Let’s Eliminate Waste, Fraud, and Abuse

Filed Under (Environmental Policy, Finance, Health Care, Other Topics, Retirement Policy, U.S. Fiscal Policy) by Don Fullerton on Nov 5, 2010

For the U.S. Federal Government, estimated receipts for the fiscal year 2010 are $2.381 trillion.  President Obama’s budget for 2010 adds up to $3.55 trillion; a difference in spending of $1.17 trillion.  That annual deficit is 49.2% of receipts!  Now that’s scary.  We’ve got to do something.  What we hear of course, is that we need to cut waste, fraud, and abuse.  No doubt about it; nobody in their right mind LIKES waste, fraud, and abuse.

So I went to find out how much of U.S. Federal government spending is on waste, fraud, and abuse.  For that purpose, of course, I turn to the best source for information that is accurate, unbiased, and objective.  I mean Wikipedia, of course.   On the Wikipedia entry for “2010 United States federal budget”, I see a breakdown for $2.184 trillion worth of “Mandatory Spending”:

  • $677.95 billion – Social Security
  • $571 billion – Other mandatory programs
  • $453 billion – Medicare
  • $290 billion – Medicaid
  • $164 billion – Interest on National Debt
  • $11 billion – Potential disaster costs

That $2.184 trillion of mandatory spending is 61.5% of the total $3.55 trillion of spending!   That MUST be spent, by law.  We can’t just renege on promised social security benefits or interest payments on the national debt.   And if it’s mandatory, it can’t include any waste, fraud and abuse.  So let’s keep looking for where to cut that waste, fraud, and abuse.  Here are some of the top categories for the remaining $1.368 trillion of spending, called “discretionary spending.”

  • $663.7 billion – Department of Defense (including Overseas Contingency Operations)
  • $78.7 billion – Department of Health and Human Services
  • $72.5 billion – Department of Transportation
  • $52.5 billion – Department of Veterans Affairs
  • $51.7 billion – Department of State and Other International Programs
  • $47.5 billion – Department of Housing and Urban Development
  • $46.7 billion – Department of Education
  • $42.7 billion – Department of Homeland Security
  • $26.3 billion – Department of Energy
  • $26.0 billion – Department of Agriculture
  • $23.9 billion – Department of Justice
  • $18.7 billion – National Aeronautics and Space Administration
  • $13.8 billion – Department of Commerce
  • $13.3 billion – Department of Labor
  • $13.3 billion – Department of the Treasury
  • $12.0 billion – Department of the Interior
  • $10.5 billion – Environmental Protection Agency

The biggest item ($663.7 billion) is defense spending, and we certainly can’t cut that during a war.  And that is 48.5% of all discretionary spending.  All of the rest of discretionary spending adds up to $704 billion, which is only 60.2% of the total $1.17 trillion of deficit.  In other words, even if we completely eliminated ALL discretionary spending other than defense, we’d still be stuck with 40% of the current deficit ($466 billion, or half a trillion dollars per year).  And that would mean zero spending on health and human services, zero on transportation, zero on veterans affairs, etc.

Still, however, it seems like we ought to be able to eliminate SOME of that spending, at least the spending on waste, fraud, and abuse.   So let’s look for that category.  Hmmm.  As I look down that entire list, I don’t SEE a category for waste, fraud, and abuse!

Okay, I’ll stop being sarcastic, but this does have a point.  Some very careful analysts might in fact be able to find some waste, fraud and abuse.  But that is much easier said than done, and it will be a tiny fraction of the deficit.  Any plan to get serious about cutting federal spending must make serious cuts in programs that are important to people, like welfare and transportation.  To eliminate the deficit will require changes in entitlements like Social Security and Medicare.

Moreover, we can’t substantially cut the deficit with only cuts in spending.  The categories listed above just cannot be cut enough to dent the deficit.  To eliminate the deficit, the only alternative is a combination of spending cuts and tax increases.  The new Congressional leaders do not want to increase taxes, of course, and I’m not saying they must.  Maybe we won’t close the deficit.  But just don’t tell me you’ll eliminate the federal deficit by cutting waste, fraud, and abuse.

