Transcript Barry Anderson Observations

Some Observations on
Current Trends in Public
Policy & Budgeting
Barry Anderson
Deputy Director
National Governors Association
[email protected]
March 13, 2012
1
My Goal Today
 Discuss
a series of observations
on current trends in public policy
and budgeting
 These observations are not
intended to be definitive or all
inclusive, but I hope they will be
thought-provoking, or at least
entertaining
2
Some Observations

The period of American economic dominance may be
ending—but so what?
And it is not at all clear that State Capitalism will dominate
in the long run.
Adaptability may be our most valuable asset.
Our inherent ability to think strategically, which may be a
product of our political system(!), is also an asset.
Speaking of our political system, some good news: more
competitive House races.
A positive budget trend: long-term budget projections.

As to the budget caps: what’s wrong with what works?

In fact, the Europeans should learn from us: shuck their GRH
& adopt a BEA.

With respect to tax reform, could there be agreement on
“broaden the base & lower the rates”?

But isn’t the budget process broken beyond repair?

3
A final word on What We Will See in the Year Ahead.





About Me—Experience
 30+
Years in Federal Budgeting
 GAO
 OMB:
Senior Career Civil Servant
 CBO: Acting & Deputy Director
 FASAB
 IMF
in Washington
 OECD in Paris
 Independent Consultant
 National Governors Ass’n
4
About Me—Personal


Not an ‘R’ or a ‘D’, but an SOB!
An “Card-Carrying Middle of the Roader”
5
The period of American economic dominance
may be ending—but so what?:
Shares of World GDP, 1600-2006
Country
1600 1820 1913 1950 1998 2006
China
29
33
9
5
12
17
India
23
16
8
4
5
6
France
5
6
5
4
3
3
Germany
4
4
9
5
4
4
UK
2
5
8
7
3
3
US
0
2
19
27
22
19
6
Source: Angus Maddison, The World Economy: Historical Statistics (2003) Table B-20; www.ggdc.net/maddison
And it is not at all clear that State
Capitalism will dominate in the long run


State Owned Enterprises (SOEs, including sovereign funds,
Chinese banks, State-controlled energy companies) have
advantages

Mimic the market

Import Western ideas

Impose some discipline
But their disadvantages—especially in the areas of liberty &
scrutiny—outweigh their pros

Can states regulate the companies that they run?

Can SOEs stop throwing good money after bad—no market discipline?

Can SOEs innovate when innovation requires freedom to experiment?

Can effective oversight be provided by politicians?

Can SOEs operate efficiently with both commercial & social missions?

