Reason Magazine - Contributors

The Trillion-Dollar War

info@reason.com (Veronique de Rugy) — Mon, 07 Apr 2008 12:00:00 EDT

At the end of December, Congress approved $70 billion in bridge funding—a down payment to cover the gap between the beginning of the fiscal year and the passage of the actual appropriation bill—to keep financing the wars in Afghanistan and Iraq. Legislators at the time were still chewing on the rest of President George W. Bush’s request for a fiscal year 2008 war budget of $196 billion. Should that funding be appropriated—and if recent history is any guide, it certainly will—then the total price tag for America’s present wars will rise to at least $822 billion, approximately 80 percent of which will be spent on Iraq. That surpasses the cost of the Vietnam War ($670 billion in inflation-adjusted dollars). And the Iraq portion dwarfs the $50 billion to $60 billion cost predicted at the outset of the war by Mitch Daniels, then director of the Office of Management and Budget.

These runaway costs do not include a single dollar from the Pentagon’s annual operating budget, which in 2008 reached a whopping $481 billion. If the war were being accounted for based on a rational, transparent budget process instead of an opaque and politicized shell game, Americans would be painfully aware that we are now in the seventh year of what the nonpartisan Congressional Budget Office has called a $1 trillion war.

How much money is $1 trillion? Enough to pay for the entire 1976 federal budget, adjusted for inflation. Enough to write a check for $37,500 to every Iraqi man, woman, and child. Enough to buy 169,492 Black Hawk helicopters, or 455 stealth bombers. Enough, in nominal terms, to pay for the entire federal government from 1789 to 1957. And it’s 10 times more than what specialists predict it would take to eradicate malaria once and for all.

To distract people from the real price tag of a two-front war, the president and Congress have used an unprecedented and fiscally irresponsible budgetary trick: a series of “emergency” supplemental spending bills totaling hundreds of billions of dollars. This scheme has allowed them not only to hide the costs of the conflicts but also to avoid painful budget choices while funneling billions of dollars in unvetted goodies to favored interest groups.

Once a small blip among federal outlays, emergency supplementals have exploded since 2002, when the Republican Congress let a key legislative restriction on their use expire. In May 2007, President Bush signed into law the biggest supplemental bill in history, $120 billion, to fund military operations in Iraq and Afghanistan ($100 billion) and pay for hurricane recovery and agricultural disaster relief at home. This came just five months after Congress approved another $70 billion emergency request for the wars. By contrast, the average annual amount of emergency supplemental spending in the 1990s—a decade that saw interventions in Iraq, Somalia, Haiti, Bosnia, and Kosovo—was just $13.8 billion (see Figure 1).

Supplemental spending does more harm than merely obfuscating the costs of military conflict. It effectively removes the upper limit on the White House’s war budget. It allows the Pentagon to seek and receive much more funding for mundane operations than it could receive via the normal budget process. And its comparative lack of oversight encourages Congress to shovel out pork to Gulf Coast shrimp harvesters, Hawaiian highway builders, Florida orange growers, and other recipients who have nothing to do with fighting terrorism. As Bush prepares to exit office, this out-of-control spending stands to become one of his most lasting and nefarious legacies.

Bush’s Supplemental Shell Game
President Bush has never included a comprehensive war spending request in his annual February budget. Instead, he has submitted emergency war requests to Capitol Hill, usually sometime in the spring, weeks after the defense appropriation subcommittees begin picking through the Pentagon budget.

Last year, for instance, the president submitted a defense budget request of $481 billion for fiscal year 2008. Operations in Iraq and Afghanistan were covered in an entirely separate $142 billion emergency supplemental request. In October the administration increased that request to $196 billion, leaving Congress to face a dilemma that has become all too familiar since 2001: quickly approve billions of dollars in supplemental war funding without knowing where the money is going or face browbeating accusations of not supporting the troops. In the end, after little discussion, Congress passed its $70 billion down payment.

Although there are no official limits on the amount or type of spending that can be designated as an emergency appropriation, historically there has been an understanding that emergencies are sudden, unforeseen, temporary conditions posing a threat to life, property, or national security. In September 2005, for instance, after Hurricane Katrina smashed the Gulf Coast, the president quickly requested and Congress readily approved a $52 billion emergency bill.

The costs of the war may be necessary and temporary, but they are by no means sudden or unforeseen. The war in Afghanistan started in October 2001, and the war in Iraq commenced in March 2003. Furthermore, the easy-to-predict salaries and benefits of Army National Guard personnel and reservists called to active duty amount to some of the largest expenditures in the supplemental bills.

“The Bush administration’s use of so-called ‘emergency’ supplemental funding to pay for Afghanistan and Iraq is truly unprecedented,” says Travis Sharp, a military policy analyst at the Center for Arms Control and Non-Proliferation, a nonpartisan research organization specializing in international security and arms control issues. Historically, while emergency supplementals were the most frequent means of financing the initial stages of World War II, Korea, Vietnam, and the first Gulf War, past administrations and Congresses funded subsequent military operations in regular appropriation bills as soon as even the crudest of cost projections could be made, according to a June 2006 Congressional Research Service study.

In 1951, for instance, 72 percent of the kick-off cost for the Korean War —$33 billion in today’s dollars—went through supplemental appropriations, while $13 billion came from regular appropriations. But by year two, Congress appropriated 98 percent of the war’s funding through the regular defense budget. By 1953 the president no longer requested any funding outside of the regular defense budget.

The decade-long Vietnam War followed a similar pattern. In the first year of the war, Congress provided all of the funding in emergency supplemental bills. The second year, the administration requested a little less than 50 percent of the war funding within regular defense appropriations. By the fourth year, all of the war funding went through the regular defense budget process. This despite the fact that troop levels were in flux, military strategies were changing regularly, and the duration of the conflict could not be foreseen. In the 1990s, the Republican-led Congress showed a kind of discipline it would completely forget during the Bush presidency, directing President Bill Clinton in fiscal year 1996 to fund all ongoing military operations, including the enforcement of no-fly zones over Iraq, from the regular defense budget rather than supplementals. From then on, Clinton sought funding for Bosnia and other conflicts entirely through the regular appropriations process.

In the 1980s, throughout President Ronald Reagan’s military buildup, no Cold War spending was allocated through supplementals (see Figure 2). And once you account for the offsetting contributions from American allies during and after the first Gulf War ($35 billion out of the total $42 billion price tag), it is clear that until recently very little U.S. military spending was treated as an emergency.

What a difference with today’s wars. Five years into the Iraq conflict and seven years into Afghanistan, the administration and Congress have buried all of the explicit funding—totaling more than the spending on either the Korea or Vietnam wars when adjusted for inflation—in emergency supplementals.

What changed? Aside from internal fiscal discipline, the single biggest procedural shift came in 2002, when the Congress let lapse a law that had required budget cuts to “offset” emergency expenditures.

Who benefited? The Pentagon, the political party that ran Washington in the early 2000s, and their friends.

“The Bush administration is clearly capable of projecting costs in Iraq,” says Travis Sharp, “and has simply ignored historical precedent.”

The Size of the Con
This year the Department of Defense once again failed to include the cost of war in its record-breaking $515 billion defense budget for fiscal year 2009. Instead, it included a placeholder for yet another $70 billion emergency war supplemental—which, conveniently for the administration, does not get counted in deficit projections.

Pressed by Democrats during the annual defense budget hearings in February, Defense Secretary Robert M. Gates confirmed that the $70 billion was only a small fraction of the total expected war cost for the year. Pressed further, Gates estimated that military operations in Iraq and Afghanistan would cost at least $170 billion in 2009.

He immediately added, “I have no confidence in that figure.”

From the beginning, the administration has argued that supplemental bills have the advantage of being prepared closer to the time when the funds will be used, allowing for a more accurate assessment of needs and quicker access to money. It also notes that making the spending separate prevents it from becoming a permanent feature of the defense budget. In other words, the administration argues, using supplemental bills is the fiscally responsible thing to do.

A more likely explanation has little to do with military strategy or budgetary concerns, and everything to do with the fact that “emergency” spending has very beneficial features for big spenders in Washington.

In 1990, under bipartisan congressional pressure to reduce the size of the deficit, President George H.W. Bush signed the Budget Enforcement Act (BEA), which exempted emergency bills from other rules of the era designed to restrain spending. The BEA allowed the government to exclude emergency spending from the deficit projections required in the annual budget. To prevent lawmakers from abusing that loophole, the law required that Congress offset supplemental spending with rescissions—that is, by permanently withholding already appropriated funds.

For a while, this plan worked well, at least by today’s standards. According to a 2005 Congressional Research Service report, between 1981 and 2002 Congress offset an average of 40 percent of supplemental appropriations with rescissions. And those emergencies weren’t for war; during the recession- and inflation-plagued early 1980s, supplementals were used to fund mandatory outlays for unemployment compensation. In the early 1990s, the purpose shifted to natural disaster relief.

