National Taxpayers Union - GovernmentBytes

Has Defense Spending Declined Significantly Since 1965? It Depends on Which Numbers You Use

Posted By: Demian Brady - February 3, 2012

In a recent op/ed, the Washington Examiner featured a chart from our friends at the Heritage Foundation (based on data from the Office of Management and Budget) that shows spending on national defense and entitlements as a percentage of GDP over the past several decades. The data shows that defense spending consumed 7.4 percent of GDP in 1965, rising to its peak of just under 10 percent a few years later during the Vietnam War. The subsequent years show a steady decline that was partially interrupted by the Reagan years, but then resumed, sinking to around 3 percent of GDP in 2000. The post-September 11^th build-up saw defense spending rise to 5 percent of GDP by 2010.

A caption on the chart notes that “spending on national defense … has declined significantly over time, despite wars in Iraq and Afghanistan.” But there are other ways to examine the numbers. Here’s another chart, also based on budget data.

(Click to open chart in a new window)

The above chart converts annual defense spending totals to the dollar’s value in 2005. A constant-dollar comparison illustrates how much we have been spending while accounting for inflation that changes the worth of the currency from one year to another.

In 1965, defense spending was $364 billion in constant dollars. Rather than shrinking steadily since that time, the chart shows that spending on defense reached $402 billion in 2002 before rising to $608 billion in 2010. Because our economy is much larger than it was in 1962, we were able to spend comparatively more on defense than we did in 1965, $245 billion more, in constant dollars, even though the figure represents a smaller percentage of total GDP.

In current dollars, we spent $693.6 billion on defense in FY 2010. If we did return to a 7.4 percent level of GDP, defense outlays would have been $1.07 trillion in current dollars.

But is it necessary to maintain that ratio of defense spending? As our technology and productivity improves, shouldn’t we expect to get a bigger bang from our defense dollar as we do from domestic programs? We can invest less as portion of the economy, but get smarter, better results than were possible half a century ago.

The President has called for a plan to cut the number of forces and procurement of programs in order to reduce defense spending by $487 billion over a ten year period. These reductions would be in addition to the military cuts mandated in last year’s deficit deal. Many are concerned that this will reduce our regular troop levels too far, especially given the extensive reliance on National Guard units that were deployed in Iraq and continue to be deployed in Afghanistan.

There is also concern as to how much of these savings will be used to reduce the deficit, and how much would be re-allocated to expand discretionary programs. After consecutive years of annual deficits exceeding $1 trillion, savings need to be found across the board. But despite the President’s vow to go line-by-line through the budget to cut out waste and duplication, taxpayers have not seen significant reductions in domestic program from this Administration. If last week’s State of the Union address was a preview of the forthcoming FY 2013 budget, we will see more of the same: NTU Foundation tallied up the cost of new proposals in the President’s speech and found that for every dollar in domestic spending that would be cut, defense spending would be cut by $128. And only lip-service was paid to confronting the fastest growing part of the budget: entitlements.

Over the ten years since FY 2001, defense spending rose by about $24 billion a year, in constant dollars. After major wars, such expenditures typically decline with a draw-down of forces. We are now having a national debate about the best way to proceed with reductions while maintaining a strong military. A complete picture of the budget figures needs to be a part of this discussion.

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How to Listen to NTU's Podcast "Speaking of Taxpayers"

Posted By: Douglas Kellogg - February 3, 2012

The National Taxpayers Union's podcast "Speaking of Taxpayers" brings the latest state and federal issues to you in a unique audio format.

"Speaking of Taxpayers" continues to improve, featuring guests from inside and outside the organization, the "Outrage of the Week", and extended insight into the issues responsible taxpayers need to know about.

To listen to the podcast, click HERE to visit our iTunes page and subscribe, stream and download episodes through our hosting site HERE, and look for updates on the homepage and Government Bytes blog.

