Kevin Drum - March 2011

Waste, Fraud, and Sen. Coburn

| Wed Mar. 2, 2011 2:15 PM EST

I'll get back to highlighting a few of the results from the GAO's report on streamlining government later today, but first I want to highlight this nugget from Reuters columnist James Pethokoukis:

OK, so the U.S. government’s auditor has found duplication and overlap that may be wasting $100 billion or more a year, according to the Republican senator who commissioned the study. How can anyone argue for higher taxes as long as Washington is so inefficient?....For instance, the auditor found 82 separate federal programs to improve teacher quality ($4 billion a year), and 20 distinct programs to deal with homelessness ($2.9 billion a year).

Let's settle down a bit here. First of all, note that the GAO didn't say its recommendations could save $100 billion per year. That's what Republican senator James Inhofe says, and it's basically just a number he pulled out of his hat to make the government look as wasteful as possible. Pethokoukis then goes along with the gag by kinda sorta implying that the GAO found $4 billion a year of waste in teacher programs and $2.9 billion in homelessness programs.

They didn't. That's just the total amount of money spent by these programs, and GAO thinks the administrative portion of this might be reduced if those programs were better coordinated. And maybe so. But most of the money in those programs isn't spent on administration, it's spent on improving teacher quality and dealing with homelessness. Administrative expenses probably amount to no more than 10-20% of their budgets, and streamlining administration would probably save 10-20% of that. That's worth doing, but even in the best case it would most likely save a hundred million or so, not several billion. We're not going to come within a light year of closing the budget deficit by streamlining duplicative programs, and no one who suggests otherwise should be taken seriously.

That brings up two other points that are worth keeping in mind. First, keep your eye out for attempts to turn the GAO report into a fight not over waste, but over the actual programs themselves. Perhaps federal homelessness programs really could be run better, but my guess is that what Coburn and a lot of his allies really want is simply to slash funding for homelessness programs. Exaggerated accusations of waste and duplication are a convenient cudgel in that fight, but that's all they are.

Second, it's worth keeping in mind that sometimes it's useful to have multiple small programs instead of one big coordinated program because small programs can experiment with different approaches to see what works best instead of being stifled by a single big bureaucracy. It's also the case that sometimes it's actually more efficient to have multiple programs. A homelessness program aimed at helping municipal governments is probably best run out of an agency that already deals with municipal governments and doesn't have to reinvent the wheel just to figure out who the players are and how to do outreach. Ditto for programs aimed at church groups, nonprofits, law enforcement, etc.

Streamlining is a worthwhile goal, but it's wise not to get too caught up in box-drawing exercises. They're the favorite solution of management consultants and CEOs with no better ideas at hand, but it's rare that reporting structure is really the key problem in an organization. If you have 20 different programs that provide assistance to 20 different kinds of clients, it's simply not obvious whether you should organize things by program type or by client type. On a more general level, sometimes centralization is good, sometimes decentralization is good, and sometimes it's good just to shake things up. But the real problems usually lie elsewhere.

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What Do Republicans Really Want?

| Wed Mar. 2, 2011 12:38 PM EST

What do Republicans really care about? Cutting the deficit, or cutting taxes on rich people? The AP reports, you decide:

The IRS has dramatically increased its pursuit of tax cheats in the past decade: Audits are up, property liens are up and asset seizures are way up. President Barack Obama and Democrats in Congress see stepped up enforcement as a good way to narrow the nation's staggering budget deficit without raising tax rates or cutting popular spending programs.

....IRS Commissioner Doug Shulman told the committee Tuesday that the $600 million cut in this year's budget would result in the IRS collecting $4 billion less through tax enforcement programs. The Democrat-controlled Senate is unlikely to pass a budget cut that big. But given the political climate on Capitol Hill, Obama's plan to increase IRS spending is unlikely to pass, either.