But Congress let the BEA expire in 2002. Since then, supplemental appropriations exceeding budget caps have no longer triggered automatic cuts elsewhere. Today the only legislative limit on emergency spending is a congressional prerogative to raise a point of order to protest the “emergency” designation. This happens rarely if ever.

The floodgates are now open. According to data compiled by the Congressional Research Service, inflation-adjusted supplemental spending has increased nearly fivefold in less than three decades, from $36 billion in fiscal year 1980 to $160 billion in 2007, boosting its share of the overall budget authority from 3 percent to 7 percent. And these numbers don’t even catch all of the federal government’s “emergency” spending measures, because some are attached to regular appropriations, such as the December 2007 omnibus bill containing the $70 billion bridge fund.

But for a true measure of the increase, we ought to look at supplemental spending as a share of total new discretionary spending. And there, the trend lines are striking (see Figure 3). Except for a sharp spike in 1991 to fund the first Gulf War (which was largely offset later), emergency appropriations remained a very small share of new discretionary spending through most of the 1990s, staying below 3 percent. Compare that to 2007, when Congress appropriated over 18.3 percent of all discretionary spending through the supplemental process.

This profligacy is par for the course with President Bush. Since fiscal year 2001, the Bush White House has expanded federal spending by 66 percent, in nominal terms, enacting extremely expensive and pork-swollen bills covering agriculture, highway, energy, and prescription drugs while doubling the same federal education budget that Republicans once sought to eliminate.

Regular military appropriations, too, have more than doubled under Bush. According to the Office of Management and Budget, the $481 billion defense request for fiscal year 2008 is 66 percent higher than the budget Bush inherited from Clinton in 2001. If you add to that amount the $196 billion of requested emergency war funding, the Pentagon’s budget is, in inflation-adjusted dollars, larger today than at any point since the end of World War II.

Even that staggering amount strikes Winslow Wheeler, director of the Strauss Military Reform Project at the nonpartisan Center for Defense Information, as incomplete. Wheeler argues that an inclusive definition of the defense budget should also include the $18 billion requested for nuclear weapon costs by the Department of Energy and another $6 billion for miscellaneous defense costs borne by other agencies, such as the General Service Administration, plus funding for the National Defense Stockpile, the Selective Service, some Coast Guard, and the International FBI. Together, that would make a grand total of $700 billion for 2008.

The real number may be higher still, when factoring in the billions of dollars in other federal programs that are spent as a direct result of maintaining the military. According to Christopher Hellman, a defense analyst at the Center for Arms Control and Non-Proliferation, you could include $43 billion spent on homeland security activities outside of the Pentagon (mainly through the Departments of Homeland Security, Health and Human Services, and Justice), $88 billion for the Department of Veterans Affairs, a portion of the estimated $40 billion intelligence budget, and some of the $9 billion spent annually on foreign military aid, plus expenditures on international peacekeeping, nonproliferation, antiterrorism, demining, military space programs, employees’ and retirees’ compensation and benefits at the Pentagon, veterans’ benefits, military pensions, and, finally, a conservative $100 billion estimate for the share of the country’s annual interest payment on the national debt that is directly attributable to past military spending. That gives us a grand total of nearly $1 trillion—that’s 12 zeros—in national security spending for 2008 alone.

Even when using only direct outlays by the Defense Department, 2008 funding was more than 100 percent above 2001. It is unlikely that the president would have been able to achieve such an increase if he had to include the costs of war in his budget requests. Sen. Jon Kyl (R-Ariz.), the chairman of the Republican Policy Committee, spelled out the utility of shell-game finance in an April 12, 2005, report: “Congress should fund operations in Iraq through emergency supplemental appropriations (because funding it through the regular appropriations process would unnecessarily inflate the defense budget).”

Well, yes, exactly. As a Defense News editorial put it in 2005, the White House is “using the supplemental as a thinly veiled political attempt to keep the public from lapsing into sticker shock, and so, losing support for the war.”

At a requested $892 billion and counting—including a new $70 billion emergency war request for fiscal 2009—the Global War on Terror is now the second priciest conflict in U.S. history in inflation-adjusted terms (see Table 1). Only World War II cost more: $3.2 trillion in adjusted 2007
dollars.

And that’s only for the direct cost of the war. As my colleague Tyler Cowen at George Mason University’s Mercatus Center wrote in The Washington Post last November, “these figures don’t quite get at Iraq’s real cost,” because they focus on what we paid for rather than recognizing what we have lost. Among other things, Cowen lists more than 3,800 U.S. soldiers dead and more than 28,000 wounded (many of them severely), more than 1,000 private contractors killed and many more injured, and hundreds of thousands of Iraqi deaths—plus the contributions that all of these people would have made to their families and to humanity at large. A newly released study by the Harvard economist Linda Bilmes puts the combined war costs as high as $3 trillion.

Christmastime for the Pentagon
War supplementals have become the Pentagon’s tool of choice to obtain more funding than it would otherwise receive. Helped by its friends in Congress, the Defense Department keeps finding pretexts to move nonemergency programs, including some wholly unrelated to the war, into emergency supplementals. This frees space under the baseline to stuff in additional spending.

Winslow Wheeler has traced where these “transfer” stunts are readily apparent in the department’s procurement accounts. For example, in the account for “Aircraft Procurement, Army” on page 249 of the regular 2006 Pentagon budget, there is the notation “Transfer to Title IX,” indicating $11.2 million deducted from the president’s regular annual request that was originally intended to purchase “aircraft survivability equipment.” The money is then reinserted on page 477 in Title IX, under the designation of “emergency” spending.

In this one procurement account alone, Wheeler counted 17 such transfers from peacetime budgeting to “emergency” war spending, totaling $654 million, plus another $107 million more in the small print. The best part of the maneuver from the Pentagon’s point of view, Wheeler says, is that the transferred money freed space to buy one F-15E fighter-bomber ($65 million), two Littoral Combat Ships ($440 million), and hundreds of other smaller items. Because similar gimmicks are used in most of the regular budget’s procurement accounts, Pentagon watchers say that the emergency transfers add up to tens of billions of dollars, allowing the Defense Department to boost other parts of its budget by an equal amount.

The practice is so routine and uncontroversial that the military openly admits it. Army Chief of Staff Gen. Peter Schoomaker testified before the Senate in 2005 that the Army preferred to fund 30,000 additional troops through supplementals because if it included the necessary funds in its annual budget request, it “would have to displace other things that are too important to us as we transform—equipment and other readiness issues. So the department has elected to do it with emergency and supplemental funding since we have the options to do so.”

The president’s latest emergency war request included many nonemergency items, some not even related to war. According to a document released by the Senate Budget Committee, $4 billion of the $196 billion officially allocated for the wars has nothing to do with Iraq or Afghanistan, including $500 million for six electronic warfare planes (neither the insurgents in Iraq nor Al Qaeda has an air force or radar) and $400 million for two developmental aircraft that won’t see service until 2013.

This practice is about to get much worse. After years of war, U.S. military equipment is wearing out five times faster than normal. In the next few years, says the Center for Arms Control and Non-Proliferation’s Travis Sharp, we can expect many more high-priced “emergency” Pentagon wish lists for equipment that may or may not be used in the emergencies being funded. “The problem,” Sharp says, “is that the line between war-related spending and normal Department of Defense ‘base’ budget spending is increasingly becoming blurred.” The price tag for equipment replacement is impossible to predict.

The Pentagon recently made such budgetary bait-and-switches even easier by greatly expanding the definition of “war costs” while putting the finishing touches on its fiscal 2007 war supplemental. Now reconstituting or replacing military equipment for the “longer war on terror” is reason enough to designate a military line item as an “emergency.” So any new toy the Pentagon wants can be stuffed in a supplemental bill. No congressional review need be done, and no compensatory sacrifices need be made in the regular budget. Nor are any real explanations needed. Emergency supplementals are not required to contain the “budget justifications” that are attached to all items in non-emergency defense bills.

Adding final insult to injury, the Department of Defense deliberately obscures what exactly is being spent on war. During past conflicts, the Pentagon usually established a separate account to keep track of operation funds. However, no such account exists for the war in Iraq. It’s impossible to tell in 2008 how much the U.S. is spending on defense and where the money is going.

On Capitol Hill, Everybody Wins!
The Pentagon is not the only shill in the supplemental shell game. Everyone in Washington is addicted to the fiction of the “emergency” loophole. These bills have become a magnet for pork and other projects that would have a much tougher time getting funded on their own merits. Because no member wants to vote against emergency aid money to support the troops, and because most supplemental spending does not count against House and Senate budget limits, Congress has used the legislation to get around the Bush administration’s recent rhetoric about limiting the growth of spending unrelated to defense or homeland security. An increasing number of nonemergency, nondefense programs have found their way into emergency war bills, increasing overall government spending without the usual consequences.

