimated $53 billion price tag.

In no way was the original question meant to be a "gotcha" moment. Rather, something I believe that voters should seriously consider when casting their ballot in November. In a situation like last December, we should know how much emphasis the Congressman will put on fiscal responsibility. It is easy to support doing the right thing in the abstract, but difficult situations will arise when two conflicting priorities collide. That is the nature of Congress. In this case, it was an extension of the AMT patch (which everyone acknowledges to be a necessity) and a $50 billion unfunded liability. As I tried to point out in the original question, how much emphasis will fiscal responsibility receive when you cast your vote.

I felt it was important to make this clarification for the readers of this blog in order to defend its integrity.

On The Bailout

Daily Item article regarding Carney and Hackett on the financial rescue.

Carney argues that the bailout must include more regulation, federal oversight, insurance against executive compensation, and protection for homeowners. Said Carney, “Most of us are not inclined to give a blank check to (Treasury Secretary Henry) Paulson on his word of ‘Trust me’.”

Hackett was also skeptical that the bailout could end the financial crisis on its own, but made reference to the budgetary implications by stating that “some types of actions would make our long-term economic outlook much worse, and should be rejected."

The 5 Hackett Principles for any bailout package

• Guarantees that if these bailouts are successful, any taxpayer cost would be offset by returns that return to taxpayers rather than company executives and shareholders;

• Reform of government policies that contributed to the financial meltdown, including terminating Fannie Mae and Freddie Mac’s status as Government Sponsored Enterprises, to prevent the kinds of high-risk mortgages that led to the current crisis.

• Structure multiple entities (a minimum of five) to compete for the purchase of troubled assets, limited to residential home mortgages. Rather than Treasury Department control, have an independent board of directors who report quarterly to Congress on progress and results.

• Do not allow the current crisis to be used as an excuse to push additional special-interest corporate bailouts that have no comparable systemic economic implications, such as the $25 billion being requested by the auto industry.

• Reduce tax burdens on investments and real estate to attract new private capital to U.S. markets, thereby relieving the pressure to call upon taxpayers to provide public capital.

Lot of Trust Involved

From Peter Orszag's--Congressional Budget Office Director--testimony today before the House Budget Committee regarding the budgetary implications of the proposed bailout:

"At this time, given the lack of specificity regarding how the program would be implemented and even what asset classes would be purchased, CBO cannot provide a meaningful estimate of the ultimate net cost of the Administration’s proposal. The Secretary would have the authority to purchase virtually any asset, at any price, and sell it at any future date; the lack of specificity regarding how that authority would be implemented makes it impossible at this point to provide a quantitative analysis of the net cost to the federal government."

Furthermore:

"CBO expects that the Treasury would probably fully use its $700 billion authority in fiscal year 2009 to purchase various troubled assets. To finance those purchases, the Treasury would have to sell debt to the public. Federal debt held by the public would therefore initially rise by about $700 billion. Nevertheless, CBO expects that, over time, the net cash disbursements under the program would be substantially less than $700 billion, because, ultimately, the government would sell the acquired assets and thus generate income that would offset at least much of the initial cost."

Added cost:

"In addition to any net gain or loss on the purchase of $700 billion or more in assets, the government would also incur significant administrative costs for the proposed program. Those costs would depend on what kinds of assets were purchased. On the basis of the costs incurred by private investment firms that acquire, manage, and sell similar assets, CBO expects that the administrative costs of operating the program could amount to a few billion dollars per year, as long as the government held all or most of the purchased assets."

Some food for thought...

A Budget Deal, Really?

It seems an agreement on the budget could be reached sooner rather than later. One sign that this could happen is that both sides are continuing talks and no one has yet to walk away from the table.

House Republican leader Sam Smith noted that it could be possible for the House and Senate to vote on budget bills Monday and have them signed by the Governor on Wednesday. This would seemingly avoid the furloughing of state employees as Rendell previously stated he would not do so if he perceived a budget deal to be close.