That $600 million cut is part of the Republican budget plan, and even if we assume that Shulman is talking his book, it's a dead certainty that cutting the auditing budget will be a net loser for the deficit. However, it's also a dead certainty that cutting the auditing budget will primarily benefit rich people who are cheating on their taxes.

The AP dispatch also reports that Republicans are planning a retro-style blast from the past: a reenactment of the infamous Roth hearings of the 90s, in which IRS agents were portrayed as jackbooted thugs who waved guns around and extorted money out of innocent, hardworking small businessmen. Virtually none of it turned out to be true, but it didn't matter: the Roth hearings led to budget cuts that crippled the IRS's auditing capability for years. The rich cheered then, and they're cheering now too.

But the budget deficit? That's a worry for another day.

Chart of the Day: Corporate Non-Taxes

| Wed Mar. 2, 2011 11:21 AM EST

From CBPP, the chart below shows how much American corporations have paid out in taxes over the past 60 years. It's hovering around 1% of GDP these days. As Chuck Marr says, "Although the top statutory corporate tax rate is high, the average tax rate — that is, the share of profits that companies actually pay in taxes — is substantially lower because of the tax code’s many preferences." Needless to say, this is despite the fact that corporate profits have been quite robust in the United States over the past few decades.

Marr has some suggestions for reforming the corporate tax code, while I remain willing to do away with corporate taxes entirely and replace them with something else. In the meantime, though, keep this chart in mind whenever corporate titans start whining about how monstrous their tax load is. They're lying.

Cutting Costs with Cheaper Drugs

| Tue Mar. 1, 2011 11:50 PM EST

Here's another tidbit from today's GAO report on reducing costs by eliminating duplicative efforts:

The Department of Veterans Affairs (VA) and the Department of Defense (DOD) spent about $11.4 billion on prescription drugs for beneficiaries in fiscal year 2009.  Since the early 1980s, Congress has urged the departments to achieve greater efficiencies through increased collaboration. Therefore, VA and DOD have attempted to restrain pharmacy costs by jointly contracting for some drugs to obtain discounts from drug manufacturers.

....VA and DOD spending on joint national contracts increased from $183 million on 76 contracts in fiscal year 2002 to $560 million on 84 contracts in fiscal year 2005, it decreased by fiscal year 2009 to $214 million on 67 contracts....VA and DOD have attributed significant cost avoidance 3 to their joint contracting efforts; for example, VA estimated about $666 million in cost avoidance in fiscal year 2005 alone. These cost avoidance estimates have declined significantly as joint contract spending has decreased.

OK then. In 2005, joint spending on prescription drugs amounted to $560 million, which saved $666 million. Not all of that "cost avoidance" was due to joint contracts, but if you figure that even a quarter of it was then VA and DOD could easily save upwards of $2 billion or so if they jointly procured, say, 80% of their drug purchases. This is especially true since the joint contracts to date have mostly been for cheaper generic drugs. Why? GAO reports that the VA and DOD have had problems agreeing on joint purchases of more expensive name brand drugs, partly for reasons of bureaucracy and partly for reasons of statute law.

But I'll bet these problems could be overcome if Congress pushed a wee bit harder. It's true that they've apparently been pushing since 1982 and don't have much to show for it, which just goes to show how hard it is to reduce spending even on something that no right thinking person really opposes. That is, no right thinking person other than pharmaceutical lobbyists and VA/DOD bureaucrats who enjoy fighting turf battles over joint formularies.

Huckabee and the Birthers

| Tue Mar. 1, 2011 5:29 PM EST

Mike Huckabee says he's not a birther. Oh sure, when radio host Steve Malzberg quizzed him about it on Monday he admitted that "I would love to know more. What I know is troubling enough." And he went on to express his concerns about Obama being raised in Kenya, even though Obama wasn't, in fact, raised in Kenya. (He was raised in Honolulu, mainly, with a few years spent in Indonesia, facts that aren't exactly hard to dig up.) Still, Huckabee's not a birther. He thinks Obama was born in America.