Brian Riedl, a budget analyst at the conservative Heritage Foundation, explains: “The common usage of defense supplemental bills has increased non-defense spending as well. Lawmakers now try to shift budget-resolution funds from defense to domestic programs, knowing that these defense funds can be replenished by adding to the next supplemental bill.” For instance, in May 2006, House Appropriations Chairman Jerry Lewis (R-Calif.) asked that $6 billion from proposed defense increases be shifted to erase almost $4 billion worth of cuts in domestic programs.

The best example of Congress’s propensity to stuff supplemental bills with pork items can be found in the most recent supplemental, signed by the president in June 2007, which contained $24 billion in nonemergency spending. That included $120 million for the shrimp and menhaden fishing industries, $283 million for the Milk Income Loss Contract program, $60 million for salmon fisheries, $100 million for California citrus growers, $50 million for asbestos mitigation at the U.S. Capitol Plant, $1 billion for avian flu, and $1 billion for the National Aeronautics and Space Administration.

The Real Emergency
These earmarks obviously should not fall under the rubric of emergency spending, but then neither should have most of the $120 billion bill. More than two years after Hurricanes Katrina and Rita devastated the Gulf Coast, Congress should be able to fund federal relief through the regular appropriations process. In fact, Congress should be able to fund most hurricane relief through the regular appropriations process, given that the hurricane season is a predictable annual event.
Defense spending may be important, but it does not defy the laws of economics or the rules of good governance. It is ludicrous to believe that every increase in the military budget is a good increase.

Yet despite spending more than ever, and more sloppily than ever, on defense, the White House, the Pentagon, and some big military spenders among Washington’s think tank intelligentsia would like us to believe that the bloated Pentagon budget is frail and in desperate need of more cash. They are more capable of saying this with a straight face because for years now so many costs of war have been hidden in supplemental bills.

The best way to allocate defense resources most effectively is to force a tradeoff between priority items and wasteful boondoggles in the regular defense budgeting process. Yet the exact opposite is happening. Instead of having to justify dumping more billions into controversial old weapons programs such as the Air Force’s F-22 stealth fighter, the Marine Corps’ tilt-wing V-22 Osprey, the Navy’s DDG-1000 stealth destroyer and its Virginia-class attack submarine, the Pentagon can simply move those over into the “emergency” file and put off hard choices.

The Democratic Congress could use the immense cost of the Iraq and Afghanistan wars as leverage for some long-overdue waste cutting at the Pentagon. Alternatively, Congress could decide that $1 trillion for defense is worth every penny and instead make some long-overdue compensatory reductions on the domestic side of the budget.

But if the U.S. is to ever make progress toward budgetary sanity, the federal government must stop pretending that war-related costs are somehow separate from the budget of a department whose mission is to fight and win the nation’s wars. That won’t happen until Washington stops pretending that predictable costs are an “emergency.” The emergency at the Pentagon is the way it is deliberately squandering hundreds of billions of dollars a year.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

The Federal Budget's Long Emergency

info@reason.com (Veronique de Rugy) — Mon, 13 Nov 2006 05:19:00 EST

Will giving $150 million to the National Oceanic and Atmospheric Administration help win the wars in Iraq and Afghanistan? How about spending $500 million to repair a shipyard and an extra $2.3 billion for avian flu preparedness, on top of the $3.8 billion already appropriated for that purpose? Congress and the White House think so. All those expenditures are part of a $94.5 billion supplemental spending bill for the war on terror and hurricane relief signed by President Bush in June.

Politicians may cry crocodile tears about deficit spending, but their actions demonstrate that they remain addicted to big government. The Republican Congress that has expanded federal spending by 45 percent since fiscal year 2001, more than doubled education spending, and enacted insanely expensive agriculture, highway, energy, and prescription drug bills is still bingeing on our tax dollars. But instead of working through the regular appropriations process, Congress is hiding behind “emergency” supplemental bills.

Supplemental spending, “emergency” spending in particular, has become Washington’s tool of choice for evading annual budget limits and increasing spending across the board. Funding predictable, nonemergency needs through supplementals hides skyrocketing military costs and allows Congress to boost regular appropriations for both defense and nondefense programs, thereby enabling the spending explosion of the last five years.

In theory, supplemental appropriations provide additional funding to an agency during the course of a fiscal year for programs and activities that are considered too urgent to wait until the next year’s budget. The Budget Enforcement Act of 1990 gives emergency bills special exemptions from rules designed to restrain spending. For instance, the requests lack the level of detail used to justify the federal government’s annual budget requests, making accountability more difficult, and supplemental funding is left out of the deficit projections that accompany the annual budget.

Although there are no limits on the amount or type of spending that can be designated an emergency requirement, historically there has been an understanding that emergencies are sudden, urgent, unforeseen, and temporary conditions that pose a threat to life, property, or national security. Not anymore. For years, Congress has abused its emergency spending powers. But things have gotten much worse since Republicans won control at both ends of Pennsylvania Avenue.

Except for a sharp spike in 1991 to fund the first Gulf War, supplemental appropriations remained at roughly 1 percent of new discretionary spending during most of the 1990s. After 1998, they started to rise as the federal budget began running surpluses. But in those days, the United States still enjoyed the benefits of a divided government. After 2002 Republicans conveniently allowed the few budget rules meant to constrain their behavior to expire. Hence supplemental appropriations designated as emergency spending no longer count against the annual budget limits set by Congress and do not trigger automatic cuts if they push outlays above the caps. In fiscal year 2005, supplemental appropriations represented 16.7 percent of new discretionary spending and, adjusted for inflation, reached an all time high of $143 billion—up from $7 billion in fiscal year 1998, when supplementals accounted for 0.9 percent of new discretionary spending. And this year’s $94.5 billion supplemental bill is the largest one ever.

The White House deserves most of the blame. The Bush administration has used supplementals to hide the true cost of the wars in Iraq and Afghanistan. Three years in, the Iraq war can hardly be called an emergency or an unpredictable event. This is especially true since one of the largest expenditures goes to the salaries and benefits of Army National Guard personnel and reservists called to active duty. Yet each year President Bush leaves out all war costs when he presents his budget to Congress, knowing that he will be able to secure the funding later through the supplemental process. This year Congress will appropriate nearly 20 percent of total military spending via supplementals.

Meanwhile, the lack of detail in supplemental budget requests and their expedited approval process have made supplemental bills a magnet for pork and other projects that wouldn’t be funded on their own merits. No politician wants to vote against emergency aid money aimed at supporting U.S. troops in Iraq or helping victims of Hurricane Katrina. And because the president—especially this president—will usually sign emergency bills without blinking at their cost, many wasteful nonemergency spending items go through at taxpayers’ expense.

This year’s emergency spending bill, for instance, contains $118 million to bail out private fisheries, on top of tens of billions in disaster relief funds the Federal Emergency Management Agency and the Small Business Administration are already paying to that industry. It also includes $335 million to subsidize “volunteer” work through AmeriCorps and a $703 million add-on for highway projects unrelated to the Gulf Coast—some of them in Hawaii and California. Those aren’t the only projects in the bill that aren’t anywhere near Iraq or the Gulf Coast: There are Army Corps of Engineers earmarks for North Padre Island, Texas; Sacramento, California; and water systems across Hawaii.

Expect more bills like this in the future. Waste is endemic in Congress, and the White House has refused to restrain the legislature’s spending explosion. Until that changes, politicians will still claim with straight faces that $500 million for farm and ranch subsidies or $500,000 for the Mississippi Children’s Museum qualify as “emergency” spending.

Véronique de Rugy is a resident fellow at the American Enterprise Institute..

Bush Turns More Into Less

info@reason.com (Veronique de Rugy) — Mon, 17 Jul 2006 00:00:00 EDT

Anyone who has been missing President Bush's optimism and Duke Wayne swagger in his second term got a happy surprise on July 11, when the president announced that the federal budget deficit for fiscal year 2006 would come in $127 billion below the projections made in February. Surging tax revenues, said Bush, had cut an expected $423 billion deficit down to $296 billion. The icing on the cake: The nation is one year ahead of schedule in its goal to cut the budget deficit in half.

The new data announcement was hailed as good news, at least before the catastrophe in Israel and Lebanon punted it off the front page. But appearances can be misleading.

Unfortunately, this deficit reduction cannot be attributed to any spending cuts by the president...or even a modicum of spending restraint. Spending has increased by 45 percent since 2001, with homeland security and defense spending accounting for less than one third of the hike. Rather, the reduction is mainly the result of strong economic growth, which increased tax revenue. In fact, extra revenue makes up 90 percent of the $127 billion reduction. Economists' rosiest predictions about the 2003 supply-side tax cuts turned out to be right on the mark. Lower tax rates increased incentives to work, save and invest, and as a result the economy has grown faster. As the economy grows, tax revenues increase.