This week's episode focused on the President's State of the Union Address and Pete's recent testimony on excessive federal pensions:

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California's Budget Mess and the Ballot Box

Posted By: Brent Mead - February 2, 2012

In non-breaking news, California is going broke…again. State Controller John Chiang told legislators that without action, the state will be unable to make $730 million in payments on March 8. All told, the state must come up with about $3.3 billion by mid-April in order to cover a deficit of $5.2 billion.

The good news is that Controller Chiang is hopeful the state will not have to resort to IOU’s this time. The bad news is that by approaching private bond markets for a $1 billion or so bridge loan, taxpayers will be on the hook for interest payments associated with having an abysmally low bond rating.

In light of the new deficit, concerned taxpayers should note the massive boondoggle being placed on the June ballot. Proposition 29 would raise taxes by $850 million a year, by increasing the tax on cigarettes by a dollar per pack, to fund cancer research.

NTU echoes what the California Taxpayer Association had to say on the matter;

"There's no doubt that we all support cancer research. But like high-speed rail, stem-cell research and other ballot-box budget initiatives before it, Proposition 29's good intentions are overshadowed by the fact that California simply cannot afford another billion-dollar government boondoggle to create another wasteful spending program," California Taxpayers Association President Teresa Casazza said in a statement.

Prop 29 contains numerous flaws including evading the state’s constitutional requirement that 40 percent of new revenue go towards education. Additionally, the measure does not protect California taxpayers by ensuring the money will stay in state. Instead, an unelected board has the power to allocate around $575 million towards grantees, or purchasing real estate, without any requirement that such money go to California based groups. Finally, the measure recognizes that increasing taxes on cigarettes will have a negative impact on existing health programs tied to tobacco taxes and backfills $75 million of that revenue.

Of course, this is the underlying problem with the whole scheme. Tobacco tax hikes rarely produce the promised revenue. Not only will Prop 29 shortchange existing programs, but it will also add a new unpaid for spending program to the budget. California will then be left in the position of funding core areas such as K-12 education, road maintenance, etc. or funding expensive side projects such as this measure.

California’s multi-billion dollar deficits should be a wake-up call that the state cannot afford such spending programs. California is past due on getting back to the basic roles of government.

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Federal Compensation Exceeds Private Sector

Posted By: Elizabeth Ricketts - February 1, 2012

"Retirement Readiness: Strengthening the Federal Pension System”, a hearing held by the Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, helped shed light on the current flaws of the federal pension system. The disparity between federal and private-sector workers’ compensation discussed at this hearing is something the National Taxpayers Union has long drawn attention to. NTU’s Pete Sepp testified on behalf of the organization’s 362,000 members at the hearing last Wednesday.

As a panel participant at the hearing, Sepp pointed out that “the large majority of federal retirees are at least not under-compensated.” The Congressional Budget Office (CBO) reported that federal employees receive an average 16 percent more compensation than private-sector workers. The issue of fairness comes up again when considering the amount federal employees contribute to their own fund compared to what is required of private sector workers. The combined individual and agency contribution rate of federal workers is 12.7 percent, with the employee contributing at a fixed rate of 0.8 percent. Meanwhile, the combined contribution for private-sector workers is, on average, only 2.2 percent.

Rep. Sean Duffy (R-Wis.) sponsored a bill, to be voted on this week, which would extend the two-year pay freeze for federal civilian workers through 2013. NTU believes ending the defined benefit pension section of the system (for new entrants) and focusing on the Thrift Savings Plan would be a step in the right direction. The topic is likely to fuel tensions between Republicans and Democrats but both private sector and federal workers would benefit from a sound solution to the pension issue. There is no quick fix, but the sooner steps are taken the better. In 2010, the Congressional Research Service study reported that US government pension programs already had a shortfall of $674.2 billion.

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CBO Report: Taxes Set to Soar to Historic Levels

Posted By: Brandon Greife - January 31, 2012

The charged political atmosphere of the coming presidential elections is certain to generate a heated debate over whether or not to extend the Bush-era tax rates. In its recently released Budget and Economic Outlook the nonpartisan CBO lays out a pretty cut and dried case why we should.

According to the CBO, allowing the rates to expire would cause federal revenues to shoot to historic levels:

“Under current law . . . revenues are projected to grow even faster between 2012 and 2014: by a total of 31 percent, far outstripping the 7 percent total growth in GDP projected for that two-year period. As a result, revenues as a share of GDP are projected to rise by 3.7 percentage points during that period, reaching 20.0 percent of GDP in 2014 – a level that has been exceeded only once since World War II.”

The tax increases wouldn’t end there. Due to bracket creep revenues would continue to edge upwards annually, reaching 21 percent of GDP in the next decade. And while the higher revenues would help to decrease the deficit, it would also create an enormous drag on our economy:

“The pace of the economic recovery has been slow since the recession ended in June 2009, and the CBO expects that, under current laws governing taxes and spending, the economic will continue to grow at a sluggish pace over the next two years. That pace of growth partly reflects the dampening effect on economic activity from the higher tax rates and curbs on spending scheduled to occur this year and next.

The “dampening effect” leads the CBO to predict that the jobless rate would rise to 8.9 percent by the end of 2012 and to 9.2 percent in 2013.

By contrast, if all the scheduled tax increases are avoided, revenues would still return to historical levels. Chart 1-7 shows that under the “alternative fiscal scenario,” in which the CBO makes certain policy assumptions, including the extension of the 2001 and 2003 tax rates, average revenues reach 18.3 percent by the end of the decade. That happens to be the rough equivalent of the average federal tax revenue since World War II.

Using that data it’s clear that spending and not taxes is what is historically out of whack. It’s also clear that if policymakers are to ever achieve fiscal sustainability while not wrecking the economy, they should extend the 2001 and 2003 rates while finding ways to spend less. May I suggest they start HERE.

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(VIDEO) NTU's Pete Sepp Testifies before Congress on Federal Pensions

Posted By: Douglas Kellogg - January 30, 2012

The Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy held a hearing entitled, "Retirement Readiness: Strengthening the Federal Pension System" on Wednesday, January 25th. The issue at hand was legislation proposed by Rep. Dave Camp (R-Mich.), which would add an additional 12 months to the current two-year freeze on basic federal pay and increase federal workers’ retirement contributions starting in 2013.

The current Federal Employees Retirement System (FERS) is calculated by taking the retiree's three highest salaries and dividing it by years of service and a variable pension accrual rate. That rate is currently 1.1 percent for federal employees and 1.7 percent for members of Congress. The Treasury pays about $4.9 billion every month for about 1.8 million retirees. But a 2010 Congressional Research Service study reported that US government pension programs had a shortfall of $674.2 billion.

Pete Sepp of the National Taxpayers Union testified at the hearing. NTU calculated that under the current pension system, a federal retiree’s combined benefit would be almost 2-1/2 times greater than a corporate retiree’s. Federal employees are eligible for Social Security benefits, the defined contribution Thrift Savings Plan (TSP), and the defined benefit Federal Employee Retirement System (FERS). Typical private sector workers rely primarily on Social Security and a 401(k) plan.

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Right-to-work clears Indiana House

Posted By: Brent Mead - January 26, 2012

Last night the Indiana House voted, 55-44, to pass right-to-work legislation. The Senate passed similar language earlier this week, and a final bill should be on Governor Daniel's desk next week for signature. So ends a two-year drama of entrenched interests using every possible tactic to fight worker freedoms. NTU sends its congratulations to the 55 members who faced intense pressure on the bill and stuck to their free market principles. Ultimately, this vote was about helping the workers of Indiana and making the state a better place to do business.

Last year, while the nation focused on the drama in Wisconsin, Indiana began its right-to-work fight. Due to procedures that mandates a 2/3 quorum present for all votes House Democrats were able delay consideration of the law by absconding to Illinois for weeks at a time. Republicans, who held a 60 to 40 member majority, eventually relented and pull the legislation from consideration. However, this year, new rules went into effect fining legislators $1,000 a day for consecutive missed days of work. Whether the threat of personal financial loss played a part or not, House Democrats chose not to flee the state again this year allowing for the vote to occur.

Political gamesmanship aside the argument for right-to-work laws is solid. Allowing for greater worker freedoms is sound economic policy. As NTU stated in a letter earlier this month to the Indiana legislature;

According to the American Legislative Exchange Council’s Rich States, Poor States, all 22 Right-to-Work states outpaced Indiana’s 30 percent growth in gross state product from 1999-2009. In our highly mobile world, capital and jobs are flowing to those states with pro-growth environments, one key feature of which is respecting and valuing the rights of workers to accept employment without being forced to pay union dues.

The economic benefits of enhanced worker freedoms are quite clear. Right-to-Work states not only see higher levels of economic growth, but more workers have jobs, and those jobs tend to pay better when compared to forced-unionization states. Statistics from the National Institute of Labor Relations Research, covering 2000-2010, show that Right-to-Work states have seen a 0.3 percent increase in non-farm private sector payrolls compared to a 5.5 percent decrease elsewhere. Employees in those Right-to-Work states have seen compensation rise by 11.3 percent over that same period versus 0.7 percent in forced-unionization states.

More importantly, right-to-work is about protecting basic individual rights. Workers should not see their paychecks held ransom by a third party which they do not choose to join. The American principle of freedom of association protects both the right of a worker to join a union if they so choose, as well as the right to decline membership and financial support for a union if they do not.

Hopefully, by this time next week, Indiana will be the first right-to-work state since Oklahoma in 2001 and the 23rd overall. As Speaker Bosma stated in his floor remarks, "This announces, especially in the Rust Belt, we are open for business here."

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A Fix for a Growing TV Debacle

Posted By: Andrew Moylan - January 25, 2012

Recently, I wrote about a brewing disaster in the world of television called retransmission consent in a post called "Government screws up your TV." Basically, disputes between television content providers (e.g. ABC) and television service providers (e.g. DirecTV) that play out on a heavily-tilted playing field threaten to cause blackouts for consumers that are entirely avoidable if only we had a policy structure that made sense. Well, the issue is rearing its ugly head again as a dispute between DirecTV and Sunbeam Television has drawn the interest of Senator John Kerry (D-MA), a legislator who has long had his eye on a legislative "fix" to the problem that would empower bureaucrats and do little to solve the underlying problem. (I'm sure this has nothing to do with the fact that a prolonged blackout threatens to keep many Boston-area viewers from being able to watch their Patriots play in the upcoming Super Bowl)

In a phrase that I utter approximately once a month, Senator Jim DeMint (R-SC) to the rescue! In conjunction with Representative Steve Scalise (R-LA), he has introduced a great bill called the "Next Generation Television Marketplace Act." This bill takes exactly the kind of approach that I counseled in my post:

"Congress drafted rules that protected content providers from what was essentially a cable monopoly back in 1992, a monopoly that no longer exists. The result is that content providers are exploiting that protection to the fullest, leading to episodes of brinksmanship like the Fox-Cablevision fight [2012 note: the Fox-Cablevision fight was the Sunbeam-DirecTV battle of its day]. The time has come for a free-market rewrite of telecom law generally and retransmission consent specifically, and forgive me if I think our would-be Windsurfer in Chief is the wrong guy to lead it."

Since I'm sure Jim DeMint reads everything I write and immediately drafts legislation based on my wisdom, the bill he drafted looks pretty great at first glance. It would do a few major things: repeal "must carry" provisions that force service providers to carry content whether they want to or not, repeal retransmission consent and compulsory license provisions in order to truly level the playing field between the two negotiators, and repeal ownership limitations that serve little purpose for consumers. By contrast, the approach Kerry had been floating would have inserted the FCC into the middle of these negotiations, with all of the politics and delays that come with them.