The Democrats' plan to dip into the rainy day fund has been taken off the table after Wednesday's negotiations, but a hiccup in the agreement is how to make up for the projected surplus shortfall due to the economic downturn.

Erik Arneson, a spokesman for Senate Majority Leader Dominic Pileggi (R-Delaware) said, "Calling it a framework is a generous description, but it is not entirely inaccurate."

Even a budget that was two-days late would still be an improvement for the Rendell administration.

Let The Battle Begin

This week will likely be very important in determining when the state's budget get passed.

Tom Barnes at the Post-Gazette cites some forces which could drive the budget to be passed sooner rather than later.

First, Governor Ed Rendell's own ego. The National Governor's Association is slated to meet July 11-14 in Philadelphia, and it would be rather embarrassing for Rendell to attend this event--held in his own backyard--while still bickering over budgetary matters.

Second, most of the larger initiatives have been taken off the table. Items such as leasing the Turnpike and the Democrats' plan to increase health care coverage will not be addressed until the fall.

As Terry Madonna notes in his most recent article:

"For Rendell and the legislature in this current era, the budget has become a long running proxy fight over larger issues Pennsylvanians are struggling with as the state evolves into the 21st century—issues about education, infrastructure investment, energy policy, health care, and much else. In short, Pennsylvania’s perennial budget impasses represent substantive debates about the future of the state in a period of critical transformation."

With that said, it is very unlikely that a budget will be passed before the deadline, as the Rendell administration has never accomplished such a task.

House Democratic leader Bill DeWeese seems optimistic he'll get to the July 4th parade this year, but advised his colleagues to bring some extra garments for the long days ahead. Other legislators are much more pessimistic (or realistic however you choose to look at the situation) and just hoping a budget can be agreed to by mid-July.

It appears the budget debate will be driven by two primary issues: agreeing to a baseline budget number for the upcoming fiscal year and by just how much education funding will increase from the current year.

How legislators come to a consensus on these two thornier issues will go far in setting the tone for further budget negotiations.

Balooning Budget

Last night, conferees from the House and Senate agreed on a budget resolution for fiscal year 2009.

If there's one good (using the term loosely) thing that's come from the Democrats controlling Congress, it's that President Bush has finally dropped the proverbial hammer on discretionary spending growth. Prior to their takeover, President Bush had let discretionary spending grow at an 8.0% annualized rate--the highest rate in the last forty years. The Democratic control of Congress has allowed Bush to set a harder line with his veto threats and not go against his own party.

The Budget Conference agreement for FY09 set discretionary spending totals $20+ billion over the President's spending request. Bush requested frozen spending levels that actually amounted to a cut when inflation was factored in.

As Ranking Member Republican Paul Ryan has pointed out, the Democrats budget does nothing to deal with the long-term growth of entitlement programs, factors in new spending, and relies on false assumptions (i.e. tax increases which Democratic candidates are already committed to finance their platform proposals).

Last year, President Bush vetoed some of the first appropriation bills that came across his desk because they spent too much, forced Congress to cut some out, and then signed them into law once they were more inline with his spending requests.

This was a political victory for the White House and demonstrated that President Bush could be fiscally conservative.

However, being an election year, Democrats in Congress will have less of an incentive to work with Bush on budgetary matters. It is likely that the Democrats will pass a continuing resolution (funding the government at previously appropriated levels), avoid a showdown with the White House, and deal with a new President on the annual appropriations. By simply waiting a couple months, Democrats could potentially work with a President--Obama--who is more inline with their priorities and spending increases.

If the Democrats choose this course of action, it could set up an election year advantage for Republicans.

By highlighting the Democrats' budget, Republicans can use the priorities contained within the budget for political fodder: the increased spending, failure to tackle the important long-term issues, and reliance upon tax increases to reach a balanced budget. This forces the point that these liberals are of the tax-and-spend variety who disregard the interest of the taxpayer. Sure, the Democrats plan would balance the budget, but they would do it by using tax increases which would hamper economic growth.