Looking closely at these figures, we see one overriding characteristic of this deficit reduction: Americans are sending more money to Washington. Overall nominal tax revenues—$2.4 billion—are up 11.4 percent in 2006 from their 2005 level. And tax revenues in 2006 are projected at 18.3 percent of GDP—instead of 17.5 percent. This is slightly above the 18.1 percent average for the last 50 years. And according to the Congressional Budget Office, in the first nine months of 2006 tax revenue have climbed by $206 billion and "that increase represents the second-highest rate of growth for that nine month period in the past 25 years." In other words, Americans are prospering but they are also paying more taxes.

How can that be? Aren't Americans paying taxes at lower rates? Not necessarily. As Cato Institute budget expert Alan Reynolds recently noted, "reductions in marginal tax rates may induce people to alter their taxable income in many ways: Entrepreneurs may start more businesses, spouses of high-bracket taxpayers may rejoin the labor force, those previously working in the underground cash economy may take jobs that require taxes to be paid, skilled professionals and managers may work harder and retire later, executives may negotiate for cash rather than perks, high-income investors may hold fewer tax-exempt bonds and trade stocks more frequently, taxpayers may not try so hard to maximize tax deductions and adjustments." These taxpayers end up reporting more income, which pushes them into higher tax brackets and exposes them to a greater tax liability—even though the rate in that bracket is lower than it was before the cut.

But there is a problem. The surge in tax revenue is masking the effects of reckless federal spending. At $2.696 trillion, projected outlays for 2006 are at record levels. And with outlays growing about three times the rate of inflation, there is no sign that the profligacy of Bush's first term is dissipating.

The White House tries to provide a positive spin. It argues that outlays are now estimated to be $12 billion lower than February's estimates. According to President Bush, that is a sign of this administration's commitment to fiscal discipline. However, a quick look at the numbers reveals that the lower estimate of 2006 outlays results mainly from reductions in the projected growth rates for Medicare and Medicaid. These aren't much-needed spending cuts in these two programs: they are only slightly slower rates of expansion. Medicare alone is growing at a rate of 15.5 percent in 2006.

Overall federal spending has increased by almost 9.1 percent in 2006. That's not just the steepest increase since George W. Bush moved into the White House. It's the steepest since 1990. And thanks to the GOP majority's prescription drug benefit and inability to reform Social Security, federal spending will grow even faster in the future. Unfortunately, the recent deficit reduction relieves Bush from any pressure he might have had to start cutting his budget.

All things considered, this is why it is a serious mistake to focus our attention on the budget deficit. The size of the deficit is the wrong measure of fiscal responsibility. Congress and the White House should focus on reducing the size of government, not just the share that is financed by borrowing.

If this administration were really serious about fiscal discipline, it would do two things: insist on cutting taxes until we reach the point where Americans are actually sending less money to Washington (in other words, seek the growth-maximizing point on the Laffer Curve, not the revenue-maximizing point), and cut spending to stop that tax revenue from being squandered on pork and bureaucratic bloat. Until then, the GOP will remain the tax-and-spend party. And that should give President Bush some pause before he announces more good news.

Is Your Town Safe From Terrorists?

info@reason.com (Veronique de Rugy) — Thu, 08 Jun 2006 14:31:00 EDT

Who said that New York City had no "national monuments or icons," and that Washington, D.C. belongs in the bottom-25-percent risk category for terrorist attack on U.S. states and territories?

The Department of Homeland Security said it. Officials from New York and Washington received the news when they asked the DHS to explain its recent decision to reduce their grant funds by 40 percent while Charlotte, Omaha and Louisville saw their funding increase by more than 60 percent.

After the department announced the grants, Rep. Peter King (R-NY) charged that DHS had "declared war on New York." Some of this rhetoric can be dismissed as the inevitable jockeying for handouts that occurs when the federal government takes over a function that should be handled by state and local government.

But this does not necessarily mean that King's complaints have no merit. No one knows because the DHS insists that the criteria and the people behind those funding decisions remain secret.

We do know, however, that a peer review panel of about 100 anonymous law enforcement officials and bureaucrats picked by governors, mayors, and local homeland security officials took vows of silence and signed agreements that they wouldn't reveal the substance of deliberations. We also know that this is a dramatic departure from the Department's announced commitment to transparency and risk-based procedures.

Last January, DHS Secretary Michael Chertoff called for a more transparent, rational and risk-based allocation of anti-terror funding. In particular, he announced massive reforms in the Urban Area Security Initiative (UASI)—a grant targeting the "most at risk cities"—at the center of today's controversy. That was welcome news; until then lawmakers had treated security funds not as a means for protecting the country's most vulnerable areas, but as a way to divert more cash to their own states and districts.

The reforms were supposed to address these problems. First, DHS would use more and better data in its assessments and refine its criteria for assessing risk and deciding which cities were eligible for funding. Second, DHS came up with a "targeted capability list" that assessed which risks needed to be addressed first, and with which intensity. This would guarantee that New York has enough trained bomb squads while stopping small cities like Colchester Vermont (population, 18,000) from buying $58,000 rescue vehicles capable of boring through concrete to search for victims in collapsed buildings.

Finally, each eligible city would have to make the case for its funding request by submitting an investment justification. It meant that a high-risk city unwilling or incapable of presenting a cost-effective plan for how it would spend the federal money could see its funding seriously reduced.

The relative simplicity and transparency of the system had two main benefits. First, money would be allocated based on risk rather than politics. And second, because the department would be faithfully and openly following a process it had established, it would finally be in a position to defend its funding decisions.

And that's what's problematic about last week decision to reduce New York's UASI grant by $83 million and Washington's by $31 million while increasing the Jersey City/Newark area's funding by $15.2 million* and Louisville's by $3 million—a 70 percent increase. The combination of concealment and political tone-deafness makes it impossible for anyone to assess this year's allocation.

There are legitimate reasons why New York might have received less money this year. First, Congress cut the overall state homeland security grant program by 29 percent from 2005 to 2006. And the Urban Area Security Initiative (UASI) grant has received a 14 percent cut—$125 million—compared to 2005 levels, which would explain why, in real dollar terms, New York is receiving less this year.

Second, New York could have done a poor job on its grant application. By all accounts, that's not the case. Finally, the reduced funding could be the sign that New York's needs for security spending have decreased. New York has received more than $528 million of UASI money in the past three years. This year's $124-million grant is 50 percent more than that for Los Angeles, the next-highest area, and represents a significant increase over the $46 million the city received in 2004.

This last point is important. Grants are not entitlements. Local governments should bear the primary responsibility for public safety. However, since the beginning, city officials have expected the federal government not only to bear most of the anti-terror costs but also to keep this flow of cash coming indefinitely. A well designed system would do exactly the opposite. At some point every city—even New York—should stop receiving federal security grants because the most catastrophic threats would have been addressed.

Unfortunately, we have no way of knowing whether New York has reached this stage. Nor can we tell whether it is justified for the federal government to spend millions of dollars in cities like Omaha and Charlotte which the insurance industry has classified as low risk. What we know for sure is that the department's lack of transparency and disclosure about its decision demonstrates how an issue central to the lives and property of Americans is once again moving away from security concerns to political ones.

* An earlier version of this article incorrectly identified $15.2 as the figure for New Jersey. This is the figure for Newark/Jersey City.

Are We Ready for the Next 9/11?

info@reason.com (Veronique de Rugy) — Wed, 01 Mar 2006 00:00:00 EST

What do gym memberships, the Fourteen Mile Bridge in Mobile, Alabama, and a promotional campaign for a child pornography tip-line have in common? Answer: They all were funded with your homeland security dollars.

Since September 11, Congress has appropriated nearly $180 billion to protect Americans from terrorism. Total spending on homeland security in 2006 will be at least $50 billion--roughly $450 per American household. But far from making us more secure, the money is being allocated like so much pork. States and cities are spending federal homeland security grants on pet projects that have nothing to do with homeland security; state and local officials fight over who will get the biggest share of the money, regardless of whether they have a legitimate claim to it. And when Congress isn't doling out cash indiscriminately, it's overreacting to yesterday's attacks instead of concentrating on cost-effective defenses against the most likely current threats. The result is an edifice that, far from preventing terrorist assaults, actually makes us more vulnerable by diverting resources from worthier projects.

How did this happen? There are four chief reasons.

1. The Oversight Problem

Homeland security spending occurs in an environment that is highly conducive to waste, fraud, and abuse, starting with the Department of Homeland Security (DHS) itself. When the department was created, proponents argued that we'd get an entity with sole fiscal responsibility for the government's efforts against terrorism, thus increasing transparency, enhancing efficiency, and facilitating information-sharing. Instead, the opposite happened.

Notwithstanding its name, DHS' activities are not strictly directed at protecting the homeland. Of a fiscal year 2006 budget of $41 billion, the department will spend only $27 billion on activities related to homeland security. The remaining $14 billion finances activities ranging from Coast Guard rescues to hurricane aid.

