Monday, August 4, 2014

DOING EVERYTHING WRONG



It isn’t very often than any individual, company or government gets everything wrong simultaneously.  But the members of Congress, clinging fiercely to ideology, expediency and cynicism, are doing so regularly.  There can be no better illustration than the pathetically ignorant and immoral “solution” fashioned this week to forestall the pending insolvency of the Highway Trust Fund.
No thinking person – Democrat, Republican or Unicorn – can possibly believe that encouraging companies to further shortchange already inadequately financed pension plans is a sensible approach to funding highway construction. Nevertheless, that’s what Congress just did, before rushing off to an ill deserved “vacation”.   
Anyone who pays attention to public affairs knows that the US has been seriously underfunding maintenance of the country’s physical infrastructure for many years.  We spend roughly half as much, as a percentage of GDP, on infrastructure maintenance as most developed countries.  The Highway Trust Fund, which provides a large percentage of the money needed to sustain and expand our roads, is supported by a federal gasoline tax of 18.4 cents per gallon, which has not been increased since 1993.  Since building and maintaining our roads is more expensive now than when the tax was last increased, the Trust Fund is expected to run out of money at the end of August. Should that happen, about 600,000 jobs will be lost as highway construction and maintenance projects across the country shut down.

Shutting down projects that are providing good  jobs is bad for the re-election prospects of incumbents,  so Congress went looking for a way to keep those projects going – without raising taxes (perceived as bad by politicians) or increasing the deficit (also perceived as  bad by politicians) .  To accomplish its goal, Congress  decided to make another problem even worse than it already is—counting on the fact that most of us won’t notice and even if we do, won’t do anything about our outrage. 
To prevent the Trust Fund from running dry, Congress authorized the transfer of $10 Billion from the General Fund to the Highway Trust Fund.  Normally, increasing the government’s expenses by paying for road building would count as an increase in the deficit. However, since most members lack the courage to acknowledge that truth, Congress decided to “finance” the fund transfer by allowing corporations to make smaller pension contributions under certain circumstances.  Doing so allows Congress to forecast larger corporate profits and increased tax receipts, thus – theoretically – covering the cost of the payment to the Highway Trust fund.   
Since smaller pension contributions now will mean higher contributions later, arguing that such an arrangement generates additional revenue for the government is nonsensical.  Moreover, since many pension plans are already underfunded, and since the government agency responsible for replacing benefits owed by failed pension plans -- the Pension Benefit Guaranty Corporation ( PBGC)—is itself in financial difficulty, allowing more plans to be more underfunded is clearly contrary to common sense.   Nonetheless, because underfunded pension plans make news only when they actually go broke, Congress feels confident that its chicanery will go unnoticed and has proceeded to “solve” the problem of a depleted Highway Trust Fund by making the pension funding problem worse.
This nonsensical legerdemain is extraordinarily troubling and goes on only because most citizens pay little attention to what Congress does.  Even fewer write, call, or otherwise complain about irresponsible behavior. 
Every member of Congress knows that this “solution” to the Highway Trust Fund’s illiquidity is both illusory and fraudulent.   Each member, whatever their ideology, knows that without world class infrastructure, our country cannot create or sustain the constantly growing economy needed to sustain the US way of life. Each member, by participating in such charades, makes a mockery of the leadership he or she pledged to provide when seeking office. 
Until a larger percentage of our citizens realize that our government isn’t working well, the US is not going to find solutions to the many great issues that challenge us  --infrastructure, education, energy, research and development, immigration, inequality, taxation, debt, you name it.  While these are all hard problems – requiring careful thought and serious deliberation – they are no more difficult than other problems we have faced and overcome in times past.  Solutions are not beyond us, but will surely continue to elude us until we choose our leaders more wisely and pay more careful attention to what those leaders are doing.  Those who choose to lead must be held accountable for getting things right, but so far, seem to be doing just the opposite.

Sunday, January 6, 2013

TIME FOR A REAL DISCUSSION



               

In our ever more dysfunctional political system, discussions about real problems never seem to happen. As a result, neither our problems nor potential solutions are well understood. 