However, this will be an effective issue only if the Republicans regain their core on fiscal responsibility. In the 90s, the first priority on "The Contract With America" was fiscal responsibility and making the government more efficient. Simply painting the Democrats as irresponsible isn't going to work in this election because Republicans have been just as irresponsible in the last eight years. However, making a commitment to be the party of fiscal responsibility once again could be effective.

Pledging to reduce spending, eliminate earmarks, balance the budget, and keeping taxes low on the middle class will energize the base as well as provide a substantive difference that the GOP can work with. It will also reenfranchise those fiscal conservatives who have been without a home.

The Democrats are out of touch and this issue with help to exploit that.

Fill 'Er Up For Two

It's good to know that not only are Pennsylvania taxpayers paying for the cars that our state officials drive, but we're also reimbursing them for the mileage. Pretty nice perk of being an elected official.

Well, Maybe Just This Once...

On his website, Rep. Chris Carney states: "It is vital that we restore fiscal responsibility and accountability to Washington."

With passage of the farm bill, Chris Carney must have forgotten these two issues were on his platform. It probably won't be reported, but the Democrats used tricks and gimmicks to hide the costs of the farm bill. Luckily, Representative Paul Ryan and Senator Judd Gregg have been championing the ways in which the Democrats failed to provide either accountability or fiscal responsibility.

First, the Democrats used timing shifts to make the fiscal outlook rosier for the farm bill.

Second, the Democrats waived paygo rules so they could use the previous baseline of spending. This may not sound important, but under the House rules, the latest projections must be used. However, the Democrats felt compelled to use the March 2007 estimates and were forced to waive paygo in order to accomplish this. The Congressional Budget Office demonstrates:

• Estimated spending under the March 2007 Baseline Assumptions ('08-'12): $283.988 billion
• Estimated spending under the March 2008 Baseline Assumptions ('08-'12): $288.997 billion

Therefore, just by using the '07 baseline, the Democrats were able to mask the actual $5 billion in additional outlays. This is pure gimmick.

The fact that Rep. Carney didn't hold his fellow Democrats accountable is ashame. This is why Americans have no trust in their representatives. Not only did Chris Carney allow a bad farm bill to be passed, but he allowed it to happen with deceptive, legislative tactics.

Maybe it wasn't "vital" to restore fiscal responsibility and accountability on this occasion.

Come and Get It

The House of Representatives and Senate passed a 5-year, $290 billion farm bill this week. In Pennsylvania, Republican challenger Chris Hackett hammered incumbent Chris Carney (D-10th-PA) on his vote in support of the bill. Claiming it had too many earmarks and not enough money for the district, Hackett decried Carney's vote in support of the bill. To which Carney responded, "Family farming is not a partisan issue."

If Carney was looking to support "family farming," then certainly he should have voted against this bill. Furthermore, if Hackett was really looking to exploit Carney, he would point to the fact that the way our government distributes farm subsidies fails prioritize the family farmer.

This, in itself, may be surprising given the way Washington debates the issue. They portray every dollar as a necessity to small farmers back home in their districts. Of course, it may make sense to get every extra dollar into the bill, that way small farmers could actually see some of it since most of it goes to corporate farmers.

The way we distribute farm subsidies in this country is extremely inefficient and defies the basic principles of a free economy. If you don't believe me, look at a Government Accountability Office report from last summer which showed:

For 1999 through 2005, USDA paid $1.1 billion in farm payments in the names of 172,801 deceased individuals (either as an individual recipient or as a member of an entity). Of this total, 40 percent went to those who had been dead for 3 or more years, and 19 percent to those dead for 7 or more years.

Glad to know the government is giving the subsidies to those who really need it!

Also consider this, 10% of all subsidy recipients from the government receive 75% of the money allocated (about $91,000 a year per farm). The rest of the recipients--small family farms--receive less than $3,000 a year.

It's not an inherently bad thing that the money is disproportionately going to corporate farmers, but if you listen to the explicit statements coming from members of Congress, it is supposed to be benefiting the smaller farms. In this regard, the policy has failed because it's not keeping farmers in the business. They are a dieing breed.

