What is the meaning of a budget number?

Filed Under (Environmental Policy, Retirement Policy, U.S. Fiscal Policy) by Don Fullerton on Oct 7, 2011

With all the argument in Washington about how to balance the budget, a reminder is worthwhile that none of these numbers make any sense at all!  What “should” be the meaning of the government budget?  And, does any number provided by anybody actually have that meaning?

In general, a budget deficit is supposed to mean that one’s current consumption exceeds income, which would indicate a decrease in wealth.  Indeed, that’s the problem with a deficit – drawing down our wealth (which could even turn from positive to negative!).  The U.S. Federal budget numbers fail to provide such a meaning, for several reasons.

First, the Federal budget includes ALL spending, not just consumption.  Some of that spending is actually investment, such as new spending on buildings, bridges, roads, airplanes, and any long-lived military equipment.  The budget does not show the breakdown between what we really use up this year, and what spending is really investing in the future.

Second, Social Security is “off-budget”, unless you are looking at a unified budget.  Okay, I said that in a way that is intentionally confusing!  The basic problem here is that social security is SUPPOSED to run a surplus, so that we can set aside some funds from those now working to pay them when they are retired.  If it does not run a surplus to save for the retirement of the baby boom generation, then we’ll be in big trouble when the baby boom generation retires!  The current social security surplus is too small for that.  Then, however, the big problem is that the unified budget mixes the social security budget with the rest of federal spending.  So when you see a deficit in that account, it’s really worse than it looks, because it includes the small social security SURPLUS that’s already not a big enough surplus for social security to break even!

Third, the U.S. Federal Budget is confusing about what is a “Tax Expenditure” and what is government “Spending”.  A tax expenditure is really ‘spending via tax break’, as when a taxpayer gets a special credit or deduction for doing some particular activity.  The Congress could instead have accomplished the exact same thing by an ACTUAL spending program, providing subsidy to the same set of eligible individuals for doing the exact same activity.  So it really does not make much sense to say you want to cut spending and not raise taxes, because eliminating one of those tax breaks is really the same as eliminating an equivalent spending program.

Fourth, a Federal “mandate” might require a certain kind of spending by a firm.  To take a simple example, suppose some safety regulation requires construction firms to provide a hard hat to all workers.  That’s really equivalent to a tax on that firm, equal to the amount they have to spend on hard hats, where the revenue of that “tax” is spend by government on the provision of hard hats.  But then the problem is that mandates are so pervasive.  Some ‘true’ measure of the size of government would be HUGE, if we counted the dollar cost of all mandates as a “tax”, as if it were in the government budget.

Social Security, Medicare, Medicaid: One of these things is not like the others

Filed Under (Health Care, Retirement Policy, U.S. Fiscal Policy) by Nolan Miller on Feb 17, 2011

Interesting goings on in the world of government budgets these days.  I’ve written in the past about the problems of increasing health care costs in the U.S. and how this is a problem that, at this point, we just don’t know how to solve.  Social Security, on the other hand is another matter.  Despite the gloom and doom about the coming insolvency of the system, things aren’t really all that bad.  (Of course, that statement should be interpreted relative to health care entitlements, but still …)  I’m relatively uninformed on the subject, but it seems like, if we wanted to “fix” social security, we could (i) raise taxes, (ii) reduce benefits, (iii) increase the retirement age, or (iv) some combination of these.  None of these options is great, but any would work.

President Obama raised a similar point in his Tuesday press conference.  Asked about the “long-term crushing costs of Social Security, Medicare [and] Medicaid” which his budget proposal did not address, he responded:

Now, you talked about Social Security, Medicare and Medicaid.  The truth is Social Security is not the huge contributor to the deficit that the other two entitlements are.  …  Medicare and Medicaid are huge problems because health care costs are rising even as the population is getting older.

So, just how bad does the future look for Social Security?  Well, bad, but not that bad.  Take this excerpt from the Summary of the 2010 Annual Reports on the Status of the Social Security and Medicare Programs:

Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.

So, even if NOTHING were done, Social Security would be able to pay at least 75 percent of scheduled benefits through 2084.  Like I said, that’s bad, but it could be worse.