Spending, Not Taxes, is the True Measure of the Burden of Government

Filed Under (U.S. Fiscal Policy) by Jeffrey Brown on May 25, 2010

USA Today released an article last week that made a big deal of the fact that average individual tax rates in the U.S. are now at their lowest level since 1950.  The spin of the article was essentially that Tea Party activists, tax cut advocates, and other proponents of small-government are misguided in their concerns about our current fiscal state.

This spin, however, ignores one of the most basic, essential important lessons of public economics (the sub-field of economics that studies the public sector).  This lesson is that spending, not taxes, are the true measure of the burden of government.  (I will ignore other problems with the analysis, such as the fact that from an efficiency perspective we care more about marginal than average tax rates.)

The reason that spending is key is really quite simple.  All government spending must be financed by taxes.  So it is somewhat meaningless to argue that small-government conservatives are misguided simply because average tax rates are low if that argument is coming at a time when spending is above recent historical trends.  High spending and low tax rates are a nasty combination, of course, because the result is a large government budget deficit that crowds out private investment, hinders economic growth, and passes the tax burden on to future generations.

In short, once we have chosen to allow the government to spend a dollar, that dollar must be financed through higher taxes, either on the current generation of taxpayers or on a future generation of taxpayers.

As I have written before, our federal budget is on a fiscal death march.  We face a fundamental choice between reining in spending or raising taxes (or both).  These are not pleasant options, but they are choices that ordinary American households and businesses have to make every single day.  If only our elected officials in both parties would provide some honest leadership on this issue.

On that note, if you would like to see the mix of changes that are required and figure out what you think would be the optimal mix of tax and spending changes required to balance the budget, take a look at the new federal budget calculator put out last week by the Committee for a Responsible Federal Budget. You will quickly see why the required changes are so politically difficult.

The True Size of Government

Filed Under (Environmental Policy, U.S. Fiscal Policy) by Don Fullerton on Sep 25, 2009

In 2008, the federal government’s receipts were 17% of GNP, and its expenditures including transfer payments were 21.4% of GNP (implying the budget deficit was 4.4% of GNP).  If State and Local taxes and expenditures are added to those numbers, they become 30.5% and 35.2% of GNP, respectively.  For many reasons, however, government’s reach is wider than reflected in those numbers.  Government does not just spend its own tax revenue; it spends other people’s money as well.

For just one example, consider environmental regulations.  I have not seen a recent estimate of the total costs of environmental protection, so I will rely on some older numbers.  Note, however, than none of this discussion is meant to imply that the environment should not be protected!   Maybe protections should be more limited, or expanded.  The point is just that measured dollar expenditure by government does not accurately reflect its true size.

In “The Cost of Clean”, the U.S. EPA in 1990 estimated that the total private cost of required environmental protection was approximately $115 billion (in 1990 dollars) or 2.1% of GNP.  By the year 2000, they said the value could approach 2.8% of GNP.  If I assume the same rate of growth through 2008, then these private costs of environmental protection could be as high as 3.5% of GNP by 2008, a figure that would be $514.0 billion, or 21.6% of non-defense federal expenditures.

This cost of environmental protection comes mainly in the form of mandates imposed on firms.  Examples of mandates include the forced adoption of best practices pollution abatement technology or binding emission rates (e.g. limits on pollution per unit of output).  However, these mandates are just like taxes in two respects.  First, the government imposes these costs on private firms.  Second, the mandates provide “public goods” like clean air and water that we all can enjoy.

In other words, if these costs to private firms were converted into an equivalent tax program with direct government expenditures, then U.S. discretionary spending would appear to be 21.6% higher.  These expenditures do not appear explicitly in the federal budget, so they merit further study.  How do we divide our limited resources between private or public consumption, versus private or public investment?  How much of that environmental spending is in each category?  What are we getting for these outlays?  How can we measure the value of the improved environment?  Do these expenditures provide environmental benefits now, or are they investment in the future?

In order address these questions, a full “environmental budget” would need to show each cost, including the cost of complexity created by mandates.  In addition, some environmental protection programs are required by state and local governments (just like taxes).  Each of the programs has implicit transfers from one state to another, and from one income group to another (just like taxes).  Why are these programs not evaluated just like taxes?