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June 30, 2007

How Fiscal Prudence Becomes Fiscal Profligacy

In the page 1 story for the June 15 issue of The ACTA Watchdog, we said “we’re not asking for frugality, but a little fiscal prudence would be nice.” We also provided a chart comparing the growth in county spending from 2000 to 2005 of 42% to the much slower growth in personal income (19%) over the same period. Fiscal prudence on the part of the Arlington County Board would have limited the growth in county spending to no more than 19%.

So, just how does the County Board “grow the budget” in excess of personal income? They do it by finding “unmet needs” here and “unmet needs” there and essentially “spend a little here” and “spend a little there.”

No better example exists than in the county’s welfare department, or as the county likes to call it the Department of Human Services. Granted, that includes the health department, but it’s not a major fiscal component.

To see how it works, taxpayers can look at DHS’ “ten-year history,” which lists every change by year. For example, take a look at the list for the FY 2002 budget that begins on page 133 of the Manager’s proposed FY 2008 budget. For FY 2002, there are about 38 separate changes spread over three pages. To its credit, the department make some “efficiency” changes, e.g., eliminating several positions that had been funded through grants that were not renewed. However, those cuts or increased efficiencies are dwarfed by additions made “here, there, and everywhere.”

That example is repeated year-after-year. Sheesh! No wonder county spending grows faster than our personal income.

June 29, 2007

Congress: Always Looking for a Free Lunch!

Last Thursday, June 22, we growled about the high cost of government regulation. Specifically, we noted that in mandating higher CAFÉ mileage standards, the U.S. Senate was effectively increasing the number of Americans who would die as a result because to achieve higher mileage, the auto industry would have to reduce the weight of the vehicles, and noted the direct correlation of fatalities and lighter vehicles.

Charles Krauthammer’s column in today’s Washington Post explains how mandating the higher standard is effectively a free lunch for the Congress:

“(I)t is hard to conceive of a more politically dishonest and economically inefficient way to do it than with mandates that make private industry do Congress's dirty work, hide the true cost of energy efficiency and perpetuate the fantasy of the tax-free lunch.”

Actually, Krauthammer argues for the need to look at tradeoffs. In addition to the safety issue, there are the issues of cost, car prices, and the risk of driving Detroit into insolvency – all involving the matter tradeoffs. He explains:

“This country desperately needs better gas mileage. But it does not come free. The most efficient and equitable way to both increase mileage and reduce gasoline use (increased mileage alone can induce people, perversely, to drive more) is with a new gasoline tax, refunded by means of reduced payroll taxes to make it revenue neutral. But there is absolutely no congressional or administration support for that, because it is too honest and open an acknowledgment that there is no free lunch. The reason Congress loves corporate average fuel economy (CAFE) standards is precisely that they hide the cost -- in the sticker price of a new car. Whatever blame there is for the unfairness of life -- that energy efficiency is not free -- goes to the auto company rather than the mandating body, namely Congress.”

As noted economist Thomas Sowell has said, “There are no solutions...there are only trade-offs.” If only the political elite had such wisdom!

June 24, 2007

The Right Way to Cut Taxes. Cut Spending!

Kudos to the Cato Institute! Following on the publication of the book “Downsizing the Federal Government,” by Chris Edwards, Director of Tax Policy Studies at Cato, they’ve set-up a web resource by the same name as the book. The initiative will examine:

“the failings of each federal department and identifies specific programs to cut. The goal is to illustrate the cost savings possible if wasteful programs were ended, federalism were revived, and the government’s commercial activities were transferred to the private sector.”

Cato says what we all know, which is:

“The federal government is running large budget deficits, spending too much, and heading toward a financial crisis. Total federal spending in 2007 of $2.8 trillion is up 56 percent from 2000. Recent spending increases have come just as the costs of Social Security and Medicare are set to balloon when the baby-boom generation retires.”

“If government spending is not cut in coming years, average working families will face huge tax increases that dwarf anything seen in decades. Tax increases would damage the economy and be strongly resisted by the public.”

“As a consequence, policymakers need to begin identifying programs in the federal budget that can be terminated, transferred to the states, or privatized. Cutting the budget would enlarge personal freedom, strengthen the economy, and leave a positive fiscal legacy to the next generation.”

The first department to get the microscope is the U.S. Department of Agriculture where Edwards identifies reforms that:

“would eliminate 90 percent of the USDA’s budget, saving federal taxpayers $80 billion annually, or about $696 per U.S. household. Under the proposal, the USDA would retain responsibility for animal and plant health inspections, food safety, grain and packing inspections, and conservation activities.”

We’ll keep you informed as Cato puts other federal departments under the microscope. In the meantime, use the link above to Cato's web resource to take an indepth look USDA, and get a copy of Chris Edwards’ book, “Downsizing the Federal Government.”

