Federal Budget & Tax

Federal Budget & Tax: News Blog Background

Tuesday, May 29, 2007

Chris Hayes has an interesting article out that got me thinking about the problems with free-market primacy.

Hayes reviews a provacative book by economist Bryan Caplan that proposes that voters are irrational, and hence choose irrational economic policy that generate inefficient market outcomes. Here's the summary of the argument:

The idea is this: People are rational when they pay for the consequences of their decisions. But in elections, the odds of your vote determining a given election are so slim that the price of voting your irrational whims is nil. This gives people the freedom to indulge delusional notions about the economy. And that results in a populace who are capitalists in the market place and socialists in the voting booth.

The review goes on to play up the arrogance, amorality, and wrong-headedness of the thesis; Kevin Drum also makes the point that not at all economic policy is meant to promote efficiency.

I'd push it a little further- in many of the subjects I've been trying to bring to light on the blog lately, market incentives are not only insufficient to promote efficiency- they would seem to work against efficient outcomes.

Market values- profit-seeking, single-minded concern for the bottom line, ruthlessness- are at the root of problems regarding privatization and health care costs. Doctors and drug companies being paid on commission, hospitals that cut corners to raise profits, insurers that weed out the sick, military contractors that take on impossible projects- all are examples of the market rewarding behavior that does not generate efficient outcomes. People are not "paying for the consequences of their decisions."

Indeed, a more public-centered model could promote greater efficiency, with fewer losers and more winners. For instance, government could punish doctors when they administer wasteful procedures. It could reward hospitals for offering preventative care. It could maintain databases of patient information that private health care providers can't. It could ensure that government work is transparent and accountable. The private sector has none of these tools.

Caplan might not disagree about the possibility of government doing these things, but rather the probability of it occurring, voters and politicians being irrational and all that. He doubts the capacity of the state to make decisions benefiting as many people as possible- arguably a fundamental purpose of government. But Medicare and Social Security -the two largest government programs- are some of the most efficient forms of insurance available. Even Veterans Administration has mastered efficient health care provision. Our military is probably the most advanced in the world.

What Caplan probably doesn't understand about government (he's an economist, after all) is that public servants of all types do pay for the "consequences of their decisions," and that voters do care about whether government is efficient. What's needed is the proper level of transparency, accountability, as well as institutional recourses and an empowered civil society, etc.- no easy task, but it happens all the time.

So, to sum up, Drum and Hayes make valid and necessary points, but they fail to undercut the central premise of free-market primacy- that government is touchy-feely but inefficient and the private sector is cold-hearted but efficient and good for everyone. Rather, it is a virtue that government is not guided by market values and forces, and not just because it can set limits on the market. Voters can motivate it to act in the public interest, where the private sector has failed to promote efficiency.

Posted by Matt Lewis, 05:40:47 PM

Wednesday, May 23, 2007

More Bad News for Head of GSA

This has not been a good week so far for the leader of the General Services Administration. Additional information on problems at GSA have catapulted Administrator Lurita Doan back into the headlines - and the news isn't good.

First up, Federal Times reported yesterday that the Office of Special Counsel has concluded in a forthcoming report that Doan violated the Hatch Act - a federal law that prohibits federal employees from partisan political activities while on the job. Apparently Doan participated in a January 26 lunch meeting with other political appointees where Scott Jennings, the White House deputy director of political affairs, gave a PowerPoint presentation that included slides listing Democratic and Republican seats the White House viewed as vulnerable in 2008, a map of contested Senate seats and other information on 2008 election strategy. Doan made statements at that meeting about trying to use GSA resources to help "our candidates." Doan has until June 1 to respond to the report before it is made public, after which the report will be sent on to the president with recommendations that could include suspension or termination.

As if this wasn't bad enough for Doan, the Washington Post published a superb article on problems with contracting policies at the GSA that are costing the Federal government hundreds of millions of dollars every year. The key passage from the article:

"This has been a scandal of great proportions," said David E. Cooper, until recently the director of acquisition and sourcing management at the Government Accountability Office, the investigative branch of Congress. "Our work and the work by the Defense Department inspector general and the GSA inspector general all show hundreds of millions, if not billions, that has been wasted."

While this issue may be larger than Doan, it surfaced because of reports that Doan used her influence last summer as GSA Administrator to renew a contract with Sun Microsystems despite the fact that many within the GSA had evidence that the company was significantly over charging the government. Despite ample evidence that Sun had not only over charged the government in the past, but would continue to over charge if the contract was renewed, Doan pushed to finalize the new contract. In fact, senior GSA officials went through three different contracting officers (Herman S. Caldwell Jr., then Mike Butterfield, and finally Shana Budd) before negotiations on the contract could be finalized. It is unclear if Doan had any direct involvement with those personnel changes, but it is clear that the first two officers had serious reservations about moving forward with the contract that Doan seems to have ignored.