This country was built on the back of family farmers. Now, only a small percentage of the population are farmers. And of those, most of their primary income comes from sources outside farming. Farming now is only profitable is you have modern machinery, larger acres to farm, and the right commodities to get the biggest bang for your buck in subsidies. This makes the big guys bigger and pushes the little guys out.

The current system also encourages an overproduction of goods. This leads to a decrease in price for those goods--simple supply and demand. The subsidizing of these products keeps the production artificially high and the price artificially low.

In a market run system, farmers could grow what they want and set their asking price. This basically forces them to survive on their own, but allows much more potential for success and longevity. Food is a necessity; the fact that it isn't a disposable good forces the market laws to work their magic. However, the current system essentially has a farmer growing a crop directly for the government. Big Brother in turn gives them a set price for the good and goes on their way. Because of all the government regulations, guaranteed reimbursement rates, and promises of disaster aid, farmers opt-into the system.

The American government is doing the most harm to farmers and putting taxpayers on the hook for it. The farm subsidy framework establishes a system which provides for one big game of "Who Wants To Be a Millionaire" on the government's dime.

A much more sensible solution would be similar to that put forth by Rep. Jeff Flake (R-AZ) in "FARM 21" legislation (or click here for more detail). FARM 21 would establish "risk management accounts" which act like an agricultural IRA. The accounts would be tax-free and the government would contribute to the accounts in lieu of subsidies. The cash subsidies from the government would then be phased out, and the contributed money in the "risk management accounts" would be used by the farmers for disaster relief, future investments, and planning for the future.

Anything that is more sensible than the current system we have would be a great leap in the right direction. We need to stop beefing up "fat" farm bills and remove the subsidies from those who don't need it (and stop pretending its really going to Ma & Pa down the road). Congress should work to encourage more farming, but this inefficiency at the taxpayers expense has just got to stop.

Update: Over at Greg Mankiw's blog, he's posted an e-mail from a friend at the White House with the top 5 reasons for the President to veto the bill.

Look to Donald Duck

I'll concede this cartoon is a little socialistic in nature, but it is great nonetheless. It's cartoon from WWII about Donald Duck being patriotic and paying his income taxes to support the war. Mainly demonstrating the sacrifices from those at home. If you have 5 minutes, it's worth a watch.

WWII is the standard upon which we often judge our nation on. Believe it or not, there was a sense of sacrifice involved with WWII that wasn't bared solely by those fighting the war. It could be found at home with the rationing coupons or the higher taxes, etc. Now during a time of war, citizens expect their tax cuts and prescription drug benefits, and they're told to go out and consume to support the economy. Is that really how we wish to define patriotism and stewardship? It's a little bit frustrating then when a great initiative like the new GI Bill comes along to support those who have harnessed the burden, but there's no initiative to even pay for it. That would involve sacrifice. Therefore, it's too politically difficult so we continue down the road of more free lunches.

...And the government gets bigger

The New G.I. Bill

Senator Jim Webb (D-VA) introduced a bill seeking to update the original G.I. Bill from World War II. Formally called "the Post 9/11 Veterans Educational Assistance Act of 2008," it would increase the amount of educational assistance to service members who have enrolled after September 11, 2001. Members who have served three years of cumulative active duty service will be rewarded with a full ride to any public university in the nation. It would roughly double the benefit size under current law.

Morally, the bill would be a great way to support the troops fighting abroad.

However, there are several important points of consideration to keep in mind. First, this proposed legislation would increase recruits but decrease retention. Hence, it's not an outright net gain for the military. According to the Congressional Budget Office:

Educational benefits have been shown to raise the number of military recruits. Based on an analysis of the existing literature, CBO estimates that a 10 percent increase in educational benefits would result in an increase of about 1 percent in high-quality recruits. On that basis, CBO calculates that raising the educational benefits as proposed in S. 22 would result in a 16 percent increase in recruits...Literature on the effects of educational benefits on retention suggest that every $10,000 increase in educational benefits yields a reduction in retention of slightly more than 1 percentage point. CBO estimates that S. 22 (as modified) would more than double the present value of educational benefits for servicemembers at the first reenlistment point—from about $40,000 to over $90,000—implying a 16 percent decline in the reenlistment rate, from about 42 percent to about 36 percent.