Can SOEs institute effective cost controls to inform stakeholders and
discourage corruption?
7
Adaptability may be our most valuable
asset—the view from Sacre Couer
8
Our inherent ability to think strategically,
which may be a product of our political
system(!), is also an asset
9
Speaking of our political system, some
good news: more competitive House races
Source: The Cook Political Report, 3/6/12
Very
Competitive
Competitive (“Toss up +
(“Toss up”)
Lean”)
All elections
since 2000
3.7%
9.6%
2002
elections
1.6%
8.3%
2012
elections
4.8%
(21)
12.6%
(55)
10
A positive (?) budget trend:
long-term budget projections
(As a % of GDP)
OMB FY2013 Budget
Projections
Receipts
2000 2020 2050 2085
Act. Proj. Proj. Proj.
21
20
20
21
Discretionary Spending
6
5
5
5
Soc Sec + M&M
7
12
14
14
Other Entitlements
2
3
3
3
Interest
2
3
6
9
Total Spending
18
23
27
31
Surplus/Deficit
2
-3
-7
-10
35
77
124
191
Debt
11
As to the budget caps:
what’s wrong with what works?
The most important recent trend in government
budgeting internationally has been the shift to
performance budgeting; why not us too?
Away from “Budgeting for Inputs”
“How much money can I get?”
“Budgeting for
Measurable Results”
“What can I achieve with this
money?
Towards
See: Performance Budgeting in OECD Countries,
OECD, September, 2007.
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13
Life expectancy at birth & total
expenditures on health/person, 2008
84
JPN
Life expectancy at birth (years)
82
ISR
80
KOR
PRTSVN
CHL
CHE
ITA
ISLSWE
ESP AUS
FRA
CAN
AUT
NZL
DEU NLD
FIN BEL IRL
GRCGBR
LUX
NOR
DNK
78
USA
CZE
76
MEX
74
TUR
POL
SVK
EST
HUN
72
0
1 000
2 000
3 000
4 000
5 000
Total health spending per person (2008 USD PPP)
Source: OECD Government at a Glance, 2011.
6 000
7 000
14
8 000
Health Expenditures, 2007
(% GDP)
Country
Public
Total
US
7.3
16.0
France
8.7
11.0
Switzerland
6.4
10.8
Germany
8.0
10.4
Denmark
8.2
9.7
Australia
6.0
8.9
OECD Average
6.4
8.8
United Kingdom
6.9
8.4
Japan
6.4
8.1
15
Source: OECD Factbook 2010
US National Health Expenditures
(as a % of GDP)
2008
16.6
2009
17.6
2010
17.6
2011
17.7
2012
17.6
2013
17.6
2014
18.1
2020
19.8
Source: Sean Keehan (CMS), et al., “National Health Spending Through 2020: Economic 16
Recovery &
Reform Drive Faster Spending Growth”, Health Affairs, August 2011.
In fact, the Europeans should learn from us:
shuck their GRH & adopt a BEA
(General Government Gross Debt as a %/GDP)
Country
2008 2009 2010 2011 2012 2013
Japan
195
216
220
233
238
243
Greece
110
127
143
166
189
188
Italy
106
116
119
121
121
120
US
72
85
94
100
105
109
Canada
71
83
84
84
84
82
France
68
79
82
87
89
91
Germany
66
74
84
83
82
81
UK
52
68
76
81
85
86
Ireland
44
65
95
109
17
115
118
Source: IMF Fiscal Monitor, Sept 2011
With respect to tax reform, could there be agreement
on “broaden the base & lower the rates”?
(Percentage of households whose payroll taxes exceed income taxes; Source: CBO)
Income Quintile
2007
Lowest
100
2nd
98
Middle
94
4th
85
Highest
44
All Quintiles
83
18
Marginal Federal Income Tax
Rates
Next Highest
Highest
2000
36.0
39.6
2001
35.5
39.1
2002
35.0
38.6
2003-12
33.0
35.0
2013
36.0
39.6
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Effective Tax Rates & Shares
by Quintiles, 2007 (Source: CBO)
Income
Rates
Rates
Shares
Shares
Quintile
Total
Income
Total
Income
Lowest
4.0
-6.8
0.8
-2.8
2nd
10.6
-0.4
4.4
-0.3
Middle
14.3
3.3
9.2
4.6
4th
17.4
6.2
16.5
12.7
Highest
25.1
14.4
68.9
86.0
Top 1%
29.5
19.0
28.1
39.5
All
20.4
9.3
100.0
100.0
20
Average Incomes & Shares by
Quintiles, 2007
($ in thousands. Source: CBO)
Income
Quintile
Lowest
Average Incomes
Pre-Tax
After-Tax
Shares
Shares
Pre-Tax
After-Tax
$18.4
$17.7
4.0
4.9
2nd
42.5
38.0
8.4
9.4
Middle
64.5
55.3
13.1
14.1
4th
94.1
77.7
19.3
20.0
Highest
264.7
198.3
55.9
52.8
Top 1%
1,873.0
1,319.7
19.4
17.1
96.0
76.4
100.0
100.0
All
21
Average Social Insurance Tax Rates
By Quintiles
(Source: CBO)
1980
2007
Lowest
5.3
8.8
2nd
7.6
9.5
Middle
8.5
9.4
4th
8.5
9.5
Highest
5.5
5.7
Top 1%
1.0
1.6
All
6.9
7.4
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The Laffer Curve
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The Neo-Laffer Curve
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But Isn’t the Budget Process
Broken Beyond Repair?

Long-term sustainability is the major issue, not shortterm borrowing ability—see payroll holiday pay-fors

Improvements can be made



But not:



BRAC
More and better credit reform
 Insurance programs
 Administrative costs
 Market rates
Line Item veto [Enhanced recession better]
Biennial budgeting
But in sum, the process is not the problem; the
problem is the problem
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A Final Word on What We Will
See in the Year Ahead

A Budgetary Perfect Storm at the end of the year:
 Expiration of tax cuts & payroll tax holiday
 Expiration of additional unemployment benefits;
TANF; R&E & other tax expenditures
 Then there is the sequester, debt limit, & CR

The states will be in a Big Squeeze

And finally there’s China
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In conclusion, in the future—even more
than in the past—it is good to remember:
“Sunshine
is the best
disinfectant.”
Supreme Court Justice Louis Brandeis (18561941)
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