Conversely, much homeland security spending takes place outside of the department. The total amount directed to homeland security activities in fiscal year 2006 is roughly $50 billion. But $23 billion of that will be spent by departments other than DHS. Not surprisingly, a large portion--$9.5 billion--goes to the Department of Defense. But other funding decisions are more curious. Why, for instance, are the Environmental Protection Agency, the Commerce Department, and the National Aeronautics and Space Administration receiving homeland security funds?

With the money split between so many departments and programs, DHS and Congress cannot conduct effective oversight. The new department has authority over the agencies that were subsumed into it, whether or not it makes sense for them to be combined, but not over the many more security-related entities that remain outside its auspices. For example, the secret service, which is almost exclusively in charge of the president's security, was moved from the Department of Treasury to DHS, while the Federal Bureau of Investigation remains inside the Department of Justice with no DHS oversight.

Even more important, though, is Congress' failure to match the consolidation of DHS with the consolidation of its oversight of the DHS' constituent parts. Even after the combination of more than two dozen agencies, committee chairs have been unwilling to relinquish much of their jurisdiction over the 22 agencies and activities transferred to DHS. As a result, last year alone the leaders of DHS had to appear before 88 congressional committees and subcommittees.

Agencies are always aggressive advocates for expansion of their budgets and aggressive defenders of their statutory mandates. With so much of the spending so diffused, the current structure simply invites waste.

2. The Magic Word "Security"

Effective oversight is especially important in this area, given the political effect of the phrase homeland security, which tends to short-circuit skepticism. Even DHS activities unrelated to homeland security are apt to see their funding increase, on the assumption that they have something to do with the function indicated by the department's name. Programs that Congress might not approve if they were outside DHS now sail through because of their affiliation. In Christmas 2004, for instance, the department handed out $153 million to programs offering food and shelter for the poor, a significant increase from the previous year's budget. In September 2004, the Senate attached $2.9 billion to the fiscal year 2005 homeland security bill for disaster aid to farm states affected by droughts, floods, and freezes.

The surge in spending to strengthen homeland security has given lawmakers many opportunities to indulge in their common passions: bragging about protecting the country from terrorists and directing federal funds to their home districts. Federal coffers are wide open to fight terrorism, and lawmakers are predictably pushing projects allegedly aimed at protecting their constituents. 2002's infamous $190 billion farm bill, renamed the Farm Security and Rural Investment Act, is a good example of such congressional hornswoggling.

Despite promises by appropriators to pass a pork-free homeland security bill and a presidential ban on earmarks forbidding lawmakers from slipping their pet projects into the bill at the last moment, Congress loaded the fiscal year 2006 homeland security bill with earmark projects having nothing to do with homeland security, and President Bush signed it. Among these projects: $7.9 million for investigations of missing and exploited children; $102,000 to promote public awareness of the child pornography tip line; $203,000 for Project Alert, a drug use prevention program for schools; $15.8 million to enforce laws against forced child labor; $500,000 to continue steel tariff training, a program "to ensure Customs and Border Protection (CBP) enforcement of U.S. trade laws benefits from the expertise of the steel industry in classifying steel goods"; and $15 billion for bridge alterations in Mobile, Alabama; LaCrosse, Wisconsin; Chelsea, Massachusetts; Galveston, Texas; Morris, Illinois; and Burlington, Iowa.

3. Failure to Prioritize

If power companies invested in infrastructure the way DHS and Congress fight terrorism, a New Yorker wouldn't be able to run a hairdryer but everyone in Bozeman, Montana, could light up a stadium. Efficient expenditures concentrate limited resources on the most cost-effective initiatives; not every need is worth funding, and the greatest priorities and risks must be addressed first. But because Congress is more interested in politics than security, it gives every threat, every state, and every interest group a share of the homeland security pie, regardless of risk.

It doesn't take a security expert to realize that some anti-terror expenditures are more cost-effective than others. Simple cockpit barricades, which the airline industry has now installed at relatively low cost, can prevent all 9/11-style attacks. In contrast, the burgeoning U.S. system for screening the bags of every airline passenger has already cost $18 billion during the last four years but will do little to prevent 9/11-style hijacking. Nor does the screening system prevent the destruction of airplanes, since it doesn't systematically check carry-on bags or air freight for explosives.

Another example: Congress insists that DHS hand out ever greater portions of its budget to "first responder" programs--essentially federal funds for state and local police and fire departments. But as James Carafano has shown in a 2005 study for the conservative Heritage Foundation, a dollar spent on preventing the next terror attack is vastly more cost-effective than a dollar spent recovering from it.

That's not to say it isn't prudent to prepare for an attack. But federalizing first-responder programs accentuates the incentive problems that already plague the political process. When such programs are a state responsibility, legislators have a strong incentive to accurately assess the risk and potential damages to their states. They have to decide whether to spend more on homeland security or on other accounts. When these programs are funded at the federal level, by contrast, a congressman from Wyoming has no incentive to admit that his state is not a likely target or that if it ever were a target, the damages would be limited. He has no incentive to turn down federal money and even less incentive to volunteer taxpayers' dollars for other states.

To make matters worse, Congress provides every state with a guaranteed minimum amount of grant money regardless of risk. As a result, rural, less-populated areas receive a disproportionate amount of money. Of the top 10 grant recipients, only the District of Columbia also appears on a list of the 10 places most at risk of attack.

The theory underlying the grant distribution formula is that terrorists could strike anywhere. That's true. But not every target is equally likely or equally important. By trying to protect us everywhere, Congress ensures that we're adequately protected almost nowhere.

The lack of risk-based funding, combined with the absence of federal terrorism preparedness standards or a goal to guide the expenditure of funds, has resulted in some ridiculous uses of terrorism preparedness grants. We've seen $63,000 spent on a decontamination unit that is stored in a warehouse in rural Washington because the state does not have a hazardous materials team to use it; $350,000 spent by a small volunteer fire department in Virginia on a custom-made fireboat; $1.5 million spent by Grand Forks County, North Dakota (population 70,000), to buy decontamination tents, a semi-armored van, two trailers equipped with gear for responding to weapons of mass destruction, and more biochemical suits than there are police officers to wear them; $500,000 spent by Outagamie County, Wisconsin (population 165,000), to buy chemical suits, generators, rescue saws, disaster response trailers, emergency lighting, and a bomb disposal vehicle; and $557,400 spent by North Pole, Alaska (population 1,570), on homeland security rescue and communications equipment.

The waste of homeland security funds does not occur exclusively in low-risk cities. Washington, D.C., incontestably one of the most at-risk areas in the country, used the region's first wave of homeland security aid as "seed money" for a computerized car-towing system Mayor Anthony Williams had promised for three years to help combat fraud by private towing companies. The city also used $100,000 in homeland security money to fund the mayor's popular summer jobs program.

The department's spending has been the subject of many audits, none of which found systemic fraud or abuse. Indeed, many of the questionable purchases made with DHS funds were allowed by department guidelines. To end the discussion there, however, ignores the larger point that the system for disbursing homeland security funds is based on warped priorities. While the audits did not find systemic problems, some of their specific recommendations reinforce the impression that the system is a joke. The DHS inspector general's audit of first-responder grants declares that "efforts to monitor and measure the impact of first responder grants needs to be improved." The inspector general's report on the Port Security Grant Program notes that many grants were given to projects that "appeared to be for a purpose other than security against an act of terrorism."

Spending $58,000 on a rescue vehicle capable of boring through concrete to search for victims in collapsed buildings in Colchester, Vermont (population 18,000), may be permitted by DHS guidelines, but are those guidelines appropriate? And while there may be ways to justify spending homeland security funds in this location, does anyone really believe that Vermont, North Dakota, and Wisconsin are the front lines of the war on terror?

Instead of stopping the flow of money to low-risk areas, Congress created another pot of grant money called the Urban Area Security Initiative. The program's backers said it would allocate money based on an objective evaluation of risks and that political considerations would not be allowed to intrude.

So what happened? In early 2003, Congress announced that it would pay $100 million in Urban Area Security Initiative money to seven high-risk cities--New York, Washington, Los Angeles, Seattle, Chicago, San Francisco, and Houston. Immediately, members of Congress started receiving calls from urban officials who felt they had been unfairly left out. The list of qualifying cities started to expand. By May 2003, the number of most-at-risk cities had grown from seven to 30. That was followed by an increase in funding from $100 million to $700 million. Today more than 80 cities and mass transit agencies, including Indianapolis, Louisville, and Columbus, are getting extra homeland security cash out of an $830 million budget.

4. Preventing Yesterday's Attack

Inappropriate security spending is often a knee-jerk reaction to the news of the day. The surest way for a mode of transportation to get a boost in federal funding is to be attacked by terrorists.

Within days of 9/11, Congress ordered a federal takeover of airport passenger screening and created a 45,000-employee bureaucracy. Protecting the country against hijackings became the priority, and the Transportation Security Administration (TSA) became the key player.