Second, it would cost $52 billion over ten years in mandatory spending. In a case such as this, the monetary value doesn't solely imply whether it should or shouldn't become law. Obviously, it's a larger financial commitment from the government, but when the money is put on auto-pilot that's a concern. This bill would be the largest entitlement increase since Medicare Part D. Mandatory spending is already projected to grow at an alarming rate in the coming decades so adding a program with no mechanism to control growth is somewhat alarming.

Finally, this is not an "emergency" and shouldn't be tabled with war supplemental spending. Administration officials thought the war in Iraq would be short and relatively inexpensive. Originally estimating $50-$60 billion for the Iraq War, the Bush Administration planned the money would be budgeted as an emergency since it wouldn't be a reoccurring requirement. However, the war has now cost over a half a trillion dollars but hasn't changed how the war is budgeted even though its costs can easily be foreseen. This is problematic in itself, but to further include an entitlement program like the new GI bill within the emergency spending to avoid paygo rules and an outright vote on the floor is wrong. These are planned expenses that should be budgeted for.

While it's difficult to argue against more benefits for our veterans (as they certainly need them), the current process for passing this bill must be reconsidered. The bills effect on our current military size, its future unchecked growth, and its attachment to a emergency spending bill make it rough to swallow.

Don't Smoke That Tobacco Tax For Too Long, You Might Run Out Money

At the beginning of the week, Pennsylvania Governor Ed Rendell urged action on "PA ABC." He stated:

The budget office did a thorough analysis that shows program costs and demonstrates to the taxpayers of Pennsylvania and their elected leaders that this is a financially responsible plan. With the additional revenues from the proposed 10-cents-per-pack increase in the cigarette tax and the first-time-ever tax on smokeless and other tobacco products, we will be able to fully fund this program. This analysis answers the argument from critics that the bill does not have adequate funding. We do. Now all we need is the political will to get this done.

"PA ABC" stands for Pennsylvania Access to Basic Care program which aims at covering those without health insurance in Pennsylvania. The actual insurance delivered from PA ABC would come from a private provider and be targeted at small businesses. Since many uninsured Pennsylvanians have a full time job, getting the small businesses and employees on board would be a step towards insuring the estimated 767,000 uninsured.

Budget Secretary Michael Masch recently confirmed that PA ABC was sustainable over a 10 year window. The House bill that was already passed directed $120 million in additional revenue to be placed into an account specifically for PA ABC. The Budget Office estimated that outlays for PA ABC would increase from $501 million in its first year to $1.1 billion in its fifth year. In that time, an additional 272,000 individuals would be covered.

There are three primary sources of revenue:

• $.10 per-pack increase on cigarettes
• $.36 per-unit increase on chewing tobacco and cigars
• Redirection of a portion of the state's current Uncompensated Care payments for hospitals
  

The Governor has stated that the first two sources (both of the tobacco taxes) would be sufficient in providing the initial $120 million a year. However, the whole system seems like a big bait-and-switch.

Primarily, the cigarette tax in Pennsylvania has been a declining source of revenue. If you look at the final monthly revenue statements from the previous five fiscal years, the revenue contributed from the cigarette tax to the general fund has nominally declined.

2006-2007	$778,000
2005-2006	$769,900
2004-2005	$844,700
2003-2004	$837,400
2002-2003	$830,900

No one, including Secretary Masch, expects the cigarette tax to grow over time as a source of revenue, but they haven't been upfront about the reliability problems associated with the tobacco tax. Even at the federal level, tobacco tax revenue is acknowledged to be declining, yet Congress continues to try and hitch SCHIP and other new expenditures to its proverbial wagon. As these taxes at the federal and state level continue to get tacked on (both acting independent of each other), cigarette prices will increase and more smokers will quit. This will only cause the revenue to dry up in a shorter time period. A tobacco tax is a popular target, and pretending this revenue is reliable isn't an accurate assessment.