Like any good Bush Administration appointee, Doan is unapologetic and claims no responsibility for inappropriate, unethical or illeagal behavior. She testified in March of this year that the agency made a good decision on behalf of taxpayers by renewing the contract with Sun Microsystems.

Posted by Adam Hughes, 03:55:35 PM

Statement, Hearing on IRS Privatization

OMB Watch contributed this statement to a hearing on the IRS private debt collection program.

At the hearing, which was held by the full House Ways and Means Committee, Rep. Charlie Rangel asked acting commissioner of the IRS Kevin Brown to not issue any more contracts to private debt collectors. Commissioner Brown did give a clear response, but Rep. Rangel seemed intent on reaching a compromise with IRS that contained the size of the program, making it unnecessary to immediately pass legislation that would end it.

Posted by Matt Lewis, 03:00:57 PM

Tuesday, May 15, 2007

Comment on the CAP Contracting Report

A quick comment on the CAP report- it focuses on the surge in non-competitive contracts. But non-competitive bids are just the most obvious example of how market forces are not being applied in government contracting. The most damning observation that the CAP report makes is that even if these bids were competitive, the work wouldn't be done efficiently. Agencies need resources to hold contractors accountable, but they often don't have them. Congress needs to fulfill its constitutional role to conduct oversight, but often it doesn't. And sometimes contract oversight is being done by contractors, too. But who keeps them honest?

The upshot here is that price competition is not strong enough in government work to promote efficiency by itself. The principle virtue of the market- the capacity of the "invisible hand" to efficiently allocate resources- does not automatically pertain to government contracts. Agencies have to make an active effort to ensure that contractors do their job. That takes money- more money than might be saved by contracting out. So economy is not a self-evident reason to outsource government work.

The onus is on the contractors to show that, taking all costs into account, they do a better job than government workers. That hasn't been proven definitively, despite the ample evidence available since the surge in contracting began in 2000. Until that happens, it would seem that efficiency alone is insufficient ground on which to consider outsourcing government work.

Posted by Matt Lewis, 12:13:13 PM

CAP on Contract Reform

The Center for American Progress has a comprehensive new report on government contracting and how it could be reformed.

Selling products and services to the federal government has become an enormous industry in the United States. In 2005, federal contracts represented about 3 percent of U.S. gross domestic product, making it approximately the same size as the entire automobile industry, including the sale of imported cars and auto parts. Insuring that the government maintains a fair, open, and competitive market for the goods and services it purchases is important not only for maintaining the quality of key government services and minimizing their cost but also for setting ethical and performance standards that affect the broader economy.

Posted by Matt Lewis, 10:46:46 AM

Friday, May 11, 2007

New Report on Abusive and Wasteful Contracting Practices

In a new report to be released next Monday, the Center for American Progress details the horrendous state of the federal contracting process. The report examines what is presently known about the potential size and scope of wasteful and corrupt contracting within the federal government, provides the new Congress with useful guidance for developing a broader understanding of the problem, and outlines some steps that might be taken to restore greater transparency and accountability to the use of public funds in the procurement process.

The Washington Post reported this morning on the steep rise in non-competed, or no-bid contracts over the last 6 years - something we've noted using data from FedSpending.org. In fact, between FY 2000 and FY 2005, contracts that were not competed have increased over 110 percent, and contracts that had open competition but received only one bid have increased over 119 percent.

What's more, The Hill newspaper reported today that Henry Waxman, the House Oversight and Government Reform Committee chairman, is widening his investigations into contracting abuse at the Pentagon. Seems like the Center for American Progress report is coming out at just the right time.

Posted by Adam Hughes, 01:43:28 PM

House Passes Small Business Contracting Bill

Yesterday, the House of Representatives overwhelmingly passed by a vote of 409 - 13 a bill designed to increase the percentage of federal contracts awarded to small businesses and limit the bundling of small projects and work orders into gigantic contracts. The White House declared their opposition to H.R. 1873 earlier this week, but stopped short of saying President Bush would veto it should it reach his desk. That's a pretty good thing since the vote in the House is more than enough to override a veto by the president.

After the House Small Business committee approved the bill on April 24, it was sent to the Oversight and Government Reform committee, where a number of the bill's provisions were scaled back or weakened. Before the bill was passed on the floor however, amendments were adopted to restore the original version approved by the Small Business committee. This version would increase the federal government small business procurement goal to 30 percent.

The Senate Small Business committee is reported to be drafting similar legislation.

Posted by Adam Hughes, 11:20:01 AM

Wednesday, May 09, 2007

More Bad News for Bush's Reading First Program

The hits just keep on coming for Reading First, one of President Bush's signature education programs. We reported last month that the program had selected the same contractor that was implementing the program to evaluate its effectiveness. This was on the heels of reports last fall that the Reading First program was using favoritism to steer program funds to certain reading programs over others.