What about health care?  For that, let’s turn to a new working paper by Kate Baicker and Jon Skinner entitled “Health Care Spending Growth and the Future of U.S. Tax Rates.”  Not exactly beach reading.  They note that health care spending currently accounts for 17.6 percent of GDP and health care expenditures currently grow, on average, about 2.5 percentage points faster per year than GDP.  If this trend continues, health care expenditures are expected to account for 26 percent of GDP by 2035.  Of course, escalating health care costs are expected to reduce GDP, so the future might actually be worse.  According to the CBO (reported by Newhouse here), if health care cost growth exceeds GDP growth by 1 percentage point (on average) until 2050, this will lead to a 3 – 16% decrease in GDP over what would have happened if there were no gap.  Things will be substantially worse if the 2 percentage point gap continues.

What about government revenues?  Here’s where it gets really scary.  Suppose that health care costs continue to grow at a rate 2.5 percentage points faster than GDP grows.  In 2007 (too lazy to look up this year’s number), spending on Medicare and Medicaid was about 4.5 percent of GDP.  If the 2.5 percentage point gap continues, CBO estimates that by 2050 spending on Medicare and Medicaid will account for approximately 20 percent of GDP.  If this increased expenditure were financed by increasing income taxes and rates for all income groups were increased proportionately, CBO says:

Before any economic feedbacks are taken into account, and again assuming that raising marginal tax rates was the only mechanism used to balance the budget, the tax rate in the lowest tax bracket would have to be increased from 10 percent to 26 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 66 percent; and the tax rate in the highest bracket would have to be raised from 35 percent to 92 percent. The top corporate income tax rate would also increase from 35 percent to 92 percent. Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. Revenues could fall significantly short of the amount needed to finance the growth of spending, and thus tax rates at this level may not be economically feasible.

Not that they need to, but in the longer term, things are even worse.  Chernew, Hirth and Cutler project the meaning of a 2 percentage point health expenditure-GDP gap until 2083 and find that, on average, 118 percent of all real income growth between now and 2083 will be devoted to health expenditures.  The Newhouse study illustrates this point with a graph showing that if a household has about $40,000 to spend on everything other than health care in 2008, under the current projections it will have about $30,000 to spend on everything else in 2084.

So, the comparison between Social Security and health care is pretty clear.  If nothing is done, Social Security will be able to pay at least 75% of benefits through 2084.  If nothing is done on the health care front, (according to the CBO report) “if health care costs per beneficiary grew an average of 2.5 percentage points faster than GDP per capita each year, as they have over the past four decades, and the spending was financed solely with a proportional increase in income tax rates, the economic costs would be significant and the circumstance probably impossible to sustain through 2050.”

Long-Term Care is a Long-Term Problem

Filed Under (Health Care) by Jeffrey Brown on Oct 6, 2010

Yesterday, I gave a talk at the Dutch Ministry of Health in the Hague (the political center of the Netherlands).  I was asked to make a presentation about the U.S. long-term care insurance system.  The problem is, we have no “system” to speak of.  Rather, we have a confusing patchwork of public and private programs that together do – at best – a modest job of protecting individuals from the financial risks of long-term care.

Long-term care is a classic case of a risk that people ought to insure – it is highly uncertain whether you will need it, but if you do, there is a chance of it consuming enormous sums of money.  A typical nursing home can cost you north of $6,000 per month, and having skilled RN care in the home can easily cost $30 or more per hour.  These numbers can quickly exhaust the limited financial wealth of a majority of American households.

And yet, most people in the U.S. do not insure against this risk.  In aggregate, people pay about 1/3 of all long-term care costs out of their own pocket, whereas only about 4% of expenses is paid by private insurance.  Who covers the rest?   Taxpayers – through Medicaid, and to a smaller extent through Medicare.

But Medicaid is pretty lousy insurance because it requires that you impoverish yourself before you qualify.  Normally, we think of buying insurance so that a big financial shock does not ruin our future consumption possibilities – for example, if your house burns down (say, for example, you failed to pay the fire department your annual fee – see Nolan’s latest post!), you get enough money to rebuild so that you do not have to cut back on your other expenditures.  With Medicaid, however, it helps you out only after you have spent virtually all your other money paying for care.