For whatever reason – probably because facts are boring and conflict sells newspapers and draws viewership – the media seems intent on casting last weekend’s Congressional action as a plus or a minus for one or another of the political parties and individual political figures.  The facts are that while the legislation raised taxes on some affluent Americans by a bit, it also made the ill-advised tax cuts of 2001 and 2003 permanent for most Americans and did nothing to reduce US government spending.  As a result, the deficit will increase by about $4 trillion dollars more during the next 10 years than would have been the case had the Congress done nothing.  The entire charade was political theatre, pure and simple.

The primary problem, for the benefit on anyone who has been living on another planet for the last several years, is that our tax system is not generating enough money to pay for the many programs and services Congress has voted to adopt. We have more government than we are paying for – and we can’t continue living on our credit card forever.  

Federal spending is running at about 23% of our gross domestic product (GDP) while our tax system is generating federal revenues of only about 16% of GDP. The federal government’s share of Gross Domestic Product – federal revenue as a percentage of Gross Domestic Product – is far below the 21% collected by the federal government in 2001 and well below the average collected for the last 60 years. 

The notion that we can bring the deficit under control simply by cutting spending is pure fantasy. The big entitlement programs – Social Security and Medicare – can certainly be modestly adjusted, but cannot be substantially changed without repudiating promises on which millions of Americans depend. Moreover, our aging population will be pushing entitlement spending up, thus offsetting our efforts to reduce costs. 

We can and should stop acting as the world’s policeman, and having done so, should be able to reduce defense spending substantially.  We can and should eliminate or substantially reduce outdated and unneeded major programs like agricultural subsidies, but we cannot and should not eviscerate the hundreds of essential programs and agencies supported by the domestic non-defense budget which politicians love to rant about reducing.  We should demand that the government’s agencies and programs be run more efficiently, but whatever we save will likely be more than offset as interest rates rise and the interest we must pay on our massive government debt increases.
  
To have a real conversation, we need to know what share of our national income the government needs to provide the services we all want and expect. The President-- who is supposed to lead – needs to put together a list of what he thinks we need, and what he thinks we can get rid of. Others will disagree, but instead of denouncing the President should be required to propose alternative lists of things to be kept and things to eliminate. Debating the merits and desirability of alternative governmental functions would constitute a real discussion about what we are prepared to pay for and what we are willing to eliminate. Unhappily, no one in political life has yet been willing to put together a list, since eliminating anything will offend someone. 
  
Once we reach a consensus on what’s needed, we’ll need to have another discussion about how to raise the needed money. It can’t all come from those characterized as rich, although we should – in my judgment – expect affluent Americans to pay the same percentage of their incomes as they did in 1990, before the two rounds of ill- advised tax cuts in 2001 and 2003. Doing so will increase their tax burden by a lot more than what’s required by the recent fiscal cliff compromise, and would be a step towards a solution. 

 But no amount of taxes on the rich will even scratch the surface of the deficit problem.  To pay for the government we all seem to want, every American is going to have to pay more than we pay today. Like it or not, the “hard working middle class” that our politicians love to pander to cannot be spared their share of the burden. 

Getting the necessary money will require major changes in our tax system.  Taking all the money we need as taxes on income will have substantial negative impacts on incentives and capital accumulation, and will slow the pace of an economy that is already growing too slowly. In my view, we need to design and implement a far simpler income tax code, with fewer deductions, loopholes and exceptions, impose higher Social Security and Medicare taxes,  levy a gasoline or usage tax to pay for our highway system and add a value added tax.  Most other developed countries employ a similar variety of taxes to meet their revenue needs, and we ought to follow their lead. 

Whatever the answer, we aren’t going to get there until all of us tell those who represent us to get serious. Any member of Congress who thinks that refusing to raise the debt limit – which amounts to refusing to pay for programs Congress itself  has  voted to implement  – makes any sense should be defeated when he or she next runs for office and should be told so by every constituent, whether liberal or conservative. 

Instead of threatening to destroy the full faith and credit of the United States, every member of Congress should stand up and tell us – in detail – exactly which government programs he or she wants to eliminate, what modifications to present rules and regulations they propose and how much the government they propose to preserve will cost.  Having done so, they should also tell us how they propose to raise the money needed for the things they think we should continue doing.