June 23, 2007

The Deadweight Loss of Taxation

With all the talk of increased taxation in the coming years, e.g., the budget passed in the House earlier this year would raise taxes by more than $3,000, according to this letter from the National Taxpayers Union, it time to take a look at the economic costs of taxation. A research report (requires Adobe) issued this month by Congress’ Joint Economic Committee does that.

The report begins by defining just what is “excess burden” or deadweight loss of taxation.”

“The overall burden of taxation is much larger than the tax receipts that government collects each year because taxes distort the behavior of individuals and firms. (emphasis added) These distortions reduce potential output or economic welfare. Economists refer to this reduction as the excess burden or deadweight loss of taxation, (emphasis in the original) which is usually expressed as a percentage of tax collections either on average or at the margin (the last dollar of tax collected).”

In its conclusion, the report says:

“Given the enormous size of the excess burden from the existing federal tax system, policymakers should pay greater attention to the effects of proposed changes on the efficiency and international competitiveness of the U.S. economy when shaping federal tax policy.”

In reporting on the JEC study, Jeff Dircksen and Dan St. John note at Government Bytes, the blogsite of the National Taxpayers Union, that economist Martin Feldstein:

"looked at the effect a 1 percentage point increase in all federal taxes. He found that the cost of raising an additional dollar to spend is $1.76. Continuing this though, Feldstein concluded that the hypothetical tax increase would only pull in 57% of its potential."

By federal standards, the report is short – only four pages. With the potential of adding $3,000 annually to the tax burden, Congress should be looking to cutting spending rather than adding to the tax burden. Moreover, it's quite readable.

June 22, 2007

The Steep Cost of Government Regulation

The business section of today’s Washington Post reported, “The Senate passed a sweeping energy legislation package last night that would mandate the first substantial change in the nation’s vehicle fuel-efficiency law since 1975 despite opposition from auto companies and their Senate supporters.” The Post reporter also wrote:

“After the fuel-economy vote, Sen. Byron L. Dorgan (D-ND) . . . said the nation’s desire to be less dependent on foreign oil would be a ‘hopeless journey’ without more efficient cars and trucks.” The Post then reported that Dorgan said, “Now, in our vehicles, we have better cup-holders, we have keyless entry, we have better music systems, we have heated seats . . . It is time that we expect more automobile efficiency.”

That’s all nice and good, and although the Post reported the auto industry would have to build smaller vehicles to meet the higher CAFÉ mileage standards, there was no mention of who would bear the ultimate cost of the smaller vehicles, either by the reporter or by the several Senators quoted in the story.

American citizens will pay a steep price for Congress bowing down to the environmental lobby in lives lost. According to a study from the National Center for Public Policy Research:

“A number of studies have documented the lethal consequences of requiring carmakers to improve fuel standards.”

For example, NCPPR said of one of the studies:

“The USA Today report also said smaller cars – such as the Chevrolet Cavalier or Dodge Neon – accounted for 12,144 fatalities or 37 percent of vehicle deaths in 1997, though such cars comprised only 18 percent of all vehicles."

Perhaps the Post reporter couldn’t get his Google working to find the NCPPR study. Fortunately, the Great One, Mark Levin (6:00 – 8:00 pm, WMAL 630 AM), was able to find the study earlier this week.

June 20, 2007

The Promises Politicians Make

In a well-researched policy paper about the subsidies enjoyed by ethanol, Jeff Dircksen of the National Taxpayers Union writes that it’s a “bumper crop for agribusiness,” but a “bitter harvest for taxpayers.”

Dircksen first provides a bit of history, writing:

“In 1973, Richard Nixon announced that the United States would be energy independent by 1980. Over the next three decades, a number of programs and initiatives would be launched in pursuit of that goal and then quietly eliminated when they failed to succeed. One program, ethanol, has been able to weather the changing political climate by cultivating political and popular support. Unfortunately for taxpayers, ethanol is another in a series of highly-subsidized but ineffective energy programs that are costly for consumers and are a bad "investment" of tax dollars.”

In his conclusion, he writes:

“Ethanol's supporters have dutifully nurtured their industry and stalked the halls of government, securing billions in taxpayer subsidies. The industry claims that consumers choose ethanol because it's good for farmers or because it's good for the environment. Yet, after nearly 30 years of government help and protection, the industry is still not able to meet the test of the marketplace. As politicians look to add farm crops from their states to the list of subsidized sources of ethanol, taxpayers can expect to "invest" more and more in this disappointing technology.”

As President Ronald Reagan might have explained it, “Governments tend not to solve problems, only to rearrange them.”