So why don’t people buy private insurance?  There are many plausible reasons, but one of them – as shown in my work with Amy Finkelstein – is because Medicaid’s means-testing and secondary payer status means that it is in your interest *not* to buy insurance.  Why?  Because most of what you buy ends up duplicating what you could have gotten for “free” from Medicaid.  And because many policies available in the private market fail to cover a large share of you possible expenditures, you may end up on Medicaid anyway.

This highlights a fundamental problem – and one that, I learned yesterday, is shared by the Netherlands and Germany (both countries about which others presented).  Namely, once you decide that you are going to not let people die on the streets for lack of funds to pay for long-term care (and thus provide a government program to help), you cannot help but mess up the private market.

This leaves a dilemma.  If the private market cannot function properly because of the government means-tested program, and if you are not willing to get rid of the means-tested program (which would almost certainly leave some people in need of care left without it), then the net result is that people will have significant exposure to uninsured risks. Of course, one solution is to drop means-testing altogether, and simply cover all long-term care under the universal Medicare program.  But I confess that I really dislike the notion that just because we allow one form of government intervention (e.g., Medicaid), we must then provide even more government intervention n (e.g., covering all long-term care under Medicare) just because the market can no longer work!  Not to mention that an expansion of our entitlement programs is the last thing we need given our long-term fiscal outlook.

Or do we just accept the status quo?  Let Medicaid continue to help those who need it, but at the cost of crowding out potentially better private coverage and thus leaving many people exposed to the risk of impoverishment.  It is a hard choice.  Different countries have taken very different paths – and none of them are happy with it.  The Netherlands covers all the care, but as a result they are facing large and growing government expenditures and are asking whether this is sustainable.

So, what are we to do?  There is only one solution I can think of that a) relies on private markets rather than a taxpayer –financed government program, and b) ensures that everyone gets the coverage against financially-catastrophic long-term care expenditures.  And that is to have the government mandate that everyone have coverage, but leave it up to the private market to provide it.  Then, take the money we are currently using to pay for long-term care through Medicare and Medicaid, and use part of it to subsidize the premiums for those with low-incomes.

The problem, of course, is that an “individual mandate” to purchase long-term care insurance would be politically unpopular in the U.S. (even then-candidate Obama was against an individual mandate for regular health insurance during the campaign).  It goes against our nation’s free market preference (which I am usually a huge advocate of!)  But in this case, the irony is that a government mandate would probably result in less government control of long-term care, at least compared to the current system under which the government provides $3 out of every $5 spent.

Care About the Economy? Ignore the Goldman Sachs Testimony, and Watch the Fiscal Responsibility Commission Instead

Filed Under (U.S. Fiscal Policy) by Jeffrey Brown on Apr 28, 2010

While the Goldman Sachs testimony yesterday made all the political headlines yesterday, there was a second event occurring simultaneously that is much more important for our long-term economic security.  You see, despite all the rhetoric about financial regulatory reform, the Goldman Sachs hearings are really all about the past. 

The bigger story is about our future.  President Obama formally kicked-off of the “National Commission on Fiscal Responsibility.”

This Commission has the most difficult and important jobs in Washington – to figure out how to restore U.S. fiscal policy to something akin to a sustainable course.  It won’t be easy.  After 50+ years of total government spending comprising about 1/5 of the U.S. economy, the three entitlement programs – Medicare, Medicaid and Social Security – are projected – all by themselves – to exceed this share of the economy in the lifetime our today’s schoolchildren.  Throw in continued expenditures on all other functions of government – national defense, homeland security, environmental protection, education, the court system, and more – government spending is projected to consume an ever larger share of our economy.  This, in turn, has the potential to raise interest rates, crowd-out private investment, and thus reduce our rate of economic growth.

The President was careful not to take anything off the table yesterday.  That is important because this is not going to be an easy problem to solve.  At the end of the day, there are only two solutions to our fiscal problem. 

Solution 1: Raise more revenue.  In political terms, this means raising taxes.  I doubt that the Republican members of the Commission will be fond of this.

