The Agenda

On Trimming Household Expenditures

After law professor Todd Henderson suggested that he and his wife, who have a combined household income above $250,000, aren’t rich, Annie Lowrey offered an entertaining reply. After noting that Henderson’s federal tax burden wouldn’t go up by much under the president’s proposals, she made a series of recommendations for how the Henderson family might save money:

Here’s a quick list I drew together:

1. Put his children in public schools.

2. Move his children into less-expensive private schools.

3. Sell both of the family’s cars, and buy one cheaper car and take public transportation and cabs.

4. Sell one of the family’s cars and buy a bicycle. Also cancel gym membership, since biking is great exercise.

5. Seal his basement or garage and rent it out.

The list continues.

I’d suggest, however, that the federal government should go on a spending diet rather than the Hendersons. To name only the most egregious example, the government at all levels is a wasteful consumer of energy, as environmentalist, entrepreneur, and inventor Saul Griffith noted in an interview with Fast Company magazine:

I was also shocked to realize how much energy goes into our military and transport infrastructure. Broadly speaking, the percentage of your income that you pay in taxes is the percentage of your own personal energy use (and consequently carbon emissions) that the government decides on your behalf. For most Americans, this means 20 to 40 percent of their carbon output is done on their behalf by the government. A surprisingly large amount of this is in military infrastructure. In a truly carbon constrained world, can we really afford to fight the wars that we do and keep the level of military infrastructure that we have?  It makes you look very differently at big government. I certainly don’t want my carbon spent fighting wars in Iraq or building infrastructure that will only contribute to making the climate problem harder to solve. [Emphasis added.]

One could disagree with Griffith on the merits of the Iraq war while embracing his argument: government that expends resources on our behalf, and it is far from clear that it is expending resources on our behalf efficiently or well. 

I know many people who feel quite rich despite having modest incomes, and I take Annie’s broader point. The Hendersons are indeed rich, as are virtually all Americans by global standards. Indeed, a non-trivial share of Americans with a market income that falls below the poverty line are retirees who’ve left the workforce and own their homes outright or are students and recent graduates under the age of 26.

Yet it’s not obvious that this constitutes a compelling argument for raising marginal tax rates rather than identifying efficiencies in public spending.

In another reply to Henderson, Brad DeLong writes:

So unless Professor Henderson (or whoever) has plans for serious cuts to Medicare, Medicaid, Social Security, and National Defense–and I see none on offer–his last point about government allocation is simply moot. George W. Bush has already allocated it with his defense buildup and Medicare Part D. Taxes are going up over the next decade–barring cuts of 1/3 to Medicare, etc. They can either go up smartly or we can pretend they don’t have to go up, in which case they go up stupidly. The argument for small government was lost long ago, and was lost again and anew in the past decade with Medicare Part D and the wars of George W. Bush. I believe Todd Henderson was a deserter in that war–a supporter of George W. Bush, and of his unfunded Medicare Part D expansion, and of his wars of choice. So I don’t think he has standing to make the small government argument–some people do, but he does not.

This is all very interesting, and worthy of discussion. But as Austin Frakt recently observed in his column for Kaiser Health News, Robert Coulam, Roger Feldman, and Bryan Dowd have proposed a Medicare reform that could save approximately 8 percent of the program’s total cost each year. Based on 2010 Medicare expenditures, Frakt ballparks this number at $50 billion a year , or $500 billion over ten years. Recall that the high-income rate reductions will reduce federal revenue by $700 billion over ten years.  

Can we imagine finding $200 billion more in savings over ten years? I think we can. We could, for example, save more than $20 billion a year by converting Medicaid into a set grant to the states. 

One of Annie’s suggestions to the Henderson family was to send the Henderson children to public schools or to lower-cost private schools. This reminds me of the Milwaukee voucher experiment, which we’ve discussed in this space. Here’s what I wrote for NR back in June:

Earlier this year, the University of Arkansas Department of Education Reform published a study assessing Milwaukee’s School Choice Demonstration Project. For many voucher enthusiasts, the results were sobering. Students enrolled in choice schools performed no better on reading and math tests than students attending conventional public schools. Critics such as Kevin Carey, a leading center-left education reformer, suggested that the Milwaukee experiment is therefore a failure. 

Yet as Frederick Hess of the American Enterprise Institute (AEI) noted, students enrolled in the choice program are educated more cheaply than district-school students. As of the 2008–09 school year, the maximum amount Milwaukee’s choice schools received per student was $6,607. In contrast, the Milwaukee public schools spent approximately $14,520 per pupil. While these numbers aren’t directly comparable, it certainly seems that the district schools are considerably more expensive than the voucher program. Moreover, parents were more satisfied with the quality of education at choice schools, which suggests that some of the schools’ positive aspects were not captured in reading and math scores. 

In 2006–07, we spent $562 billion on K–12 public education, or 3.9 percent of GDP. Let’s be generous to the education industry and assume that we could trim its costs by only one-fifth. This would save taxpayers over $100 billion. 

One assumes that the Hendersons would be better off under this alternative scenario, as would tens of millions of American children living in less-affluent households.

As many thinkers on the left have long appreciated, there are times when government can do certain things more effectively than millions of individual households. Paring back spending is one of them. 

Recommended

The Latest