The Myth of Budget-Neutral Spending

By Donald J. Boudreaux

Especially in democracies, government officials pitch their policies to the public in ways that minimize the likelihood of popular resistance. The result is a stream of promises that sober-minded realists understand are too good to be true.

Yet this stream of unrealistic promises is incessant, which suggests that a large-enough portion of the public is prone to accept these promises at face value. And so in light of this reality I here offer to enterprising and empirically minded young scholars a research program that, if carried out rigorously, will likely result in several good publications as well as in a more accurate historical record.

“Budget Neutral”

Advocates of new government programs often promise that their programs are “budget neutral” — meaning that adoption of these programs will not increase net government spending. A recent example is the Child Rearing and Development Leave Empowerment (CRADLE) Act, proposed by Sens. Jodi Ernst (R-Iowa) and Mike Lee (R-Utah). As described by Alexandra Desanctis, CRADLE

would amend the Social Security Act to allow parents to take up to three months off from work by drawing on their retirement benefits early in exchange for delaying their benefits after retiring. Both natural and adoptive parents could choose to collect benefits while taking time off from work for either one, two, or three months after a child’s birth. Every month taken off would add a two-month delay to activation of Social Security benefits once they reached retirement age, meaning they’d receive their benefits two, four, or six months later than they otherwise would upon retirement.

CRADLE, we are assured, is “budget neutral.” But as Veronique de Rugy and Justin Leventhal argue, assurances of the fiscal prudence of any program resembling CRADLE are flimsy. They are correct.

So here’s research idea number one: make a list of all enacted programs over the past, say, 25 years that were trumpeted by their sponsors as being “budget neutral” and report on the number that actually proved to be true to their billing. Further, document the dollar amount added to the government’s budget by each program found not to be budget-neutral, and then report the total sum of additional spending uncorked by “budget neutral” programs.

All of my priors tell me that not a single program sold as “budget neutral” has ever turned out, in reality, to be budget-neutral.

While of course my priors might be mistaken, they reflect political realism. The typical politician wins votes by promising to increase voters’ spending power, and loses votes by undertaking any action portrayed (however accurately or inaccurately) as reducing voters’ spending power. A new program that increases the spending power of some voters will truly be budget-neutral only if it reduces, dollar for dollar, the spending power of other voters — and few politicians have the stomach to support policies that are perceived as having this latter effect.

The political cleverness of Sens. Ernst’s and Lee’s CRADLE — the twist that misleads even some fiscally prudent conservatives to support it — is that any family leave taken under CRADLE’s provisions appears to be paid for by the very same workers who choose to take such leave. This appearance, alas, is a mirage.

No worker actually owns any of the funds that he or she pays as taxes to Social Security. Nor does any worker own an entitlement from Social Security to a future stream of payments. Congress legally can increase (or decrease) whenever it wishes the amounts that are paid to Americans by Social Security. This fact means that Congress in the future will be highly likely to “protect” those who today pay for family leave under CRADLE from actually having to wait longer to receive their Social Security payments.

History is filled with politicians winning office by promising to “protect” voters today from having to fulfill the debt obligations that these voters voluntarily undertook yesterday. Debts incurred under CRADLE will be no exception, and, thus, this program, if enacted, will almost certainly not be budget-neutral.

“Will Actually Save Taxpayers Money!”

Even more laughable are promises that raising government spending today will lower government spending tomorrow. A recent example is President Trump’s tweeted prophecy that “We would save Billions of Dollars if the Democrats would give us the votes to build the [U.S.-Mexico border] Wall.”

Another example of increased spending that, we are assured, will save us money overall is government-funded universal pre-K.

Here, then, is research idea number two: compile a list of spending proposals that were enacted on the promise of reducing future spending by such amounts that taxpayers would actually save money, and then check to see if the promised spending reductions materialized.

I’ll be shocked if there is found even a single instance of higher current spending causing overall spending — spending today plus spending in future periods — to be lower than otherwise. So I challenge researchers to try to shock me.

Government at All Levels

When doing this research, realize that such promises of fiscal responsibility occur not only at the national level. Also making such promises are politicians at state and local levels. With so many government promises to sample, I’m confident that an impressive — and useful — body of empirical research can be produced by scholars who undertake the task of meticulously documenting governments’ record of fulfilling, or not, their boastful promises of fiscal rectitude.

 

Sign up here to be notified of new articles from Donald J. Boudreaux and AIER.

Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.