Monday, September 14, 2009

That Old Line-Item Hokum Again

Andrew Sullivan reads a reform proposal from John Steele Gordon at AEI and asks for reactions. Hey, I have some!

First, the essay gives a somewhat, well, censored view of recent fiscal policy. Here are the three turning points Gordon gives:

Campaign finance reform after the Watergate scandal brought the political action committee system into being, making, in effect, lobbyists major funders of political campaigns. Naturally the lobbyists were interested in federal spending, not federal fiscal restraint. The budget and debt explode.

OK, that's one.
Finally, in 1994, when a disgusted public—like a family “intervening” with an out-of-control family member—threw out the long Democratic majority in the House and Senate, real reforms became possible... In the great prosperity of the late 1990s, the budget even went into “surplus” for four years.
That's two.
But with the collapse of the dot-com bubble in 2000, the attack on New York and Washington in 2001, the subsequent brief recession, and the decay of Republican Party discipline as members became more interested in individual re-election than collective fiscal restraint, debt began to rise again.
And that's three.

Anyone notice what's missing?

Tax policy, perhaps?

In fact, while spending has fluctuated some, the really big changes over the years have been on the revenue side. From 1981 to 1984, revenues dropped dramatically. Big deficits! Bush and Clinton raised taxes, and revenues climbed steadily throughout the 1990s, eventually peaking in 2000: No deficits! Then George W. Bush and the Republican Congress slashed taxes revenues plummeted, and guess what? Of course, it's absolutely true that spending rises and falls over time as well, but anyone who thinks that deficits are just about spending is missing half the story (Here's a nice graph; also see these tables, BTW).

Of course, the other way to think about it is that when presidents and Congress agreed that reducing deficits was important, deficits were reduced; when they thought deficits were not important, or at least not as important as other priorities, deficits increased. There's very little evidence that procedural reforms to the budget process have any effect, one way or another.

The specific reform that John Steele Gordon proposes is reviving impoundment, as a substitute for a line item veto. But both impoundment and line item vetos are deficit neutral. They shift power from Congress to the president, but that will only lead to smaller deficits if the president is being stymied by Congress, something that has rarely been the case lately (the best example I can think of would be George H.W. Bush's difficulties with minority Republicans in Congress; I suppose one could make a case for mid-1990s Republicans caring more about balanced budgets than Clinton, but I wouldn't). Gordon dismisses real vetoes as a deficit-fighting tool, but in fact it's a perfectly good tool, just as the veto is a perfectly good tool against tax cuts. It's just that presidents don't usually want to spend less or tax more than Congress. The problem, to the extent it is one, is about incentives to balance the budget, not the mechanisms for getting there.

(He also proposes a cap on spending. But deficits are not about how big the government is; they're about matching revenues with spending, so I don't take that as a serious anti-deficit reform proposal. There's also a proposal for moving scoring from CBO to a new independent agency, but again the problem with deficits isn't that they're created by accident or bad accounting; they're created when politicians value other things over deficits).

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