Solution 2: Cut spending.  In political terms, this means reducing the growth rate and/or level of benefits from “sacred cow” programs with vocal constituencies – such as seniors.  Democrats proved in 2005 that they are unwilling to cut benefits.  And many Republican members of the House sought to “solve” the problem through free lunch gimmickry, arguing that personal accounts (which I support, albeit for different reasons) would generate high enough returns that no benefit cuts would be needed. 

Where does that leave the Commission?  I see it most likely pursuing one of three possible outcomes.

Outcome 1:  The D’s and R’s on the Commission are unable to find enough common ground, and thus the Commission issues a final report that offers a series of options, each with proponents and dissenters.  In other words, partisanship.

Outcome 2: The Commission agrees they need to have at least some options that most members agree to.  And, caving to political pressure, they throw intellectual honesty out the window, and use a combination of both time-tested and brand new gimmicks to make it seem like the problem can be fixed without serious revenue increases or spending cuts.

Outcome 3:  The Commission takes a brave political stand by pointing out the extraordinarily difficult fiscal challenges ahead of us, proposes politically earth-shattering reforms, and then disbands and watches its proposals wither and die in the backrooms of Congressional committees.

Given the composition of the committee (see list here), I am optimistic that option 2 will be discarded.  But I think 1 and 3 are equally likely.

If there is hope for real reform coming out of this Commission, it will be because the Commission actually includes many sitting members of Congress who control the key committees.  In this important sense, this Commission has more in common with the 1983 Greenspan Commission, which led to politically difficult Social Security reforms being passed by Congress, than with the 2001 President’s Commission to Strengthen Social Security, which had no members of Congress and which saw its recommendations soundly ignored.

I hope my skepticism is mis-placed.  I sincerely hope this Commission comes up with good options, and that those in power listen.  If this happens, the long-term implications for “good” are far greater than 99% of all other economic news …

The Future of Fiscal Responsibility

Filed Under (Health Care, Retirement Policy, U.S. Fiscal Policy) by Jeffrey Brown on Feb 23, 2010

On February 18, the President Obama signed an Executive Order establishing the “National Commission on Fiscal Responsibility and Reform.”  The Commission will consist of 18 members.  Of these, 6 will be appointed by President Obama (with no more than 4 of the 6 being Democrats).  The remaining 18 will be divided up “3 each” among Democratic and Republican House members and Democratic and Republican Senators. 

The stated mission of this Commission is to identify “policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”

The mission is a critical one.  As I have noted in other posts (see, for example, my post from 2/2/10 on the 2011 budget or my post on 1/14/10 about why deficits matter), the long-term fiscal outlook is dire.   While the short-term deficits are being driven by a combination of recession-induced revenue declines, aggressive spending policies targeted at averting an even worse credit crunch and/or recession (e.g., TARP, stimulus, etc), as well as high levels of spending on Iraq and Afghanistan, the most serious long-term fiscal problems arise as a result of the runaway growth of entitlement programs.  Social Security, Medicare, and Medicaid are growing faster than the economy as a result of an aging population, rising health care costs, and the important interaction of these two factors. 

Commissions have a long history in the U.S., some of them successful in terms of leading to real changes (e.g., the Greenspan Commission in 1983) and some of them not (e.g., the President’s Commission to Strengthen Social Security in 2001 on whose staff I served.)  One of the features of this new commission is that it will be dominated by sitting members of Congress.  IF (1) these members are ones with real power (e.g., chairs and ranking minority members of the key committees like Senate Finance and House Ways and Means) and IF (2) these members can somehow move beyond ideological bickering and election-year politics and come to some meaningful compromises, THEN such a Commission could have an extraordinarily meaningful and positive impact on our fiscal future.  If, however, they simply resort to their political safe zones – with Republicans calling for balancing budgets solely through spending cuts and Democrats calling for balancing budgets solely through tax increases – then I would not expect much to come out of it.   

