In recent Trends columns, REASON has reported on the great interest being shown in two ideas aimed at cutting back government bureaucracies: Sunset laws and Zero-Based Budgeting. Both propose, in slightly different ways, that government agencies and programs be given strictly limited lifetimes and forced to justify their continued existence. After a flourish of initial optimism, some hard second thoughts are now being expressed about whether these ideas would really produce the desired effect. The vested interest of government employees in preserving their jobs and their well-organized political influence seem to pose significant barriers to meaningful change.
In this context, Abraham Kalish examines the political realities involved in cutting back bureaucracies. A veteran of three decades in Washington, Mr. Kalish offers a controversial proposal for making Sunset laws work. While not necessarily endorsing his proposal, we at REASON feel it merits widespread exposure and discussion. Nobel laureate Milton Friedman recently termed Kalish's plan "highly ingenious." We invite readers' comments and will publish as many as we can in the months ahead.
Perhaps no other American president, on assuming office, has been so obviously on the spot as Jimmy Carter. Reacting to the widespread popular resentment against skyrocketing taxes and prices, and the growing fear of runaway inflation, Carter committed himself, in the heat of his presidential campaign, to balance the Federal budget. He thereby set himself up to resolve a problem that many historians have come to regard as inherent in a democracy. Professor Alexander Tytler, writing almost 200 years ago about Greek society more than 2,000 years before, concluded: "A democracy can only exist until the voters discover they can vote largess out of the Public treasury, with the result that democracy collapses over a loose fiscal policy."
In any case, hardly had Carter been declared the winner, than governors, mayors, representatives of government employees unions and of countless other groups converged upon him—all presenting demands for more and greatly expanded government programs as payment for their pre-election support. The adoption of even a fraction of these programs would not only destroy any chance for budget balancing, but would practically guarantee our emulating the current economic conditions of England. Further, though these programs are presented as solutions to many social and economic ills, a decade of experience has shown that despite the expenditure of billions of dollars, these programs in most cases merely aggravate the problems they promise to cure.
But most significantly, high government spending means more employees on government payrolls. In 1960, the total employed by Federal, state and local governments was 8.3 million. By 1976, the number had increased to 15 million, an increase three times faster than the growth of the U.S. population. This growth has stimulated the organization of government employees unions whose main interest is to see that current levels of government spending rise. Spearheaded by the 1.8 million member National Education Association, with limitless funds, tens of thousands of volunteers, and a pool of millions of concerned voters, they have helped elect enough U.S. Senators and Representatives to assure Congressional approval for almost any measure they wish.
An indication of this power came a few days before Congress adjourned for the November election campaign. President Ford had submitted an HEW budget which was half a billion higher than that of the previous year. Congress, responding to the wishes of the government employees unions, added $4 billion, even though HEW still had billions from the previous year which it had been unable to spend. When President Ford vetoed the bill because of its inflationary character, the Senate immediately overrode the veto. The only opposition came from 12 Republicans and three Democrats. In the House, the veto was defeated 312 to 93, by a larger margin than in the original vote.
In the November election, while a few Senate and House candidates used such slogans as "We all [meaning you] will have to tighten our belts," they were in most cases defeated. On the other hand. Democratic candidates in almost all instances ran well ahead of presidential candidate Carter, who during the campaign had said "I would like to have complete authorization to reorganize the executive branch of the government, giving me authority for the elimination of unnecessary agencies and departments."
These are matters which President Carter will have to consider when he tries to balance the budget. He will also be thinking about the concepts of Sunset legislation and Zero-Based Budgeting. Since the election, these terms have been appearing with increasing frequency in newspaper columns, often with the implication that they contain a magic formula for painlessly solving our economic problems.
Newspaper accounts tell us that when Jimmy Carter was Governor of Georgia in 1973-74, Georgia became the first state in the nation to adopt Zero-Based Budgeting. A year later, Common Cause helped guide through the Colorado legislature the first Sunset law. In 1976, leading members of both political parties introduced into both the U.S. Senate and House a bill which incorporated both ideas. This bill would place almost all government programs on a four-year authorization schedule. At the end of this period, the programs not reauthorized would be terminated.
How effective would a Sunset bill be in cutting down government expenses, balancing the budget and stopping inflation? A former employee of the State of Georgia, writing in the November Johns Hopkins Magazine, indicates that the reorganization that took place under Governor Carter was almost completely a paper operation. A number of departments were placed under one head, but the total number of state employees and executives increased substantially. There are already indications that other such moves might wind up the same way. This would be unfortunate because the basic sunset idea is widely accepted and could be the beginning of a worthwhile development.
