The Region

We Have Met the Federal Government and the Federal Government Is Us

Guest Editorial: Minneapolis Fed Vice President Preston Miller reminds taxpayers to think critically about federal spending programs.

Preston J. Miller - Former Vice President and Monetary Adviser

Published June 1, 2002  |  June 2002 issue

Although it seems like the ballots from the last national election were only recently counted, counted and counted, the campaign for the next congressional election has already begun. If the past is any guide to the future, the same issues still will be debated and opposing positions still will be expressed in the starkest terms. We will hear candidates for Congress arguing whether the federal government should spend more or less on K-12 education, prescriptions for the elderly, child-care services for low-to-middle income parents or initiatives to slow global warming. We may expect to see opinion columns that judge a candidate's compassion by how much he or she would have the federal government spend on programs such as these.

Some might defend these characterizations of policy positions as being simplifications that highlight essential differences of opinion. However, I find them to be gross misrepresentations of the choices facing the public. The federal government doesn't have independent resources that it can distribute to some groups of people as if it is Santa Claus. All it does is tax one set of individuals and distribute the proceeds to another. And politicians don't fund federal spending programs—we, the taxpayers, do. When confronted with the true trade-offs, the public may still favor many of the proposed programs to increase federal spending. However, the true tradeoffs are seen to be quite different from what are commonly presented.

Once it is understood that the federal government in these cases is just altering the gains and losses of different groups in our society, we could state the main questions about the federal programs mentioned above as follows:

  • Should citizens of one state pay for the education of children in another state?
  • Should the young pay for the prescriptions of the elderly?
  • Should elderly and other childless households pay for child-care expenses of parents with young children?
  • Should members of the current generations sacrifice some of their consumption and leisure, so that members of future generations live in a less-damaged environment?

When the questions are posed in this way, deeper questions are raised that get to the heart of the policy issues. The theme, which runs through the deeper questions I raise below, is that there must be clearly articulated reasons to redistribute resources through federal policies, and the particular policies that are proposed should be tied to their rationales.

Education. When we observe students in suburbs attending lush, well-stocked schools while their counterparts in the nearby urban areas attend crumbling, barren ones, we are failing to meet our national goal of equal opportunity for all. But why is this not a state problem? The states are the ones that are allowing this unequal treatment of students, and in this day and age, it cannot be argued that some states are too poor to fix the problem. The trouble with fixing this problem at a federal level is that it requires people in Minnesota, and other states that have a tradition of high taxpayer support for public education, to subsidize students in states where taxpayers, for one reason or another, chose not to adequately support public education. For instance, Californians voted to lower their taxes and support of schools, New Yorkers chose to pay exorbitant salaries to janitors to turn on lights in schools, and other states have chosen to direct their tax dollars to aid industries rather than schools. So, states that acted responsibly are being asked to bail out states that made bad choices.

What are the cases for redistributing tax revenues across states for public education? If there are any, then the form of redistribution should depend on the rationale. For instance, a case could be made that immigration is a national policy that affects different states differently. That is, the costs of educating immigrant children on the whole are probably higher than for homegrown children, and the patterns of immigration are not uniform across the states. But if this is the reason for spending federal funds on education, then the proceeds to states should depend on their concentrations of immigrants.

Prescriptions for the elderly. The nature of health care has changed over the years, with prescription drugs playing a much greater role. Clearly, senior citizens should not be denied necessary medications because of an inability to pay. Nevertheless, there is a problem with blanket coverage: The benefits would go disproportionately to the well-to-do. The elderly, as a class, are better off financially than the rest of the population. Moreover, within the class of elderly, the higher-income people tend to make more intensive use of health care services and to live longer. Thus, under blanket coverage, struggling wage earners would be required to disproportionately subsidize the prescriptions of retired CEOs, millionaire investors and other retirees who could well afford their own prescription coverage. Moreover, as the director of the Congressional Budget Office has testified, the cost of blanket drug coverage will likely become excessive as the number of retirees is projected to rise relative to the number of workers. So, if prescription coverage for the elderly is adopted, we may well want to target it to those in need.

Child-care assistance. Despite what you heard when you were young, babies are not brought into this world by a stork and dropped at the door. In most instances, prospective parents actually make choices on whether to have children. Those choices weigh the advantages of having children against the disadvantages, primary among the latter being the financial burdens associated with child raising. Why should childless households be expected to pick up some of these costs? Did the costs or the financial situation of the parents change in some unexpected way, so that others are being asked to provide a form of child-care insurance? Does society wish to make the relative cost burden of child raising more equal across income classes? Or, is there some way that society as a whole benefits from children, in addition to those benefits enjoyed by the parents, so that it's in society's interest to explicitly subsidize child bearing? Before it can be determined how to tailor the support and set the total level of support, questions like those above need to be answered.

Initiatives to slow global warming. The primary means to slow global warming is to reduce carbon emissions from the use of fossil fuel. Obviously, society needs to do enough to prevent future catastrophe. However, beyond that the issue is murky. In addition to uncertainties about the magnitudes concerning the outlook, causes and effects of global warming, there is a fundamental question of equity across current and future generations. In order to reduce carbon emissions, current generations will have to forgo consumption, for instance, by driving less or giving up gas-guzzling SUVs, turning down their air conditioners or purchasing fewer goods that use a lot of energy in their production. Or, they will have to forgo leisure, for instance, by using fewer high-energy timesavers, such as dishwashers, gasoline mowers, etc. While future generations will be stuck with the bill to the extent that current generations don't reduce their use of fossil fuels, they will be in a better position to pay it. Because each generation has been wealthier than the one before it, future generations should have more resources to deal with the problem. Moreover, with the steady advances of science, they should have more efficient means to conserve use of fossil fuels.

In essence, global warming is a long-term problem, with costs that must be shared across many generations, both current and future. When politicians say the government should do more now to slow global warming, they are really saying that current generations should bear more of the costs. It is one thing to say that the government should do more. It is quite another thing to say that we, as individuals need to conserve more. Just ask the citizens of California.

In the upcoming and future elections, voters should understand that governments or politicians don't pay for spending programs; we, the taxpayers, do. When new programs are proposed, voters should try to identify who will be the beneficiaries of the programs and who will foot the bill. Based on a comparison of gains and losses, winners and losers, the voters then should decide the desirability of the proposed programs. The voters need to keep in mind that when a politician says "federal government," the "federal government" is "us."

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