The political outlook is not promising, however.  Recall that only a month or so ago – in January 2010 – the Senate failed to garner the 60 votes needed to pass the “Bipartisan Task Force for Responsible Fiscal Action Act of 2010.”  In a blog on this same subject (click here to see it), Stephen Huth notes that “even before members have been appointed, both liberals and conservatives are dooming the work …”

The economic consequences are real.  As the Financial Times reported in January, the credit rating agency Moody’s announced that the U.S. could be at risk of losing its tripple A credit rating in the future unless it took steps to reduce its long-term deficits.  While Treasury Secretary Geithner says the U.S. will “never lose” its top rating, the very fact that the Treasury Secretary has to engage in such a conversation is an indication of just how serious are the risks posed by long-term deficits.  As noted by CNBC, “even if a downgrade in US credit is not imminent, the underlying conditions that raised such fears are worrying investors about what the future holds.” And even if our credit rating is not at risk, the long-run tax burden required to finance projected levels of spending are so enormous that I am afraid we will risk something far more important – our potential for sustained economic growth.

In short, I am in the “glass half empty” camp when it comes to my political assessment of the Commission’s likely impact.  I hope they prove me wrong …

Why Deficits Matter

Filed Under (U.S. Fiscal Policy, Uncategorized) by Jeffrey Brown on Jan 14, 2010

 

I happened to spot a USA Today in the coffee shop where I was working today (think of it as practice for my upcoming furlough days) and noticed a headline in the “Money” section entitled “How do we dig out from under $12 trillion in debt?”  It reminds readers of the very salient fact that our national debt-to-GDP ratio (now at 70.4 percent of GDP) is the highest it has been since the post WWII period.  Importantly, this figure substantially under-states the sad state of the U.S. fiscal position because it ignores the massive unfunded obligations facing our “big three” entitlement programs – Medicare, Medicaid and Social Security. 

While this is not good news, I was pleased to see one of the nation’s widely read newspapers addressing the issue.  And I thought it was worth a brief post about why deficits matter. 

There is some public confusion around this issue, not least because neither party seems to do much about it.  Whatever you like or dislike about the Bush Administration (disclosure: I worked for President Bush in 2001-02, participated in the Social Security reform tour with him and 2005, and received a Presidential appointment to the Social Security Advisory Board in 2006), it is near impossible to make a credible case that his Administration took deficit or debt reduction seriously. 

 Thus far, the Obama Administration has an even worse record of fiscal discipline.  Yes, yes, I know – the midst of a deep recession is not the best time to cut federal spending (or increase taxes) in an attempt to close the fiscal gap.  But despite the significant lip service that the Obama Administration gives to deficit reduction, there is so far scant little evidence that they are serious about reducing it even after the economy improves.  Most of their calls for increasing taxes are accompanied by new ideas for growing the size of government, such as paying for health care reform. 

 Leaving politics aside, do deficits matter?  V.P. Cheney famously quipped that they do not.  But most economists agree that they do.  The standard textbook analysis is that deficits reduce national saving and drive up long-term interest rates, thus reducing private investment and thus sacrificing long-term economic growth. 

 There is plenty of empirical evidence to support this.  Indeed, President Obama’s own budget director Peter Orszag, a distinguished economist and fiscal policy expert (another disclosure: Peter is a good friend and co-author of mine, despite our policy disagreements) has an influential paper on this topic.  The full paper (with Bill Gale) appeared in the Brookings Papers on Economic Activity, but a more reader-friendly summary is available from their piece in the Economist’s Voice. 

 Keep in mind that this article was written in 2004, back when annual deficits were projected to run 3.5 percent of GDP.  In contrast, current deficits are running about double that (although, admittedly, no one expects the current level of deficit spending to persist once the economy improves and we stop spending like drunken sailors in an attempt to stem the decline). 

 Here is what Gale and Orszag said then: 

 “Under reasonable projections, the unified budget deficits over the next decade will average 3.5 percent of GDP. Compared to a balanced budget, the unified budget deficits will reduce annual national income a decade hence by 1 to 2 percent (or roughly $1,500 to $3,000 per household per year, on average), and raise average long-term interest rates over the next decade by 80 to 120 basis points. Looking out beyond the next decade, the budget outlook grows steadily worse. Over the next 75 years, if the tax cuts are made permanent, this nation’s fiscal gap amounts to about 7 percent of GDP. The main drivers of this long-term fiscal gap are, in order, the spending growth associated with Medicare and Medicaid, the revenue losses from the 2001 and 2003 tax cuts, and increases in Social Security costs. The nation has never before experienced such large long-term fiscal imbalances. They will gradually impair economic performance and living standards, and carry with them the risk of a severe fiscal crisis.”

