Thursday, March 17, 2011

When cutting more ends up costing more

March 16, 2011

WHEN CUTTING MORE ENDS UP COSTING MORE.... We talked a couple of weeks ago about how misguided it is for congressional Republicans to cut funding for the Internal Revenue Service. The goals are fundamentally backwards -- the GOP intends to "save" money and lower the deficit by slashing the IRS budget, which would in turn end up costing more money and raising the deficit.

Why? Because for every dollar the IRS spends on audits, liens, and property seizures, the government brings in more than $10. If the goal is reducing the deficit, undermining the agency that collects revenue is counter-productive. Indeed, the Obama administration -- which may be more interested in fiscal responsibility than it should be -- wants to increase the IRS's budget precisely because it will reduce the budget shortfall Republicans pretend to care about.

In other words, in this case, the GOP plan to reduce the deficit is almost certain to increase the deficit.

Ezra Klein uses this as a launching pad to highlight the fact that cutting spending not only fails in some occasions to reduce the deficit, it even fails to actually reduce spending.

There are three categories of spending in which cuts lead to more, rather than less, spending down the line, says Alice Rivlin, former director of both the Congressional Budget Office and the Office of Management and Budget. Inspection, enforcement and maintenance. The GOP is trying to cut all three.

I can appreciate why some of this seems counter-intuitive. I can even imagine some Fox News personality telling viewers, "Those wacky liberals think it costs money to cut spending! What fools!"

But it just requires a little bit of thought. If we cut spending on volcano monitoring and tsunami warnings, we save a little money on maintenance, but pay a lot of money on damage repairs after disaster strikes. If we cut spending on food safety, we save a little money on inspection, but pay a lot of money on health care costs when consumers get sick. If we cut spending for the Securities and Exchange Commission, as Republicans are desperate to do, we save a little money on enforcement, but pay a lot of money to clean up financial catastrophes.

This comes up all the time. A couple of years ago, Sen. John McCain (R-Ariz.) thought it was outrageous to spend $650,000 on "beaver management" in North Carolina and Mississippi, blissfully unaware of the fact that this funding ended up saving nearly $5 million in potential flood damage to farms, timber lands, and roadways. Spending a little money saved a lot of money.

Ezra summarized all of this nicely:

There are all sorts of reasons Republicans are being penny-wise and pound-foolish. Cutting $100 billion in spending in one year sounded good on the campaign trail but turned out to be tough in practice. Curtailing the IRS and cutting the Department of Health and Human Services -- and, particularly, its ability to implement health-care reform -- is a long-term ideological objective for Republicans.

Whatever the reason, the effect will be the same: a higher likelihood of pricey disasters, an easier time for fraudsters, and bigger price tags when we have to rebuild what we could've just repaired.

Just don't try to explain any of this to congressional Republicans. It seems to make their heads hurt.

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