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What Power of the Purse?

A few years ago Eugene Steuerle (Brookings) and his colleague Tim Roeper developed a “fiscal democracy index.” It measures the extent to which revenues are already claimed by permanent programs—the big entitlement programs, and interest payments on the debt. The remaining “discretionary” portion has to pay for the entire government’s operations, from defense to roads to education to the DoJ. The trajectory over the past half-century looks like this:

Fiscal-Democracy-IndexNote how in this as in many other respects, the Clinton years look pretty darn good. And note how the index turned negative in 2009. The picture going forward doesn’t look much brighter. (The CBO baseline is pure fantasy.)

Does the problem enter into this year’s election? Sort of: three of the remaining candidates are burbling about expanding entitlement programs. What’s the weather like, on their respective planets?

I’m inclined to think that this is a constitutional as well as a fiscal problem. The Constitution doesn’t specifically command Congress to exercise its power of the purse on a regular basis; but it plainly presumes it. The Steuerle index makes you wonder why we still have a Congress. Moreover, the decline of discretionary spending is conducive to deeply troublesome institutional practices—the collapse of the regular budget order, for example; and the increased resort to agency self-finance. (Chris DeMuth and I have described the tendency here.) Debt-driven government is executive government, and vice versa. But maybe that’s the government we deserve.

Fasten your seatbealts. It’s going to be a bumpy ride.

Reader Discussion

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on April 29, 2016 at 12:20:43 pm

"But maybe that’s the government we deserve."

Perhaps, it is the government we want? how else to advance the "Social Justice" Imperative?

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gabe
on April 29, 2016 at 12:21:58 pm

Indeed, this graph shows that people are living in a fantasy world. The fantasy is imagining that annual federal revenues are a relevant variable. The truly relevant phenomena are GDP and government spending. (And even then, it's unclear how much transfer payments -- by far the largest share of "government spending" -- should be regarded as government spending.)

Taxation is merely one means to finance spending. In an era when the fed can borrow basically for free, does it make sense to seek to extract resources from people a/k/a taxpayers rather than to elicit those resources from volunteers a/k/a bondholders?

Sure, in the long run, I'd expect taxation to bear a stronger correlation with spending than it now does -- but most people long ago abandoned such expectation. The archetypal culprit might be Americans for Tax Reform, who have made a fetish of keeping tax rates low -- while exerting no effort to minimize government spending. The net effect of this incentive structure has been to cause the feds to rely ever more on borrowing. Was that really their goal?

Bottom line: What lower taxes in the LONG RUN? Focus on reducing spending and increasing growth. Focusing on the tax rate/current revenues is just a begger-the-future policy.

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nobody.really
on April 29, 2016 at 13:09:49 pm

Two points:

First, your paper did not address something near and dear to the hearts of most working class folks like me. That would be the use of the insurance companies to collect a tax used to pay for other people's health care. In other words, Obamacare. It's a primary reason why we are not getting raises. We do not get raises. We do have to pay more for health insurance. The math is easy for everyone to figure out. It's a federal tax.

Obamacare is an outsourcing or contracting of a federal operation. Because it is outside the government it is not included in government financial accounting. It should be included in the hidden costs of government. Like the programs in your guys' paper, it is also a self financing program.

Next, what's this about "government we deserve?" It sounds like God is punishing us for our sins. Did Barack Obama forget slaughter the annual sacrificial lamb again?

I don't get this "we get the government we deserve" stuff. People are just people. The system has to be able to work with the people as we are. You don't go to war with the army you wish you have. You go to war with the army you do have.

Same goes for the operation of government. Government must be able to work well given the people as we are, otherwise it's not going to work at all.

That's why I suggest that the current structure and method of operation of government has everything to do with the problems of government, and that the character of the "undeserving" people doesn't matter.

Having a unicameral house is different from having a bicameral house. Methods of election and appointment have a powerful effect on the quality of members of government, which in turn has a powerful effect on the efficacy of government. Methods of oversight prevent corruption and waste. Etc. What correctable structural and operational weaknesses could be the sources of our governmental problems?

Your paper implies that better oversight and accounting would help. I don't think that is enough. I'm concerned with the reasons why the generation of that information isn't already part of the practice of government. That issue needs to be addressed. The cause needs to be traced back to its origin, and that is what needs to be addressed.

If specific weaknesses in the design of government are not correctable because of technical gridlock or some kind of Gordian knot, what would have to happen to correct them anyway?

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Scott Amorian
on April 29, 2016 at 21:10:34 pm

Perhaps the problem is that the proper roll and function of the Federal Government,as envisioned by the founders,had nothing to do with the solving of the social/economic problems of the nation. Problems best left to the states and or the people as outlined in the 9th and 10th Amendments to the Constitution. Maybe,just maybe,many of the programs and Cabinet positions created over the past 150 years or so are either illegal or at least Unconstitutional and should be dismantled.

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libertarian jerry
on April 30, 2016 at 12:01:07 pm

"The fantasy is imagining that annual federal revenues are a relevant variable."

In the context you provide, this is a rather astute observation.
The question is, or ought to be, is this a sensible approach to government financing of services?

As is, and because revenues do not appear to correlate well with expenditures, we resort to a monetary system that survives on fiat currency. This does not bode well for the future.

And yes, there is real value in reducing spending; one could also argue that there would be even greater value in reducing Federal entanglement in both the economy and the daily lives of the people.

Then again, being the knucklehead that I am, I will continue to pay exorbitant taxes on tobacco and booze.
What I am doing? Just my way of helping to finance all those "goodies" that the people WANT.

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gabe
on April 30, 2016 at 20:21:58 pm

[B]eing the knucklehead that I am, I will continue to pay exorbitant taxes on tobacco and booze....

...whimpers the man swilling his Walla Walla Valley Merlot. I feel for ya, guy.

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nobody.really
on May 01, 2016 at 10:45:08 am

Hey, *Swill* is that cheap stuff that comes in a box!!!!

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gabe

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