The TSA's budget reflects Congress' overreaction. Its $5.9 billion represents more than 10 percent of homeland security spending and more than 15 percent of DHS' budget. Its funds exceed those of the FBI or the Secret Service. And although Congress originally charged the TSA with protecting all modes of transportation, it has done little beyond aviation. More than 90 percent of the TSA's budget request for fiscal year 2006 is devoted to air transport. The TSA has established itself as a multibillion-dollar centralized bureaucracy whose main function is to guarantee that security screeners, many of whom barely speak English, spend endless hours harassing pilots, confiscating dangerous mustache scissors, and pawing grandmothers and children.

At first mass transit received its security funding through the broad State Homeland Security Grant Programs. Transit officials complained that little of the money would make its way to them because they had to compete with first responders and many other competitors. But when coordinated bombings on the Madrid train system killed 191 people in March 2004, Congress immediately created a separate $150 million grant program for transit and rail security.

In the aftermath of the two attacks on the London subway system last July, lawmakers proposed still more money for public transit systems. Sen. Judd Gregg (R-N.H.) suggested an increase of $100 million. Sen. Charles Schumer (D-N.Y.) talked of $200 million. Sen. Richard Shelby (R-Ala.) called for a $1.2 billion increase, and Sen. Hillary Clinton (D-N.Y.) upped it to $1.3 billion. That was nothing compared to the $6 billion requested by William Millar, president of the American Public Transport Association.

Yet if the London bombings teach us anything, it's that throwing money at transit security is unlikely to have any impact. After decades of combating Irish Republican Army terrorists, the London subway system is known to be one of the best protected in the world, but the large public investment in surveillance did not prevent the two terrorist attacks. The second incident occurred even while the system was in maximum alert mode. Experts agree that options are limited, if not nonexistent, for preventing such strikes. So why spend money on it?

Fortunately, lawmakers never got around to increasing transit security funding. Only a few weeks before they passed their homeland security spending bill, the Gulf Coast was devastated by Hurricane Katrina. Because they have the attention spans of 2-year-olds, members of Congress immediately turned all their attention to firefighters and natural disaster preparedness. During the debate on the spending bill, dozens of amendments were introduced to increase funding for everything from natural disaster relief efforts to firefighters. Among other things, lawmakers included an amendment (ultimately defeated) that would have provided $1.7 billion more for first responders and for disaster planning and mitigation.

The Alternative

It's hard to see how we are safer from terrorist attack now that the Princeton, New Jersey, Fire Department owns Nautilus exercise equipment, free weights, and a Bowflex machine, all paid for with homeland security grants.

If Congress were serious about homeland security, it would scrap the requirement that every state be guaranteed a part of the homeland security budget, abolish all grants to state and local governments, ban all earmarks from homeland security bills, and create better oversight for its homeland security spending. These steps would help root out wasteful spending and ensure that funds were allocated based on risk rather than politics.

In 2004 the members of the independent, bipartisan 9/11 commission stated that the current system is in danger of turning homeland security funding into "pork-barrel" spending and making security subsidies just another state entitlement program. They suggested that homeland security funding be based strictly on an assessment of risks. While mainly ignored by lawmakers, their conclusions did trigger public debate. Greater public outrage about the deeply flawed spending process may have encouraged DHS to become a stronger advocate for reform ideas unpopular in the pork-hungry Congress.

Indeed, the greatest potential for reform today is coming from DHS. Following the 9/11 recommendations, it has started pushing for a complete overhaul of the grant formula and a more risk-based approach to homeland security in general. A possible sign of that new attitude is the Transportation Security Administration's recent decision to allow passengers to carry some knives onto airplanes. It certainly isn't enough, but it's a step in the right direction. Meanwhile, the department's inspector general has produced several extensive reports exposing bad practices and suggesting ways to curb wasteful spending. If Congress is waiting for guidance before it acts, it need wait no longer.

But that might be wishful thinking. Congress, by nature, is an inefficient institution driven by self-interested politicians. Wasteful spending is par for the course. And if it is sad that lawmakers treat homeland security the same way they treat everything else, it certainly isn't surprising.

The War on Hype

gillespie@reason.com (Nick Gillespie) info@reason.com (Veronique de Rugy) — Sun, 19 Feb 2006 00:00:00 EST

Rest easy, America. As a response to the Sept. 11 attacks, the Princeton, N.J., Fire Department now owns Nautilus exercise equipment, free weights and a Bowflex machine. The police dogs of Columbus, Ohio, are protected by Kevlar vests, thank God. Mason County, Wash., is the proud owner of a half-dozen state-of-the-art emergency radios (never mind that they are incompatible with existing county radios).

All of these crucial purchases -- and many more like them -- were paid for with homeland security grants. Doesn't it make you feel more secure that $100,000 in such money went to fund the federal Child Pornography Tipline? That $38 million went to cover fire claims related to the April 2001 Cerro Grande fire in New Mexico? And that $2.5 billion went to "highway security" -- that is, building and improving roads?

Since Sept. 11, 2001, Congress has appropriated nearly $207 billion to protect us from terrorism. Total homeland security spending in 2006 will be at least $50 billion, split between the Department of Homeland Security and many other agencies, including, improbably, the Environmental Protection Agency, the Department of Commerce and NASA. But far from making us more secure, the money is being allocated like so much pork. While the Department of Homeland Security is finally making some improvements in how it allocates resources, much more needs to be done, especially by Congress.

Indeed, as the above examples suggest, states and cities are spending federal homeland security grants on pet projects that have little or nothing to do with security. State and local officials fight over who will get the biggest share of the money, regardless of whether they have a legitimate claim to it. Hence, of the top 10 grant recipients, only the District of Columbia also appears on a list of the 10 places most at risk of attack (see table below). The U.S. Virgin Islands receives more per capita in homeland security spending ($104.35) than does Washington, D.C. ($34.16). So do Guam ($90.36), the Northern Mariana Islands ($54), Wyoming ($37.74) and American Samoa ($37.54).

And don't think high-risk cities necessarily spend their money wisely: The District of Columbia, for instance, used the first wave of homeland security aid as "seed money" for a computerized car-towing system Mayor Anthony Williams had promised for three years to help combat fraud by private towing companies. The city also used $100,000 in homeland security money to fund the mayor's popular summer jobs program.

When Congress isn't doling out cash indiscriminately, it's overreacting to yesterday's attacks instead of concentrating on cost-effective defenses against the most likely current threats. In the days after Sept. 11, Congress created the Transportation Security Administration, a 45,000-employee bureaucracy that spends more than the FBI or Secret Service and accounts for 10 percent of the total homeland security spending. The Transportation Security Administration, which is part of the Department of Homeland Security, has still not figured out a comprehensive plan to screen airplane cargo for explosives. More to the point, the simple and relatively cheap solution of hardening cockpit doors has made Sept. 11-style hijackings virtually impossible.

In the aftermath of the two attacks on the London subway system in July, lawmakers and lobbyists proposed increases from $100 million to $6 billion in funding to secure public transportation. Yet if the London bombings teach us anything, it's that throwing money at transit security is unlikely to have an impact. After decades of combating Irish Republican Army terrorists, the London subway system is known to be one of the best protected in the world, but the large public investment in surveillance did not prevent the two terrorist attacks. The second incident occurred even while the system was in maximum alert mode. Experts agree that options are limited, if not nonexistent, for preventing such strikes. So why spend money on it?

If Congress were serious about homeland security, it would scrap the requirement that every state be guaranteed a part of the homeland security budget, abolish all grants to state and local governments, ban all earmarks from homeland security bills, and create better oversight for its homeland security spending. These steps would root out wasteful spending and ensure that funds were allocated based on risk rather than politics.

In 2004, the members of the independent Sept. 11 Commission stated that the current system is in danger of turning homeland security funding into pork-barrel spending and making security subsidies just another state entitlement program. They suggested that homeland security funding be based strictly on an assessment of risks. Their conclusions, mainly ignored by lawmakers, did cause public debate. Greater public outrage about the deeply flawed spending process may have encouraged the Department of Homeland Security to become a stronger advocate for reform ideas unpopular in the pork-hungry Congress.

The greatest potential for reform today is coming from the department itself, which spends more than half of all homeland security funds. Following the Sept. 11 Commission's recommendations, it has started pushing for a complete overhaul of the grant formula and a more risk-based approach to homeland security in general. A possible sign of that new attitude is the Transportation Security Administration's recent decision to allow passengers to carry some knives onto airplanes. It certainly isn't enough, but it's a step in the right direction of focusing on actual risks. Meanwhile, the department's inspector general has produced several extensive reports exposing bad practices and suggesting ways to curb wasteful spending.

If Congress is waiting for guidance before it acts, it need wait no longer.

Veronique de Rugy is a research scholar at the American Enterprise Institute. Nick Gillespie is editor-in-chief of reason. This story also originally appeared in the San Francisco Chronicle and can be viewed in that format here .

Remedial Math for the President

info@reason.com (Veronique de Rugy) — Tue, 07 Feb 2006 00:00:00 EST

President George W. Bush's new budget proposes spending $5.9 billion to promote math in America. This might not be a bad idea, if only because politicians seemingly cannot count. This year, the president wants to spend $2.77 trillion, including record amounts of money for both domestic programs and national defense/homeland security. The details are even less encouraging. His new budget will add $18 billion for hurricane relief on top of the billions already blanketing the regions affected by Hurricane Katrina, as well as comical proposals such as $148 million for the Solar America Initiative and $55 million for activities during the International Polar Year. And yet the White House argues that this year we will "maintain our pro-growth policies and insist on spending restraint."

The administration's reductions in tax rates have been a success, so the first part of that claim is fine. After that, it goes downhill. President Bush's previous budgets increased spending by a dramatic 48.7 percent in six years. Defense spending increased by 67 percent while non-defense spending increased by 49 percent. It sometimes seems as if things are getting worse with each passing year. This year, total spending is increasing by 9.6 percent and has reached 20.8 percent as a percentage of GDP, up from 18.4 percent when President Clinton left office—that's a $909 billion increase in six years. The administration has been arguing that much of the increase in non-defense spending stemmed from higher homeland-security spending. However, the fact is that over half of all new spending in the past two years is from areas unrelated to defense and homeland security.

Ideally, the administration and Congress should find significant savings elsewhere in the budget if they want more security spending. That is theoretically what the Fiscal Year 2007 budget will accomplish.

First, it will supposedly save taxpayers $14.5 billion by cutting and eliminating roughly 140 wasteful programs. But the proposed cuts represent 0.5 percent of the $2.77 trillion budget. And last year, Bush proposed about $16 billion in savings and barely got $6.5 billion from Congress—roughly 40 percent of the amount requested. If history is any guide, he'll get $5.8 billion in cuts, which is about 0.2 percent of the total budget. Hardly a sign of dramatic spending restraint.

Second, the administration proposes once again to virtually freeze non–homeland security, non-defense spending in order to maintain national defense and cut the deficit in half by 2009. But the portion of the budget Bush wants to restrain represents a ridiculously small portion—$497 billion—of a $2.7 trillion pie. Unless they apply to aggregate outlays, these spending limits are meaningless.

Until the administration is ready to significantly reduce the mandatory side of the budget, its credibility will remain weak. The administration does claim to be tackling the problem of increased entitlement spending this year, but let's look at the fine print. The White House proposed to cut about $36 billion out of Medicare over five years. Medicare spending over the next five years will be about $2.6 trillion. So the alleged entitlement cuts represent 1.5 percent of Medicare spending. Put another way, the White House's proposal is to reduce the program's growth from 70 percent to 66 percent over the next five years—hardly a revolution.

Moreover, the plan to cut the deficit in half from to $423 billion in FY2006 to $208 billion by 2009 shows the administration is focused on the wrong measure of fiscal responsibility. The problem is spending, not how it is financed. The White House should be focusing on reducing the size of government, not just the part financed by borrowing.

Focusing on the deficit will also make it harder to make needed policy changes. For instance, the administration only proposes to give taxpayers one year of relief from the alternative minimum tax. This means that between 15 and 20 million taxpayers will soon be hit by this wretched tax. It also guarantees that the President will have to battle hard to make his tax cuts permanent. Ironically, some Republicans have been the main opponents to President Bush's tax reform and spending discipline agenda, establishing their reputation as the party of all big spenders.

The president's so-called fiscal responsibility relies on extraordinary spending restraint from Congress. But the White House, which has kept its veto pen sheathed for more than five years, has lost almost all credibility on that issue. The president has urged Congress to help him rein in federal spending by adopting a line-item veto amendment and getting rid of all earmarks in the budget. He should know better. After all, this Congress is responsible for a transportation bill jammed with 6,371 pork projects, such as therapeutic horseback riding programs and funds to combat teen "goth" culture in Blue Springs, Missouri.

Congress is addicted to pork and to spending increases, and is unlikely to be weaned without a dramatic change in behavior by the White House. Unfortunately, the White House has dirty hands. How can the president expect Congress to cut spending when he is unwilling to give up his pet projects in science or defense? The White House proposes that funding for the Pentagon be increased by 4.8 percent to $439.3 billion and that the Department of Homeland Security's Budget be increased by 5 percent. These outlays are certainly justified because of external threats, but we shouldn't forget that these two areas are not impervious to wasteful spending and pork-barrel earmarks.

This may sound like a depressing indictment, but things may get worse before they get better. The administration has left out important items from budget calculations, such as most of a recent $120 billion supplemental for Iraq and Afghanistan and some hurricane relief.

Somebody in Washington needs to remind politicians that a dollar cannot be spent twice. Every time government spends money, it is diverting resources from productive use. This is true if government finances that spending with taxes. And it is true of government finances that spending with borrowing. Squandering $5.9 billion on math education might be a small price to pay if politicians somehow learn that lesson, but don't hold your breath.

Bush the Budget Buster

gillespie@reason.com (Nick Gillespie) info@reason.com (Veronique de Rugy) — Wed, 19 Oct 2005 00:00:00 EDT

The Bush administration recently released its mid-session review of the federal budget for fiscal 2006. The new data reveal that in spite of repeated promises of fiscal responsibility by the Bush administration and congressional Republicans, things are bad and getting worse. After five years of Republican reign, it's time for small-government conservatives to acknowledge that the GOP has forfeited its credibility when it comes to spending restraint.

"After 11 years of Republican majority we've pared [the budget] down pretty good," Rep. Tom DeLay (R-Texas) crowed a few weeks back during ongoing budget deliberations. But nothing could be farther from the truth, at least since the GOP gained the White House in 2001. During his five years at the helm of the nation's budget, the president has expanded a wide array of "compassionate" welfare-state, defense, and nondefense programs. When it comes to spending, Bush is no Reagan. Alas, he is also no Clinton and not even Nixon. The recent president he most resembles is in fact fellow Texan and legendary spendthrift Lyndon Baines Johnson—except that Bush is in many ways even more profligate with the public till.

The federal pie has two parts, each accounting for about 50 percent of outlays. "Mandatory spending" includes entitlement programs such as Medicare and student loans that are provided by law rather than by annual appropriations. Then there is discretionary spending, comprising most defense spending, homeland security, and programs such as farm subsidies and education. Discretionary spending is what the president and Congress decide to spend each year through appropriations bills. Because discretionary spending can theoretically be zeroed out each year, it is generally regarded as the clearest indicator of whether a president and Congress are serious about reducing government spending. Some major entitlement programs—most notably Social Security—are "off-budget," meaning they are not accounted for in either the mandatory or discretionary figures.

Table 1 compares the percentage change in inflation-adjusted discretionary, defense and nondefense spending over the first five budgets of Johnson, Nixon, Reagan, Clinton, and Bush 43 (the figures for the latter incorporate the recent mid-session review estimates). Table 1 makes it clear that Bush has been a big spender across the board.

Total real discretionary outlays will increase about 35.8 percent under Bush (FY2001-06) while they increased by 25.2 percent under LBJ (FY1964-69) and 11.9 percent under Reagan (FY1981-86). By contrast, they decreased by 16.5 under Nixon (FY1969-74) and by 8.2 percent under Clinton (FY1993-98). Comparing Bush to his predecessors is instructive. Bush and Reagan both substantially increased defense spending (by 44.5 and 34.8 percent respectively). However, Reagan cut real nondefense discretionary outlays by 11.1 percent while Bush increased them by 27.9 percent. Clinton and Nixon both raised nondefense spending (by 1.9 percent and 23.1 respectively), but they both cut defense spending substantially (by 16.8 and 32.2 percent).

Bush and LBJ alone massively increased defense and nondefense spending. Perhaps not coincidentally, Bush and LBJ also shared control of the federal purse with congressional majorities from their own political parties. Which only makes Bush's performance more troubling. Like a lax parent who can't or won't discipline his self-centered toddler, he has exercised virtually no control whatsoever over Congress. In the wake of massive new funding for the Gulf Coast in the wake of Hurricane Katrina, Bush did timidly suggest that some of the new money be matched by reductions in pork projects embedded in the just-passed transportation bill. The Republican response to such efforts is summed up by Alaska Rep. Don Young's reply to critics of a $223 million "bridge to nowhere" in Ketchikan. Proponents of budgetary "offsets" can "kiss my ear," Young told the Fairbanks Daily News-Miner, adding that paying for Katrina-related measures by trimming transportation pork is "the dumbest thing I've ever heard."

Figure 1 shows the cumulative real discretionary nondefense spending increases during the first five years of the recent presidents who managed to stay in office for more than one term. Each president's first year in office is set at a base of 100, so any dollar added or subtracted on his watch is clearly reflected. It's no surprise that Reagan, who cut nondefense spending significantly, emerges as the only recent president to have sharply curtailed government outlays during his tenure. Clinton's performance may be a little more surprising: During his first five years, real nondefense spending increased by less than 2 percent. Interestingly, nondefense spending declined during his first two years and only started its upward drift in his third fiscal year—when the Republicans took over Congress.

When confronted by its spendthrift ways, the Bush administration argues that much of the increase in nondefense spending stems from higher homeland security spending. It's true that most homeland security spending is tallied under nondefense discretionary spending. Yet when homeland security spending is separated out, the increase in discretionary spending is still huge: 36 percent on Bush's watch.

So only a part of recent increases are related to 9/11. And that's leaving aside the real question of whether even homeland security money—which has gone to pay for items such as Kevlar vests for police dogs in Columbus, Ohio—is being spent wisely. A substantial portion of Bush's increase in discretionary spending stems from new domestic spending initiatives. For a ready example, look no further than the Department of Education, one of three departments targeted for elimination by Republicans in 1994, when Tom DeLay and his budget-cutting friends first took control of Congress. In the last five years, Education's budget has grown by a stunning 79.9 percent.

If the performance of the president and Republican Congress is disheartening when it comes to discretionary spending, things look a little better when it comes to mandatory spending. Better that is, than LBJ and Nixon. Table 2 compares the percentage change in real total and mandatory spending over the first five budgets of recent presidents.

Total real outlays have increased by 23.4 percent under Bush, placing him second only to LBJ. As the architect of the Great Society, Johnson created vast new entitlements such as Medicare and Medicaid, which continue to balloon the mandatory portion of the federal budget. Mandatory spending reached its zenith under Nixon, partly because entitlement spending tends to balloon during recessions, as poverty rates and unemployment increase.

Because it is linked to the larger economy and reflects decisions often made before a particular president takes office, spending analysts tend to slight entitlement spending. Yet the president can still have a dramatic impact on entitlement spending. There's the LBJ example, where a sitting president creates new entitlements that drive up government spending. But there are other ways that a president can affect entitlement spending.

For instance, by cutting marginal income tax rates, an administration can substantially reduce the number of people unemployed and hence reduce entitlement payments. Also, the president can change the underlying laws that define how and to whom the money is distributed. President Reagan's first budget plan promised to "overhaul the nation's overgrown $350 billion entitlements system"; he also proposed numerous spending reductions to Medicare and Medicaid and was able to make some modest reforms to slow program growth rates. Those are some of the reasons why the total increase in mandatory spending during Reagan's first five years was a relatively paltry 12.4 percent. In 1996, President Clinton signed off on vigorous welfare reforms. Chief among them were the strong incentives for welfare recipient to get jobs, which benefited all Americans in the form of lower spending on welfare. The economic boom of the Clinton years—induced in part by large capital gains tax cuts—also worked to decrease entitlement spending.

President Bush seems intent on following the LBJ model by making entitlement spending even more overgrown. In a fiscally reckless act, Congress and President Bush enacted the $550 billion (over 10 years) drug bill even though the budget is deep into deficit and Medicare already has a huge financing shortfall. Not only is the new drug program the biggest expansion in Medicare since its inception, it's virtually certain that the $550 billion price tag is a low-ball estimate. Despite the massive cost, some on Capitol Hill now want to expand these entitlements in the name of Katrina victims.

To date, the Bush administration has a disjointed, two-track budget policy. It has favored letting Americans keep more of their money via tax cuts while steadily building up the welfare state via unrestrained spending. Over time, that that strategy can't work. As Milton Friedman and others have long argued, the size of government is found in its total spending and, ultimately, spending is a taxpayer issue. Higher spending and resulting deficits create a constant threat of higher taxes. It's no surprise that not just Democrats but even moderate Republicans are now arguing that Bush's recent tax cuts be allowed to expire.

To be sure, Congress shares the blame for runaway spending in the past five years. Yet Bush has not vetoed a single spending bill during his tenure in office. To the contrary, he has signed every bill crossing his desk, including huge education, farm subsidy, and transportation bills. He has made only the most feeble efforts to rein in pork-barrel spending or offset new programs with cuts in existing ones.

What makes this all the more frustrating is that Bush, unlike Reagan and Clinton, faces a Congress that is controlled by his own party, which claims to be dedicated to smaller, more efficient government. Yet Bush has shown no leadership on spending reform—and Republicans have rebuffed even the mildest criticisms of their spendthrift ways. It seems incontestable that we should conclude that the country's purse is worse off when Republicans are in power.

[Editor's Note: The original version of this story contained an incorrect estimate of Bush 43's real discretionary spending in the defense and non-defense categories. The original version stated that Bush had increased total real discretionary spending over five years by 35.2 percent, including a 30.2 percent increase in non-defense spending and a 30.8 percent increase in defense spending. The correct estimated figures are 35.8 percent for total real discretionary spending, 27.9 percent for non-defense spending, and 44.5 percent for defense spending.]

Spending Overdose

gillespie@reason.com (Nick Gillespie) info@reason.com (Veronique de Rugy) — Thu, 06 Oct 2005 00:00:00 EDT

"I call on members to make real cuts in nonsecurity spending," President Bush told his Tuesday press conference. "Congress needs to pay for as much of the hurricane relief as possible by cutting spending."
Such sentiments are sweet music to libertarians and small-government conservatives -- and long overdue. While emergency spending in the wake of Hurricanes Katrina and Rita has added billions to the deficit-riddled federal budget, those outlays are just a drop in the bucket compared to the prestorm spending habits of the president and Congress.
Indeed, when it comes to big-time spending, many think of Democrat Lyndon Baines Johnson -- who busted the budget like a Texas tornado. But it's the current chief executive from the Lone Star State, with plenty of help from the Republican-controlled Congress, who actually set the one-term record for raising discretionary spending.
Discretionary spending comprises most defense spending and other nonentitlement social programs; it's what president and Congress decide to spend each year through appropriations bills. Because it could be theoretically zeroed out each year, discretionary spending is the best measure of fiscal responsibility in evaluating presidents and Congresses.
In fiscal 1965-68, Lyndon Johnson raised discretionary spending a whopping 33.4 percent (all figures are adjusted for inflation and based on Office of Management and Budget data). He jacked up nondefense discretionary spending 34.2 percent and defense spending -- remember Vietnam? -- 33.1 percent.
Consider how some of the presidents after him performed.
Richard Nixon cut total discretionary spending by 15.2 percent, mostly by slashing defense spending almost a third. Over two terms, Ronald Reagan increased discretionary spending 15.3 percent, largely due to a 38 percent increase in defense spending. With the Cold War over, George Herbert Walker Bush's cuts to the defense budget allowed him to reduce total discretionary spending by 3.4 percent -- even as he goosed nondefense spending by a robust 13.9 percent. In his first term, Bill Clinton actually reduced total discretionary spending 8 percent; in his second term, he increased it a relatively modest 8.1 percent.
Then there's George W. Bush. In his first term, he increased total discretionary spending 35.1 percent and that percentage will actually rise: the final figures for fiscal 2005 aren't in yet, so we have to rely on the July OMB midsession review numbers. The final numbers will be significantly higher, especially since midsession figures do not take into account hundreds of billions in supplemental spending related to Hurricane Katrina and the wars in Iraq and Afghanistan.
How has the president spent so much? Defense spending has greatly increased, by 37.2 percent over four years. But the president also increased nondefense discretionary spending by a humongous 37 percent. Even when you subtract homeland security spending, Mr. Bush and Congress boosted nondefense discretionary spending by 23 percent during his first term.
While Mr. Bush's new calls for cuts are heartening, he may well face his sternest opposition from within his own party. A spokesman for Rep. Don Young, Alaska Republican and chairman of the powerful House Transportation Committee, has called pork-for-relief swap proposals "moronic." Tom DeLay, Texas Republican, recently declared "victory" over federal budget fat, ludicrously asserting, "After 11 years of Republican majority we've pared [the budget] down pretty good."
While it remains unclear exactly what the budget for fiscal 2006 will look like, this much already is crystal-clear: If the president and his Congress do not immediately and radically cut the massive spending spree of the last four years, the GOP can no longer claim the mantle of fiscal responsibility. Who could have predicted when he took office that Mr. Bush might end up looking much more like Lyndon Johnson than his own father? Mr. Bush fights an increasingly unpopular war, has added to Johnson's Great Society legacy by pushing through a new prescription drug program that is the single-largest expansion of Medicare since its inception, and spends like, well, a Texas-born millionaire. If Republicans don't follow through and cut spending, all that's left for the transformation to be complete is for Mr. Bush to pick his dog up by the ears.

Veronique de Rugy is a research scholar at the American Enterprise Institute. Nick Gillespie is the editor-in-chief of reason. This story originally appeared in The Washington Times and can be viewed in that format here.