Unhappily, the message hasn’t gotten through.  I am writing this on Sunday, January 6th, after having watched both Mitch McConnell and Nancy Pelosi avoid any hint of specificity when responding to questions on Face the Nation.  Neither of these people is stupid.  Mr. McConnell knows that the government needs  more revenue, and that to provide it everyone is going to be required to pay more taxes.  Ms. Pelosi knows that we cannot sustain current levels of spending on Social Security, Medicare, and every other program she favors,  however desirable they may be in the abstract.   Yet neither is prepared to speak the truth, for fear of offending the ideologically driven “party base” to which each seeks to appeal. 

It’s time – and long past time – for a real conversation.  Each of us needs to do what we can to be sure that whoever represents us understands that we will no longer tolerate generalities, ideologically driven rhetoric and dishonest numbers. 

Unless we act, we will leave our children and grandchildren an America that is a pale shadow of the great country we have been privileged to enjoy.   


Friday, December 21, 2012

I WANT A LIST -- AND YOU SHOULD TOO



All day, every day, television screens across the nation are filled with talking heads and politicians blathering about the dreaded fiscal cliff.  None of them bother to make the point that a “deal” to avoid the fiscal cliff will do nothing to solve our long term financial problems, and all of them talk generalities, avoiding the unpleasant specifics.

Virtually every politician seems determined to cut non- defense discretionary spending, although none are willing to specify which activities and agencies they want to eliminate or  eviscerate, and none seem to know much about what they are proposing to cut or about what has already been done.

 Thus, a primer on a subject few of us know much about – and a word of warning that cutting such spending any further will likely have extremely unpleasant results.

About two thirds of the federal budget consists of mandatory spending.  The remaining one third is labeled discretionary, and about 60% of that is defense related.  Non-defense discretionary funding thus amounts to less than one half of one third of the federal budget, or about 15% in total.
And that small slice of the budget pie has already been cut to levels well below the CBO baseline estimates that were in place when the 112 Congress took office in January of 2011. Assuming the caps and projections now in place continue, and without considering the additional reductions mandated by the sequestration due to take effect at the end of this year, spending on discretionary non-military spending will decline by $1.5 trillion during the next ten years and will reach – at the end of the ten years -- the lowest level of spending as a percentage of GDP since record keeping began in 1976. 

Well, you say, is that bad?  After all, if this is discretionary spending, maybe we can save the money and no one will notice. Here is a partial list of what’s paid for by discretionary non-military spending.
·        The Veterans Administration, which is already doing a horrible job of caring for our fallen warriors, and needs more money, not less.  
·        All Homeland Security Activities, including the Transportation Safety Administration (TSA), which includes the Coast Guard and everything else in the homeland security system. 
·        The National Institutes of Health, the Department of Energy, the National Aeronautics and Space Administration and the National Science Foundation.
·        The Federal Aviation Administration.
·         The Federal Bureau of Investigation. 
·        The Drug Enforcement Agency. 
·        The entire federal prison system, which is big since we insist on imprisoning a higher percentage of our population than any other advanced country.  
·         Federal aid to local school districts. 
·        The Food and Drug Administration, which already does a very inadequate job.  Do you still feel comfortable buying hamburger knowing that FDA does not inspect meat packers who grind feces along with meat?  
·        The National Parks System.
·        Federal disaster relief.  What will we do about the next hurricane?  Just leave people on their own?
·        Federal low income housing programs
·        Federal assistance to states and cities for clean water projects.
·        And lots else besides.  

These things are clearly important – and essential for many citizens.  But since there are few lobbyists working the halls of power on behalf of projects like this, politicians know they can get away with cutting things we need while protecting things we don’t need – like more overpriced defense systems.
The cuts already made will leave the agencies and programs in this category $650 billion short, during the next 10 years,  of what’s needed to sustain per capita service levels equal to what was provided in 2012. As programs and performance lag, we’ll all notice – but by then, many of the politicians now refusing to raise taxes and advocating these cuts as an alternative  will be drawing their lifetime pensions and laughing at our collective foolishness.
Do you think cutting essential services make sense?  I don’t think so, and I’ve asked my senators and representatives to send me a list of what they think they are cutting when they advocate less money for discretionary non- military spending.  I hope you’ll do the same.         