But here's the great part. I hadn't heard this before, but apparently Huckabee's stock answer about why he believes Obama was born in America goes like this:

The only reason I’m not as confident that there’s something about the birth certificate, Steve, is because I know the Clintons. I’m convinced if there was anything that they could have found on that, they would have found it, and I promise they would have used it.

That's brilliant! Huckabee wants to appear sane, so he can't be a birther. But he probably doesn't want to lose the birther vote either, since a big part of his base believes the birther conspiracy. So how does he explain not believing it? By pointing to Obama's certificate of live birth? By mentioning the birth notices in the Honolulu papers in 1961? By quoting the director of the Hawaii State Department of Health?

Nope. He shows the nutballs that he's one of them by appealing to their even more rock solid belief in the supernaturally malevolent powers of the Clintons. Because that's a genuinely tough call: should you believe that Obama was born in Kenya, or should you believe that Hillary and her gang of Arkansas thugs aren't quite as demonically ruthless as you thought? Decisions, decisions. Either way, though, bravo to Huckabee for inventing such a terrific dodge.

Bernanke: Budget Cuts Will Hurt the Economy

| Tue Mar. 1, 2011 2:26 PM EST

Fed chairman Ben Bernanke told Congress today that Republican budget cuts probably would have a modest negative effect on the economy:

Bernanke [] threw some cold water on recent studies by two leading economic forecasting groups that suggested Republicans' proposed $60 billion budget cut would be a major drain on the economy over the coming year....Responding to questions from Sen. Jack Reed (D-R.I.), Bernanke said that the Fed's analysis suggests smaller economic losses from the spending cuts, reducing GDP by several tenths' of a percent and the number of jobs by "certainly much less than 700,000."

Wait a second. According to Dana Milbank, Scott Lilly of the Center for American Progress estimates that the Republican plan would lead to the direct loss of 650,000 government jobs. If that's the case, surely total job losses can't be "much less" than 700,000?

In any case, it hardly matters. Maybe it's a million jobs, maybe it's half a million jobs. Maybe it will cost a point of GDP, maybe it will cost half a point of GDP. But considering that the economy is still sluggish and unemployment is extremely high, why are we considering budget cuts that will have any negative effect on jobs and growth? Especially cuts in the only part of the budget that isn't a long-term problem?

That's the big news from Bernanke's testimony: not that he thinks other estimates of job losses are too high, but the fact that he agrees the Republican budget plan will cost jobs and slow growth. That's coming from a Republican Fed chair! How much more evidence do we need that our current budget cutting mania is insane?

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Tackling Government Waste

| Tue Mar. 1, 2011 1:10 PM EST

The GAO has released a 345-page report that identifies "federal programs, agencies, offices, and initiatives, either within departments or governmentwide, which have duplicative goals or activities." Ezra Klein complains that while conservatives trumpet the conclusions of reports like this endlessly, liberals don't:

That's a lost opportunity for liberals: It's the people who believe in government who should be angriest and most insistent on taking action when it fails to work, not the people who believe government can't work and see failure and inefficiency as proof for their argument.

Well, I want to do my part, so I direct your attention to page 59: "Duplicative Federal Efforts Directed at Increasing Domestic Ethanol Production Cost Billions Annually." The problem, says the GAO, is not just that ethanol subsidies are bad policy, but that they're literally useless. Since 2005 we've had a renewable fuel standard in place that requires increasing use of ethanol in gasoline, and that standard ensures a high demand for ethanol all by itself. The subsidy is just money down the drain:

If reauthorized and left unchanged, the VEETC’s annual cost to the Treasury in forgone revenues could grow from $5.4 billion in 2010 to $6.75 billion in 2015, the year the fuel standard requires 15 billion gallons of conventional biofuels. The ethanol tax credit was recently extended at 45-cents-per-gallon through December 31, 2011, in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

$5.4 billion! That's real money. And there ought to be unanimous bipartisan support for getting rid of this subsidy immediately. Let's do this thing!

