Taxes, earmarks, federal pay freezes and government expenditures are all topics of discussion these days and I continue to hear one loud, annoying concentrated chorus from the left; tax the rich.... earmark bans are only a drop in the bucket so why bother, spending freezes for federal workers will only save a couple billion and only save $50 billion over 10 years...etc, etc, etc..Starting with taxing the rich more than they already pay. Recently it was reported that for every "new dollar of new taxes led to more than one dollar of new spending by Congress."
In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.
We've updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.
We also looked at different time periods (e.g., 1947-2009 vs. 1959-2009), different financial data (fiscal year federal budget data, as well as calendar year National Income and Product Account data from the Bureau of Economic Analysis), different lag structures (e.g., relating taxes one year to spending change the following year to allow for the time it takes bureaucracies to spend money), different control variables, etc. The alternative models produce different estimates of the tax-spend relationship—between $1.05 and $1.81. But no matter how we configured the data and no matter what variables we examined, higher tax collections never resulted in less spending.
Our politicians spend too much money that we do not have, more than we take in.
This is why conservatives are pushing to cut spending rather than raising taxes or letting the Bush era tax cuts expire. Congress doesn't need more money to spend, they need to stop trying to take more just so that they can spend even more.
Which brings us to earmarks and the recently reported proposal by Republicans which is now being echoed by Barack Obama about freezing federal pay, just as two quick examples.
Because it is in the news today, I will start with the proposed Federal pay freeze which Republicans are for and liberals are coming out, almost in one voice against.
The NYT article reporting on the federal pay freeze proposal showed this:
The number of federal workers making more than $150,000 a year has grown ten-fold in the past five years and doubled since Mr. Obama took office, according to a USA Today study earlier this month. Since 2000, federal pay and benefits have increased 3 percent annually above inflation, compared with 0.8 percent for private sector workers, according to data cited by the newspaper.
From the White House website we see what the proposed savings would be:
This will save $2 billion over the remainder of this fiscal year, $28 billion in cumulative savings over the next five years, and more than $60 billion over the next 10 years. The freeze will apply to all civilian federal employees, including those in various alternative pay plans and those working at the Department of Defense – but not military personnel.
The liberal argument, it is just a drop in the bucket compared to out deficit.
The media starts the chorus, via The Politico:
If Congress endorses the idea, the freeze would save $2 billion in 2011 and roughly $6 billion a year over the next 10 years – a drop in the bucket of the federal budget deficit, which is expected to top $1 trillion this year and next year....
AmSpec expands on the chorus line:
In his press conference, Obama claimed that the move would save the government $28 billion over five years. Taking that number at face value, that would represent a sixth-tenths of one percent reduction in the projected $4.52 trillion deficit over that same period (2011 through 2015). It would be the equivalent of a person who expects to rack up $10,000 of of credit card debt over the next five years touting the fact that he's found a way to reduce his expenses by $60 over that time period. In football terms, it would be like a kickoff return that gains about a half of a yard.
Other liberals hop on the same bandwagon, via TPM:
Michael Linden, a budget expert at the liberal Center for American Progress calls it "small potatoes", and says it doesn't "don't reduce the deficit very much," saying it saves less that the "discretionary spending freeze."
(Side note- Liberals were against the discretionary spending freeze as well because it would only save $35 billion (5%):
Freezing non-defense discretionary spending at current levels would therefore only produce a total savings of $35 billion in 2015. That year, the budget deficit is expected to be around $760 billion. Saving $35 billion would solve less than 5 percent of the problem.(End side note)
Back to the TPM quotes from liberals against the federal pay freeze.
Larry Mishel, director of the liberal Economic Policy Institute, calls the savings "chump change".
The examples of the progressively liberal left go on endlessly with the same song, drop in the bucket, small in comparison with the deficit, just a fraction of our debt as they try to claim that raising taxes on the rich would help more... I refer you to the above study which already shows the more new tax dollars Congress gets, they spend it, they do not apply it to the debt.
These are the same arguments that were used regarding the Freezing of non-defense discretionary spending and then we move along to the liberal argument on earmark bans.
According to an analysis by Taxpayers for Common Sense, earmarks account for, at most, about $9 billion in projects in the fiscal year 2011 spending bills. Taxpayers for Common Sense identified 3,011 earmarks worth $3 billion in the FY2011 House spending bills and 3,742 earmarks worth $6 billion in the Senate bills.
Liberal politicians, especially those that have benefited from earmarks, like Senator Mary Landrieu (D-La.), who secured $160 million in earmarks this year for 140 projects including hurricane-protection and flood-control needs, stated "I know the Republican caucus is focused on earmarks but that is just one very, very small part of the problem. It not only represents less than 1 percent of the budget; it represents just a fraction of the problem."
Back to that drop in the bucket song.
The sound we heard then and there were liberal bloggers joining in the chorus.
John Cole referring to earmarks as "a nothing-burger when it comes to the budget- less than 1% of the federal budget," ombwatch calls cutting $50 billion a year in earmarks "small in scope," Lou Kaye calls banning earmarks a "complete joke" and again tries to compare it to tax cuts for the wealthy (again I refer her/him to the above study blowing that comparison right out of the water), Rachel Maddow calls banning earmarks "less than one-half of 1 percent. That is a dot on a freckle. That is a fork in an atom."
Her argument is the money is already being taxed, so it saves nothing, just determines where it goes... ummm... if it isn't going to pet projects via earmarks, then it is being spent on essential items so other monies are not having to be slated for those items... hence, saving money Rachel dear.
Those examples too go on and on and on.
Seeing the liberal pattern here? Any cuts in spending are just a drop in the bucket according to them. Liberals want you to look at any cuts as a separate issue, they will use any means, any distraction, to not add them all together and let their readers or constituents know that when you add a billion here a few billion there, tens of billions elsewhere.... wow, it adds up.
Sure individually some of these actions are just a drop in the bucket, but what liberals don't want you to think about it is when a bucket it placed under a leaking faucet, the drip, drip, drip eventually fills that bucket up if it isn't emptied.
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