Saturday, October 6, 2012

POTHOLES AND POVERTY - OR SOMETHING BETTER




Recently, Congress acted to extend the 18.4 cent Federal gasoline tax to the end of March, 2013.  The fact that extending the tax was contentious is a sad commentary on the lack of both planning and wisdom that characterizes our national legislative process. 
  
The tax, which has not been raised since 1983, is clearly inadequate. In 2008, the Highway Trust fund – which is the fund intended to support transportation improvements in the U. S. – ran out of money.  Spending from the Trust Fund has exceeded revenues since 2002.  Although Congress has plugged the gap with revenues from the General fund, it has failed to come up with an integrated plan – and a funding program –to assure adequate maintenance of our existing assets and provide the improvements needed to assure competitive capabilities in the years ahead. 

Allowing the gasoline tax to lapse would, among other things:

  •  Encourage people to drive more, thus worsening the already severe congestion that irritates us all – and costs more than $100 billion annually in extra fuel costs. 
  •  Increase our negative trade gap, and increase our  energy dependence  
  • Cost lots of jobs.  1billion in infrastructure spending supports about 25,000 jobs; if the tax lapses and we stop spending, hundreds of thousands of jobs will be in immediate jeopardy. 
  • Accelerate the already severe deterioration of existing bridges and highways

It’s hard to understand why anyone would even consider allowing the tax to lapse.  Americans pay far less for gasoline than driver’s in other countries, and much less in fuel taxes as well.  The recent Simpson-Bowles Commission recommended an immediate 15 cent per gallon increase in the tax; others have suggested more substantial increases.  Everyone except politicians seeking votes seems to agree that our infrastructure needs immediate and substantial help. 

It is clear that it does – and that the needed help will cost lots more than another 15 cents a gallon at the pump.   In 2008 the national Surface Transportation Policy and Revenue Study Commission – a Congressional creation – recommended spending at least $225 billion annually, far more than we now spend. Various estimates put the bill for deferred maintenance of our highways and bridges in the neighborhood of $2 trillion.
     
In addition to needing lots more maintenance on our roads and bridges, we also need an integrated plan to upgrade and expand our capabilities in many areas. We need a plan that measures the adequacy of our highways, mass transit capabilities, airports, ports, communication systems, energy transmission systems,  waste facilities, water systems, hospitals, law enforcement facilities and educational assets against those of other countries – and that provides for the many and substantial  improvements needed to put the U. S. back in a position of leadership. 

Around the world, our competitors are spending far larger shares of GDP on infrastructure improvements than the U. S.  Brazil, India and China, are reportedly spending more than $1trillion annually! And we are clearly falling behind. 

In 2005, the World Economic Forum rated the U. S. # 1 in economic competitiveness; today, we are ranked #15. Unless we fix the problem, we’ll rank even lower in the years ahead.  

Solving the problem is a necessity if we want the country and our kids to have a satisfactory future– and stepping up to that necessity also represents an opportunity to solve one of today’s major problems. If Congress and the President were to come up with a national infrastructure plan this fall, and fund it at just $200 billion annually for the next ten years, we’d generate about 5 million new jobs.

Although it is clear that $200 billion will not be sufficient to meet the competitive challenge being mounted by others, it will be enough to  provide a big chunk of the roughly 12 million jobs we’ll need during those ten years to put the currently unemployed back to work and provide opportunities for new workers.  Moreover, the economic activity created and facilitated by that infrastructure investment will drive GDP growth, create lots of additional employment opportunities and – hopefully – provide the resources needed to build the capabilities not included in the initial plan. 
     
Some will doubtless say we can’t afford it. In my view, these are investments we cannot afford to forego.  Moreover, since we have spent or committed between $3 and $5 trillion during the last ten years in Iraq, Afghanistan and other military adventures – spending which has produced nothing and has yielded neither assets nor infrastructure to support our future growth – I just don’t buy the argument that we can’t find a way to finance the assets and capabilities needed to assure a decent future for our kids and grandkids.
Those interested in a more comprehensive examination of our infrastructure problem can find an excellent recent report here: