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Rx For America: Cost-Benefit Budgeting
Investor's Business Daily
December 7, 2007
By Ernest S. Christian and Bill Frenzel
Rudy Giuliani says he's a turnaround expert,
a take-charge guy who came into a bad situation (New York
City) and fixed it. Mitt Romney makes the same claim (the
Olympics), and he is really smart with money.
If these guys are as good as their records suggest, then
what America needs is a good strong dose of Rudy-Mitt in fixing
the situation in Washington, where costs are exceeding benefits
by a wide margin.
Step one for the next president should be to tell the American
people the truth about the federal government. It is not the
source of their well-being. Most of the jobs it creates are
for lawyers, lobbyists and bureaucrats. Mostly, it spends
other people's money.
Congress No Help
When government spending goes up, taxes go up, the private-sector
economy suffers and most people who depend on it for a living
are worse off. The collateral and direct damage from a dollar
of tax increase often exceeds by a factor of two the benefit
from a dollar of government spending. Much government spending
is simply a waste, and everybody in America knows it.
Step two is to fix the problem - a task that will require
an extraordinary effort by an extraordinary president. The
Congress will not be of much help. In its present state, it's
an institution addicted to spending and dedicated to concealing
its cost.
The new president can succeed by directly involving the
American people in a new kind of federal budget process that
weighs the high cost of taxes against the generally low value
of government spending. We call it the Cost-Benefit Budget.
The government's own Office of Management and Budget already
has a performance rating technique called PART.
Under the new budgeting procedure, PART would be refined,
expanded and used to reveal - for each federal spending program
- both the amount spent and the benefit achieved. An independent
top-level analytical unit would be established in the Treasury
Department to determine the real economic cost of taxes and
to inform the public.
Knowing The Score
Armed with this information, the president would identify
federal programs to be curtailed or eliminated because their
benefit ratings under PART are less than the damage done by
taxes necessary to pay for them. At the end of the year, the
president would first declare a tax cut "dividend" for the
American people - to be paid for by specifically identified
spending reductions.
After an appropriate public comment period, he would ask
the Congress to cut both taxes and spending accordingly. All
this would be conducted out in the open. The voters would
know what is going on - what is being given up, what is being
gained - and allowed to participate.
All newly enacted spending programs would by law be accompanied
by a "cost-benefit impact statement" that states in detail
(1) the benefits to be achieved, how and by when and (2) the
nominal and real costs in terms of tax cuts foregone or tax
increases imposed.
Everyone would know the cost-benefit score. There would
be no more earmarks. No more secret deals. Two years after
enactment, each new spending program that passed the initial
test would be subject to the regular Cost-Benefit Budget curtailment
or elimination process based on benefits achieved in relation
to cost.
Telling the voters the truth always has large consequences.
Obviously, enactment and successful application of a Cost-Benefit
Budget at the federal level would cause an enormous change
in public finance all across the board.
Finally, Truth
There could also be a historic realignment of the relationships
between government and the governed. Government "spending"
no longer would automatically mean "benefits."
Instead, spending increases would become a synonym for higher
taxes. Higher taxes would correctly be understood by an informed
public to mean a smaller economy and lower incomes. Conversely,
in the new lexicon of truth-telling, spending cuts would mean
a tax cut, a larger economy and higher incomes.
When it comes to providing the most benefit to the most
people for the longest period of time, it is only the best
and the most efficient government spending programs that can
compete with higher incomes and lower taxes.
A simple exposition of that powerful truth by the next president
could change politics in America forever.
Christian, an attorney, was a deputy assistant secretary
of Treasury in the Ford administration. Frenzel is a former
Republican congressman from Minnesota who served on the Ways
and Means and Budget committees.
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