Of course, getting rid of a tax credit is.....um, a tax increase, according to reigning Republican orthodoxy. So I guess this is out of the question. Which is too bad, because on page 75 GAO identifies the real killer app in the federal budget: "almost $1 trillion in federal revenue was forgone due to tax exclusions, credits, deductions, deferrals, and preferential tax rates— legally known as tax expenditures." No one wants to get rid of all these tax expenditures, and even if we did some of them would be replaced by normal spending programs. But there's real money there, unless you automatically equate removing a tax expenditure with raising taxes, and therefore won't consider it. Which, I'm pretty sure, describes most Republicans.

But there are other opportunities in the GAO report, though it's unclear just how much money most of them would save. If we combined DOD and USAID programs for Afghanistan, for example, would we actually save money, or just spend the same amount slightly differently? It's hard to say, and in most cases GAO doesn't have a good estimate for how big the savings are from combining duplicative programs. But I'll skim through the report in my spare time, and I urge you to do the same. You don't have to read the whole thing, just take a look at a few items and let us know in comments which ones look like good targets. We've got $5.4 billion for sure, and I'll bet there's at least $20-30 billion more that ought to be fairly noncontroversial. Unless you're from Iowa, of course.

Subsidizing Millionaires

| Tue Mar. 1, 2011 11:53 AM EST

In the LA Times today, Michael Kinsley rails against the modern version of "chasing smokestacks," namely states competing with each other to offer subsidies to film and TV companies who bring productions to their states:

New Mexico under [Bill] Richardson was a pioneer in this field. In 2002, it began offering a credit of 15% — later raised to 25% — toward the cost of making a movie in New Mexico (not counting star salaries and the mite paid to writers). Now, 42 states have followed its lead. New York has gone as high as 30%. These credits are generally transferable, savable and usable for other things, so it's no problem if the particular movie doesn't make money.

In less than a decade, the absurd notion of welfare for movie producers has evolved from the kind of weird thing they do in France to an unshakable American tradition. "I'm proud that New Mexico has been a leader in this effort," Richardson says.

Kinsley is right that this race to the bottom does nothing except reduce tax revenue for everybody. He's also right that the figures used to justify these subsidies (Movies bring a billion dollars a year into our economy! Movies create 5,000 jobs for our great state!) are almost certainly bogus. Ditto for the same kind of voodoo accounting used to pretend that massive subsidies to millionaire owners of sports teams pay for themselves in increased business.

This isn't the biggest deal in the world. But it's certainly ridiculous and we'd all be better off if it stopped.

Wisconsin and 2012

| Tue Mar. 1, 2011 12:40 AM EST

PPP has conducted a new poll in Wisconsin, and voters now say that if they had a second chance they'd elect Tom Barrett instead of Scott Walker. So what caused the change of heart?

The difference between how folks would vote now and how they voted in November can almost all be attributed to shifts within union households. Voters who are not part of union households have barely shifted at all- they report having voted for Walker by 7 points last fall and they still say they would vote for Walker by a 4 point margin. But in households where there is a union member voters now say they'd go for Barrett by a 31 point margin, up quite a bit from the 14 point advantage they report having given him in November.

For a long time, union households have voted in only moderately large numbers for Democrats. Nationally, they voted Democratic by a 61-43 margin in 2010. Some of this is because of social issues trumping pocketbook issues, but some of it is undoubtedly because lots of union members didn't really think Republicans were all that big a threat to their jobs. Sure, they talked a big game, but in office they never really carried through.

But however things turn out in Wisconsin, those days are probably over. Scott Walker's brand of hardball might easily bump up the Democratic share of the union vote to 70% or more in 2012, and that represents a gain of nearly two percentage points in the overall popular vote. Unless Republicans can somehow contrive an anti-union message that wins that back among non-union independents, their chances next year have suddenly gotten a whole lot longer.