Advocates of Sunset laws recognize that many current functions of government are unneeded and should be eliminated as a means of cutting down government expenditures. But its primary political weakness is the unanswered question: "What happens to employees of programs to be terminated?" Given current political realities, even a slight suspicion that a bill would lead to the dropping of any government employees would mean its overwhelming rejection by a majority of legislators. At the Congressional hearings on the bill, one of the witnesses suggested "reasonable assurance that employees whose jobs would be eliminated would be offered other public employment." But merely transferring employees to other programs would not cut expenditures. And what agencies are short handed?
Another weakness in the bill is that it lets the administrators assess which programs are not needed. At the Congressional hearings, a top government official warned that assessing some 20,000 programs and activities would lead to an accumulation of paperwork that is mind-boggling, even by Washington standards. To prevent this from happening, it would be much better to have the suggestions for eliminating unneeded jobs come from those who know best the specific jobs that could be eliminated, namely the people working on these jobs. At the very least, employees should be offered the opportunity to take the initiative. This may sound like an impossible dream, but two helpful practices could see it put into effect.
The first concept is insurance. For generations, the knowledge that they are covered by insurance has given most people confidence that even in an emergency, they will be able to meet the financial crises that result from fire and death. After the bank closings of the 1930's, the idea was extended to bank deposits and home mortgages. Since then, insurance has been used to cover the purchase of automobiles and, through such organizations as the Blue Cross, health. What needs to be added to sunset laws is some form of employment insurance.
The second idea which could be used to stimulate employee initiative originated with Clinton Golden, a former vice president of the Steel Workers Union. In his book, The Dynamics of Industrial Democracy (1942), Golden proposed a method for increasing industrial efficiency through enlisting the cooperation of workers by giving them job assurance plus awards based on the increased productivity that resulted from any ideas they suggested. In many current labor-management contracts, this concept has replaced the former suggestion-box system whereby a worker would receive an award for a good idea, but later, he or some of his fellow workers might be dropped, because their jobs had become unnecessary.
To overcome the powerful yet natural resistance of government employees to Sunset legislation, the bill should incorporate these ideas. It should include a provision that if any jobs were terminated, the employees now holding these jobs would be guaranteed their pay. Further, the Bill should also have a provision that if terminated government employees went into private industry, they would receive a 10 percent bonus on all that they earned there. In this way, a $10,000 a year government employee who transfers to private industry and makes $6,000 in the new job, will receive $4,600 from the government. By this transfer, the government would save $5,400 in salary, plus the incidental costs of office space, supplies. If the former government employee's private earnings reached $10,000, his total income would be $11,000; and the government would save $9,000 plus.
In addition to reducing government expenditures, the transfer of many government employees to the private sector would have a beneficial effect on the entire economy. While much attention is focused daily on the activities of government, the public tends to take our free enterprise system largely for granted, except to blame it for many ills including unemployment.
The facts, however, are that Federal, state and local governments now spend about 44 percent of total National Income, yet employ one-sixth of those gainfully employed. Five-sixths depend for their livelihood on private enterprise which also supplies most of our services and practically all our manufactured goods. Further, our economic history shows that if there is an increased demand for consumer goods, private industry expands rapidly, and hires more people. And increased demand for goods quickly follows the hiring of more people. In short, only private industry can solve the problem of unemployment.
Should the modified Sunset program be adopted, the specific techniques for installing it will, of course, vary. The following scenario merely suggests how an overstaffed school system could be made more efficient. The school superintendent at the request of the city's chief executive draws up an overall position chart; one teacher for every 25 pupils; a principal for each 20 teachers; a superintendent. The superintendent then informs the school employees that those who believe that their jobs are unnecessary should present statements to that effect. If these are accepted, the employees will be guaranteed their salaries plus a 10 percent bonus on whatever they may earn in private industry.
The superintendent will then select from the remaining employees those needed to fill the positions on the chart. Fie should notify the others that they are being placed on leave of absence with full pay. If these choose to stay home, the government will still save the cost of their work space and supplies. There will also be a four percent payroll saving each year through retirements and deaths. If any employees on leave decide to take a job in private industry, they will of course get the 10 percent on what they earn; and the government will save up to 90 percent on their salaries.
A different scenario could be developed for the U.S. Postal Service which in 1970 was set up as a quasi-independent agency. By 1976 the Postal Service had greatly increased its rates, cut services and run a deficit of $1.7 billion. Borne of the Agency's services have been consistent financial losers. These could be leased to private companies. By means of the $1.7 billion which the Government now spends to meet the U.S.P.S. deficit, the current employees would be guaranteed their incomes plus the 10 percent bonus for transferring to private industry. Many of the employees would be quickly absorbed by the new private employers who, by greater efficiency, would be able to cut rates, expand, and perhaps stimulate other private enterprises to expand and hire more workers.
One of the advantages of the proposed program is that once the new, simply-stated payroll formula has been worked into the computer, the program will virtually police itself, and so will not require additional expenditures or personnel to operate. A requirement that employees who have transferred to private industry submit annually a copy of their income tax report would provide a check and a means for making adjustments for income changes that occurred during the year.
Does this mean that government employees who transfer will be guaranteed their income, plus a bonus, until they reach the government retirement age? For a number of reasons, the answer must be an emphatic yes. First, obviously and naturally, no program which did not offer government employees more than they are getting now would be acceptable to them. And unless it is acceptable to them, it would, given current political realities have no chance of approval by Congress, or by the vast majority of state and local governments.
Secondly, whatever the cost of the guarantee, it would from the very start cost less than continuing to pay for programs and jobs that are not needed. Finally, a gradual, painless transition may be preferable to a meat-axe approach of cutting government expenditures by laying off employees. Separating tens of thousands of heads of families from their means of livelihood would have a chilling effect on businesses and financial institutions dependent on these individuals' ability to keep up their mortgage and automobile payments.
But what if jobs and programs which have been abolished are later replaced? This is the crucial question, for if this happens the whole sunset program will collapse. For, as we have already indicated, any proposal to eliminate government programs and jobs is almost completely dependent for its adoption on the belief of government employees that they will gain thereby not only in the long run but immediately. Only on this basis will they decide to back the program and to cooperate in order to make it a success. This is the fundamental requirement. Hence, the vital importance of strictly adhering to the original position charts. Only by doing so can the desired results be achieved.
The success of the American Constitution derives from the fact that the men who framed it were able to come up with a series of agreements in which those who had special privileges gave them up in return for the establishment of conditions that would benefit the entire country. By backing Sunset legislation, government employees would give up their present powerful position. But by means of the added provisions to the Sunset legislation, they would not only be able to gain immediate financial benefits, but would also pave the way for a healthier economy for everybody.
Given the past history of American business, a plan that cut government expenditures, led to tax cuts, and helped make millions of highly educated workers available, would encourage industry to expand, hire more workers, cut prices and so be better able to compete for wider markets. In this way, the United States would be placed on the road to relief from the twin scourges of ever-expanding bureaucracy and chronically depressed economy.
Abraham H. Kalish holds an M.A. in classics from Harvard. He spent 10 years as a features writer with the U.S. Information Service and 14 years as a professor of writing and research at the U.S. Defense Intelligence School. Upon retiring from government service in 1971, he served for three years as unpaid executive secretary of Accuracy in Media. He has written a book on schools and has published in National Review and Conservative Digest, in 1975 he received a Freedoms Foundation award.
ANOTHER REFORM: ZERO-BASED TAXING
In addition to Abraham Kalish's plan to modify the Sunset law concept, REASON recently became aware of another reform proposal. The Zero-Based Budgeting concept, as presently conceived applies only to the expenditure side of the budget. As former Council of Economic Advisors chairman Herbert Stein pointed out in The Wall Street Journal (January 3, 1977), this omission implies that Zero-Based Budgeting, though it may terminate some old programs, will simply replace them with new ones because the money is there. "With the pressure of zero-based budgeting on the existing programs," Stein wrote, "we would find the less successful of them replaced by others that are more attractive only because they have not yet been tried."
Stein's solution to this problem is zero-based taxing. "It means that tax rates should expire or fall to zero periodically, forcing the government to make an affirmative decision about the amount of revenue it wishes to collect." Further, Stein notes, since "the money at stake…is the taxpayer's money, not, with all due respect, Mr. Carter's," zero-based taxing is a way to preserve the taxpayer's options.
Stein suggests that the zero-based taxing principle be applied only to individual and corporate income taxes, the principal sources of government revenue (apart from the dedicated Social Security taxes). He presented the idea at a Congressional hearing in December and received a partially favorable reaction. REASON commends Zero-Based Taxing to the new administration and Congress.