It's very deceptive to tackle this large new initiative (which is scheduled to expand drastically even during its first five years) with a "false" source of revenue . During the last four decades, per capita health care spending has grown much more rapidly than per capita GDP. In fact, health care costs present the single largest factor in our the nation's fiscal future. Therefore, sounding the financially stable bell on something like this seems premature.

There is one optimistic way to look at this approach. If more smokers quit because of the levied tax, that inherently means less state expenditures for health problems related to smoking. However, in the aggregate, it's pretty obvious: health care costs are going to rise while two of the dedicated revenue sources for PA ABC decline.

This is an extremely large commitment for Pennsylvania that will be realized down the road. While the state is running a surplus and the cigarette tax is still capable of being milked, a program like this is quite appetizing. Of any health care proposal, focusing on cost saving measures is imperative. Cost saving measures not only translate into reduced outlays for the state, but if you drive down the market price in the process, there will be more of an individual incentive to purchase insurance as it requires proportionately less disposable income. Not only does PA ABC in its current design fail to implement cost savings, it's initially dependent on a regressive and diminishing tax source.

When close to 1 million people--all representing future financial obligations for the state of Pennsylvania--are proposed being added to a new government program, one would hope it'd receive more honesty and attention than the half-hearted truths that behoove it's current status.

Every Taxpayer Visits Washington DC Sometime

Senator Tom Coburn has a great Op-Ed in the Washington Times today about Washington D.C.'s metro system. After already receiving over $1 billion in federal funding, Washington Metropolitan Area Transit Authority (WMATA) is seeking $1.5 billion for infrastructure improvements. The federal government is the gravy train that keeps on giving!

Coburn correctly identifies the biggest problems with D.C.'s metro system and, more importantly, notes that taxpayers who will never step foot on a D.C. metro car are the largest subsidizers of this service. One of the more striking points of the Op-Ed:

Any member of Congress who can't find a little fat in the federal budget is out of touch with the real-world budget choices families face every day. In the real world, Americans tighten their belts in tough times and spend less in some areas if they have to spend more in other areas. Dismissing an additional $1.5 billion for the Metro as a blip in the budget is precisely the mentality that has caused Congress to rack up a $600 billion annual deficit this year and a long-term debt of nearly $10 trillion. I make no apologies for opposing this reckless status quo culture of spending that puts the interests of career politicians ahead of the next generation.

While Coburn may simply be against further funding for WMATA out of principle, he at least appears to be willing to compromise on the funding so long as Congress can identify other areas of the budget to cut. However, instead of proposing spending cuts to offset the desired metro funding, Congress wants to have it both ways. In their view, the extra funding is only a little part of the federal revenue pie. After all, $1.5 billion is so small when compared with the $3 trillion budget, right? Few difficult decisions are every forced by the government. Coburn's assesment is accurate in regards to WMATA and also accurate in regards to the lack of fiscal responsibility.

The Cheese Stands Alone

Tom Toles' cartoon from the Washington Post yesterday captures the political attitude on fiscal responsibility.

Deception From All

A Washington Times editorial adds to yesterday's post. The candidates have been particularly vague in describing how they will pay for their promises.

First, the Democratic presidential candidates plan to roll back part of the Bush tax cuts to finance their campaign proposals such as health care, green energy initiatives, etc. However, the Congressional Democrats are already relying upon this revenue to balance the budget by 2013. This essentially means the additional revenue is being counted twice. Clinton and Obama are both Senators and have to be familiar with the Democrat's budgetary proposals. When they campaign and state they will pay for their new polices with revenue that's already been committed, it's deceptive.