Then, at the end of February, the Government Accountability Office released a report criticizing the lack of written guidelines to govern implementation of the program for both government officials and outside contractors - a report Rep. George Miller (D-CA) and Sen. Ted Kennedy (D-MA) were quick to comment on. Kennedy and Miller said the program had developed a "track record of bias and abuse," and that the implementation was "flawed and mismanaged."

Miller followed up the press release with a hearing in April, where John Higgins, the Inspector General at the Department of Education testified to the same conflicts of interest and mismanagement previously reported.

Among the findings of the Inspector General's report, they found the Department of Education:

1) appeared to inappropriately influence the use of certain programs and assessments;
2) failed to comply with statutory requirements and its own guidance;
3) obscured the requirements of the statute; and
4) created an environment that allowed real and perceived conflicts of interest.

Then today, Kennedy released a report providing additional details about how individuals involved in running the program at outside contractors had deep financial ties to publishers of reading materials purchased by states under the program. Yikes! According to the Kennedy report, people overseeing the implementation of the program at outside contractors were getting kick-backs from certain publishing companies whose materials and programs were being officially recommended as the tools to use under the program. Sounds eerily like the same kind of situation that caused the recent student loan scandals.

All this, of course, is unacceptable, and unfortunately has not been unusual during the Bush administration. Good thing we've returning to a robust system of oversight in Congress and that they are paying attention to important offices like the Inspectors General and GAO. We certainly won't get too far relying on the President's own personal evaluation system - the Program Assessment Rating Tool. Using the PART to review the Reading First program, the President found it to be "effective" and that it had "strong program design and good management practices." Yet another reason not to trust the PART process.

Posted by Adam Hughes, 06:21:51 PM

Friday, May 04, 2007

BudgetBlog - Now in RSS!

If you use a newsreader, you can subscribe the BudgetBlog. You can find the feed here.

RSS? What's that?

Posted by Craig Jennings, 12:37:05 PM

Wednesday, May 02, 2007

Estate Tax Audits- Important?

There's a good Wall Street Journal article today on the importance of estate tax audits. But it's missing some critical context. On one of the people in the story, a former estate tax auditor:

Ms. New started auditing estate-tax returns in the IRS's Detroit office in the 1980s. She managed an estate-tax group from 2001 until early this year, when she took a buyout and went into private practice.

At the end of last year, IRS offered early retirement buyouts to nearly half of all estate tax auditors. Ms. New may not have taken this particular offer, but the timing certainly raise quesitons in my mind about whether her retirement was part of a larger event. The article should have included this information.

IRS cannot do as many of these audits anymore, now that so many estate tax auditors have taken buyouts. This point seems relevant enough to include in an article about how some heirs would game the system were it not for diligent estate tax audits.

Posted by Matt Lewis, 10:42:46 AM

Tuesday, May 01, 2007

IRS Privatization Debate Heats Up

Sens. Byron Dorgan (D-SD) and Patty Murray (D-WA) released a "Dear Colleague" letter, or a message between representatives, in favor of S. 335, a bill that would end the IRS private debt collection program.

The letter is part of the congressional war of words over the bills that would end the IRS program. Sen. Chuck Grassley (R-IA) and Rep. Bart Gordon (D-TN) have sent letters defending the program. Here's Grassley's letter, and here's the first and second part of Gordon's letter.

It doesn't seem random that these two legislators are taking up the charge to support this wasteful, risky program. One of the two private debt collectors whose contract has been renewed -the CBE Group- is based in Iowa. And Rep. Gordon's 2006 campaign received $2,000 in contributions from employees of Pioneer Credit, Inc- the other private debt collector whose contract has been renewed.

Posted by Matt Lewis, 05:19:20 PM

Preview of House Hearing on USDA Security Breaches

As we reported last Friuday, the House Agriculture Committee is holding a hearing tomorrow on security breaches at the Department of Agriculture. This hearing is a follow-up to reports earlier in April of personally identifiable information being contained within USDA data that is widely available on the internet. This security issue was discovered on April 13 by a user of our FedSpending.org website.

Also last Friday, Sens. Barack Obama (D-IL) and Tom Coburn (R-OK) sent a letter to USDA Secretary Mike Johanns stating that the disclosure of personally identifiable information was "improper and unacceptable." Obama and Coburn also called on USDA to provide three things by May 18:

An assessment of the harm caused by disclosing Social Security numbers and a report on utilization of the credit monitoring service;
A report on what is being done to ensure that data security problems are fixed; and
A detailed plan and timeline for adopting a new unique identifier without disclosing personally identifiable information.

OMB Watch also requested the third item on the above list from USDA on April 16, and I'm guessing there will be a few Representatives at the House hearing tomorrow who have some questions that will need to be answered as well. Here's hoping for USDA's sake that they have some answers ready to go.

Posted by Adam Hughes, 02:52:09 PM

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