 I am heartened that OMB Director Orszag understands the serious long-term consequences of our nation’s fiscal imbalance.  Of course, Peter and I will likely disagree on how to fix the problem (he will want to rely primarily on taxes, whereas I would prefer to first go after spending).  But future generations had better hope that our elected officials find a way to compromise, do some of both, and get this nation back on a sustainable fiscal path.   

Should a Proposal “Pay for Itself” (and How do We Know if it Does)?

Filed Under (U.S. Fiscal Policy) by Don Fullerton on Sep 18, 2009

A member of Congress who wants to spend additional money often has to say what tax will be raised to pay for it.  Somebody else who wants a particular tax cut for their favorite lobbyist may have to say what other tax will be raised.  As a general principle, this kind of “budget neutrality” is often a good idea.  In all likelihood, the Tax Reform Act of 1986 only succeeded because it was revenue neutral.  It broadened the tax base and lowered tax rates, to fix the tax system without changing the amount collected.

But how is revenue neutrality calculated?  Politicians on both sides of the aisle call upon the non-partisan Congressional Budget Office (CBO) as the arbiter of budget balance.  If important policy choices must pass the CBO’s litmus test, then we need to understand what test is being administered.  According to its website, the “CBO’s [cost estimate] statement must also include an assessment of what funding is authorized in the bill to cover the costs of the mandates and, for intergovernmental mandates, an estimate of the appropriations needed to fund such authorizations for up to 10 years after the mandate is effective” (http://www.cbo.gov/CEBackground.shtml).  This CBO test has a few major problems that could limit the benefits from a policy, or even prevent enactment of a good policy.

First of all, not every act of Congress must be revenue neutral.  But policymakers may want the restriction of revenue neutrality, in order to “prove” they are fiscally responsible.  Recently, President Obama in his health care policy speech to a joint session of Congress promised that he “will not sign a plan that adds one dime to our deficits — either now or in the future.”  Thus, one general problem is: who decides which projects must be revenue neutral?

Second, of course, a project may generate revenue or cost savings after ten years.  President Obama’s health care reform has initial start up costs, but it may “bend” the long-run cost curve for federal expenditures on Medicare and Medicaid, so that cost savings accrue and accumulate over more than ten years.  In general, the CBO’s ten-year balance sheet could say that a policy adds to the debt over ten years, even though it may save taxpayer dollars in the long-run.  On Wednesday, September 16, 2009, the CBO released its official cost estimate for the Senate Finance Committee’s draft health care bill, stating that it would have a “net reduction in federal budget deficits of $49 billion over the 2010–2019 period” (http://cboblog.cbo.gov/?p=354).  However, an additional, unofficial estimate by the CBO concluded that the “the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion”, meaning that over a longer time horizon that the bill further reduces the deficits.

To be clear, the federal debt is a real concern.  Running massive deficits that pile up year after year is unsustainable and irresponsible.  But a strict CBO ten-year cost estimate test may not be the best way to evaluate a potential policy change.

A third problem is that any such test must be somewhat arbitrary, regarding what is counted as “revenue”.  Does it just count actual dollars flowing into government coffers?  What about features of a policy that reduce future outflows?  Some pieces of additional spending in proposed health care reforms are intended to improve future heath and thus to avoid the need for some future medical expenses.  The CBO would count current “preventive care” spending as a cost, but it may not count the fact that this current spending could reduce the need for Medicare and Medicaid to pay for some future medical procedures.

Fourth, and most importantly, even if NOT revenue-neutral, SOME policies are still valuable, important, and worthwhile.  A project may have generalized benefit to everybody in society that exceeds the actual social cost, meaning that it passes a benefit-cost test, even though it requires government spending and is not “revenue neutral”.

Any revenue-neutrality test is a way for policymakers to “tie themselves to the mast” and prevent them from pork spending of the most egregious sort.  Maybe that’s good and worthwhile.  But it may also mean we can’t have some other worthwhile policies either.