The Corner

Gimmicks in Financial Regulation

The Republican Senate Budget Committee explains here how many of the cost offsets in the financial-regulatory-reform conference report are nothing more than budget gimmicks. For instance, the bill offsets costs with unused TARP authority to increase the reserve of the FDIC, even though it is clearly illegal.

SEC. 204. EMERGENCY TREATMENT.

All provisions of this Act are designated as an emergency requirement and necessary to meet emergency needs pursuant to section 204(a) of S. Con. Res 21 (110th Congress), the concurrent resolution on the budget for fiscal year 2008 and rescissions of any amounts provided in this Act shall not be counted for purposes of budget enforcement. [emphasis added]

It also uses such tricks as double-counting cash flow and using higher premiums to invest and reduce the deficit, while ignoring that the liability of the federal government has increased, too. In other words, they calculate that the money comes in but never goes out to pay for what it’s being collected for in the first place.

The higher insurance premiums represent funds that will be available in the future to protect depositors and pay deposit insurance claims. When those funds are needed, the government will draw down the funds in the DIF to pay claims. New, increased deposit insurance premiums cannot be used both to offset the other costs of this bill now and to repay depositors of failed banks in the future. A similar gimmick was used in the health reform bill, which counted as offsets the premiums charged today for a new long-term care insurance program that will begin to pay benefits in the future.

There are powerful incentives to use tricks to disguise the budget deficit and to bypass formal budget process requirements. Of course, the outcome is that we end up with more spending, more deficits, and more debt.

But budget gimmicks have consequences beyond letting lawmakers get away with spending money. With a limited budget, policymakers — like nearly everyone else in the world — must prioritize spending. They must choose the best policies based on available funds and forgo other projects. When legislators manipulate numbers in order to fund programs that might not otherwise pass muster, they are not obligated to show that the programs serve genuine policy objectives. Sound familiar?

I recently finished a working paper that enumerates some basic budget gimmicks that U.S. government officials use to hide the size of deficits, debts, program costs, and revenue losses. Some of these strategies include pretending the spending does not exist, pretending the spending is smaller than it is, pretending that spending is really an investment, pretending the tax revenues will be bigger than should reasonably be expected, and pretending that future pension liabilities do not exist.

Given the many spending limits in place that elected officials nonetheless manage to avoid, it is tempting to conclude that few methods, short of shrinking the size of government, will successfully cap spending. In the near term, serious, strict, and unavoidable budget rules need to be put in place to tie Congress’s hands and restore fiscal discipline.

My paper is here. The Budget Committee piece is here.

By the way, let me add that it is impressive how reliably unreliable Senator Snowe is, almost always voting on the wrong side of an issue, the financial-regulation bill being no exception.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Most Popular

World

Ilhan Omar’s Big Lie

In a viral exchange at a congressional hearing last week, the new congresswoman from Minnesota, Ilhan Omar, who is quickly establishing herself as the most reprehensible member of the House Democratic freshman class despite stiff competition, launched into Elliott Abrams. She accused the former Reagan official ... Read More
U.S.

Questions for Those Who Believed Jussie Smollett

The “we reported the Jussie Smollett case responsibly” contention has been blasted to smithereens. Twitter accounts and headlines in the Washington Post, the New York Times, and the Los Angeles Times reported as fact Jussie Smollett’s wildly implausible allegations, and many other journalists did so as ... Read More
PC Culture

Fake Newspeople

This week, the story of the Jussie Smollett hoax gripped the national media. The story, for those who missed it, went something like this: The Empire actor, who is both black and gay, stated that on a freezing January night in Chicago, in the middle of the polar vortex, he went to a local Subway store to buy a ... Read More
U.S.

White Progressives Are Polarizing America

To understand how far left (and how quickly) the Democratic party has moved, let’s cycle back a very short 20 years. If 1998 Bill Clinton ran in the Democratic primary today, he’d be instantaneously labeled a far-right bigot. His support for the Religious Freedom Restoration Act, the Defense of Marriage Act, ... Read More