Though I'm still perusing some of the details, this looks to be a very promising bill and I hope that members from all parts of the political spectrum can come together to support it.

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1,000 Days Without a Budget

Posted By: Douglas Kellogg - January 25, 2012

The U.S. Senate has not passed a budget since April 29th, 2009. 1,000 days have now passed.

The failure of the Senate to do so has led to several near shutdowns of the government. Both parties are quick to blame each other over the stalemate, yet the Republican-controlled House managed to pass a budget in April of last year.

Through media appearances, and viral videos, Republicans are calling attention to this fact. Sen. Jeff Sessions (R-AL), Ranking Member of the Senate Budget Committee, and Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee stated:

"[Today] will mark a sad milestone in the history of the United States Senate: the 1,000th day since Senate Democrats last offered a budget plan to the American people. Senate Democrats abandoned their official duty to prioritize Americans’ hard-earned tax dollars and tackle our nation’s most pressing economic challenges—dealing a painful blow to fiscal progress that may be felt for some time."

Last night, President Obama addressed a nation with over $15 trillion in debt knowing that his own party in the Senate has failed to work out a solution. As Ryan and Sessions stated, “The president must also deliver what he has so far refused: Serious reforms to change our debt course and prevent fiscal disaster.”

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The Dirty Reality Behind Obama's Clean Energy Standard

Posted By: Brandon Greife - January 25, 2012

For the second year in a row President Obama used his State of the Union to call for the creation of a “clean energy” standard (CES). Although various proposals have been knocking around Congress the past several years, the key feature is a requirement that electric companies generate a stated percentage of their electricity from certain enumerated “clean” sources.

President Obama hasn’t been shy about his desire to create a green (or clean) energy economy. In fact, one of his oft-repeated campaign promises was to invest $150 billion and create 5 million green jobs. Obama has been doing his best to make good on the promise by using deficit financed loan guarantees, cash grants, and subsidy payments to try and jumpstart the market for green energy.

The result, as one executive of a green-energy company told the New York Times, “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects. It is just filling the desert with [solar] panels.”

States have also been chipping in, offering their own tax breaks and clean energy standards, but the results have led many to reconsider. The New York Times reports:

These mandates often have resulted in contracts with above-market rates for the project developers, and a guarantee of a steady revenue stream.

“It is like building a hotel, where you know in advance you are going to have 100 percent room occupancy for 25 years,” said Kevin Smith, chief executive of SolarReserve. His Nevada solar project has secured a 25-year power-purchase agreement with the state’s largest utility and a $737 million Energy Department loan guarantee and is on track to receive a $200 million Treasury grant.

Because the purchase mandates can drive up electricity rates significantly, some states, including New Jersey and Colorado, are considering softening the requirements on utilities.

Failing to learn from the example of such states, President Obama is now proposing to create a national standard. The result will be a windfall for clean energy companies and a serious hit for taxpayers.

A clean energy standard “works” by taking lower-cost choices away from consumers. By requiring utilities to buy certain forms of energy, namely, wind, solar, biomass, and other Washington-approved fuels, a stable, but artificial market is created. It’s the equivalent of trying to reduce car emissions by mandating that everyone get around using roller-skates at least 80 percent of the time. Sure, it would take a lot longer to get to places, would be completely unworkable for many people who regularly travel long distances, and would create an overnight market for roller-skate makers.

But whereas Americans would largely pay for the roller-skate mandate in wasted time, a clean-energy mandate would result in vastly more expensive electric bills. Those higher prices arise by forcing providers to use costlier forms of energy than they would otherwise use. And those higher costs would go straight to the clean energy companies that President Obama has been so keen on subsidizing.

You see, Obama made a promise to create 5 million green-energy jobs. And that’s a promise he intends to keep…even if it just means shuttling money out of American’s wallets and into “clean” energy companies. Gives new meaning to the words money laundering.

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