Similarly, John McCain has offered pork as a way to pay for some of his tax proposals. The Office of Management and Budget (OMB) counted 11,737 earmarks worth roughly $17 billion for Fiscal Year 2008. However, McCain has often cited an earmark figure of $60 billion because he believes that any initiative traced back to initial funding from an earmark can be removed. Two points of concern with this. First, his estimate is overly optimistic because he trying to use this $60 billion is savings to offset the one-year AMT patch. His rhetoric on earmarks and pork barrel spending leads on to believe that that's where all the government's money is being spent. In reality, less than 1% of all the government's outlays are "earmarks." Secondly, it's hard to imagine this money would simply disappear. Specified earmarks may be cut out, but that money could theoretically be added to the overall budgets of government departments or elsewhere. It would have little affect on the government's overall baseline. This allows Congressional conference chairs to cut deals with bureaucratic leaders so that their departments receive extra money in exchange for tacit agreement of spending on a specified project or region. As it was once explained to me: would you rather have your elected representative deciding how to best spend your money or some appointed bureaucrat?

In Over Their Heads

A great lead editorial today in the Washington Post appropriately called "Who'll Cover the Checks?" The editorial explores the lofty promises made along the campaign trail and the commitment they will require. Granted, it is April and these platforms have a long way to go, but it's always good to stop and look at what's being offered.

It is expected that the Democrats are going to propose increased spending. Frankly, the Democratic fiscal agenda has never sat well with me, but lately I've been growing concerned about the Republican plan.

Tax cuts have become a litmus test within the Republican party. If you want to run, you have to pledge yourself to never raising taxes. Tax cuts aren't a bad thing, nor am I attempting to imply that they are; however, the arguments that Republicans have continually used to justify their pursuit of endless tax cuts are not sound.

For instance, often times you will hear that tax cuts pay for themselves. President Bush has even said: "You cut taxes and the tax revenues increase." This is simply not true, nor close to being true. Nominal revenue declined for three consecutive years (2001, '02, and '03) after the first round of the Bush cuts: this is the first time that has happened since WWII. Furthermore, the Joint Committee on Taxation estimated that the 2001 tax cuts reduced government revenue by $552.5 billion from 2001-2006. The 2003 cuts also added to that reduction.

The macroeconomic effect of any tax cut will not produce enough growth to pay for the revenue lost. Douglas Holtz-Eakin, who is currently McCain's lead economic adviser, was really the first CBO director to do dynamic scoring of tax cuts. He reported that a 10 percent cut in income tax rates would:

... offset between 1 percent and 22 percent of the revenue loss from the tax cut over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years.

Different tax cuts have different reactions and not all tax cuts are created equal. Some provide more bang for the buck. For instance, a cut in the capital gains rate will spark an increase in short-term revenue because people can choose when they take their gain realizations. Over the long-term though, such a cut does not produce any increased revenue. It is just a short-term spike.

A second popular argument is that tax cuts are needed to "starve the beast." By cutting revenue and producing larger deficits, the government will be forced to lower its spending. Doesn't this sound great in theory? History does not support this idea. If anything, the tax cuts are simply followed by tax increases, and government's hand is not forced to cut spending. Even further proving the point is the recent fiscal track record of Republicans. They enacted Medicare Part D (a significant entitlement increase) and huge increases in both domestic and defense discretionary spending. One thing Congressional Republicans have gotten very wrong is their argument that tax cuts should not have to be paid for with pay-as-you-go rules ("PAYGO"). If Republicans truly believe in "starving the beast," they would fight for these tax cuts to be paid for because PAYGO forces a budget neutral offset--a spending cut. This would be a good thing.

Instead of make the difficult spending choices, tax cuts have been presented as a way to have it all. They have become political handouts for reelection. Using them as political tools instead of strategic economic tools has caused the Republicans to grow fiscally irresponsible.

Targeted taxes cuts can certainly have an economic growth in the short-term. That is not what is being disputed: selling tax cuts as a cure all is. As this blog has noted before, the size of government should and can decrease. By decreasing the size of the government, it is possible to produce an environment where permanent tax relief can exist because there is simply less to pay for. Instead of running large deficits which detrimentally effect our economic future, the government needs to get its house in order. Being fiscally conservative is no easy task, but it will pay in the long run.