June 18, 2007

“What does America Think about Taxes?”

The Tax Foundation released their 2007 Annual Survey of U.S. Attitudes on Taxes and Wealth in April. The survey found “that tax policy continues to be a key issue in the minds of the American Public.”

The five key findings, according to the Tax Foundation, are:

  • “A new 2007 poll of tax attitudes finds a majority of U.S. adults believe the federal tax code is complex, that the federal income taxes they pay are "too high," and the federal tax system needs major changes or a complete overhaul. “
  • “Just one in ten (10 percent) say they are willing to pay higher taxes to eliminate 2007's projected $244 billion federal budget deficit."
  • “Two-thirds (66 percent) favor a complete elimination of the controversial federal estate tax.“
  • “Roughly half (48 percent) say they are willing to give up some federal tax deductions if such broadening of the tax base were coupled with an across-the-board cut in tax rates.“
  • “The estate tax is seen as the most "unfair" federal tax, followed by gasoline taxes and personal income taxes. At the state and local level, gasoline taxes are seen as the most "unfair" tax, followed by local property taxes and motor vehicle taxes”

Read the entire survey results. Better yet, encourage your favorite County Board member to read the results. It might help them to stop and think, for at least a moment, before approving the next spendthrift budget. And that fourth finding suggests many Americans would prefer a flat or fair tax.

June 17, 2007

Having Your Cake, and Eating it, too!

At this weekend’s National Tax Conference, sponsored by the National Taxpayers Union, I brought home the March-April 2007 issue of NTU’s Capital Ideas periodical publication. One of the articles had a ‘pullout’ quote by John Santoliquido, author of this editorial from Human Events Online.

In the editorial, Santoliquido complained about the budget resolution, which Senate Democrats passed earlier this year, and saying it “would balance the federal budget by 2012 – without raising taxes and still adding billions in new spending.”

The editorial is noteworthy for me because of the following observation:

“(T)he tax-and-spend crowd sees budgetary imbalance, in either direction, as an opportunity.  Surpluses are used for new government spending, while deficits are exploited as reasons for more taxes.  Both ways, the government’s presence in American life increases.”

Sure sounds like having your cake, and eating it, too!

June 10, 2007

Americans Subsidizing Each Other

A new study from the Tax Foundation looks at which age groups pay more taxes and which receive more government spending. The key findings from the study:

  • As the Baby Boom generation prepares to retire, lawmakers should be aware of the distribution of taxes and government spending across age groups.
  • America's youngest households aged 25 and under received $2.32 in government spending for each dollar of taxes paid in 2004. Middle-aged households aged 45 to 54 received $0.73 per tax dollar, and America's oldest households aged 75 and over received $4.93 per dollar of taxes paid;
  • As a group, households aged 35 to 64 pay more in taxes than they receive in government spending, while households under age 35 and over age 64 receive more government spending than they pay in taxes. Overall between $376 billion and $872 billion per year is fiscally transferred from middle-aged groups to the youngest and oldest Americans each year through government taxes and spending;
  • Over a lifetime, government spending follows a U-shaped pattern, with large education and welfare spending in youth and large Social Security and Medicare payments in old age. But even within each age group, there are large differences in taxes and government spending across households at different income levels.

Read the entire report, or just the press release. Know the facts! More importantly, tell your senators and representatives how these tax burdens are affecting you.

June 02, 2007

That’s Right, We Just Pay the Taxes

On Thursday, May 31, we growled that based upon Amity Shlaes’ latest book, “The Forgotten Man,” taxpayers are indeed forgotten. If further proof were needed, the reporting by Dave Francis, and the editorial, in Wednesday’s DC Examiner should be the last evidence you likely will ever need.

The article and editorial describe in gruesome details how Metro system pensions are ripping off area taxpayers. Just a sampling from the editorial:

  • “Even though taxpayers and Metro riders provide 100 percent of all funding for the Washington Metropolitan Area Transit Authority’s retirement system, Metro refuses to disclose the pension fund’s assets or even the names of all six of its trustees.”
  • “With only insiders running the pension program, nobody is looking out for the taxpayers who fund this cozy deal.”
  • “Before Metro asks for any more money, taxpayers deserve to know all the facts about this ongoing behind-closed-doors rip-off. Perhaps then we will learn, for example, why a former station manager who was recently transferred to a $33 an hour job in Metro’s training division is still paid $49.53 an hour to stand on a station platform three hours every evening, supposedly ‘to load people on the trains.’”

Since Metro is run by an unelected board of directors, is this what taxpayers can expect from the unelected Northern Virginia Transportation Authority when the money starts flowing in from the so-called transportation plan worked out by Gov. Tim Kaine (D) and  the Republican-controlled 2007 General Assembly?