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Deficits for Clunkers: Did We Just Create a New Entitlement?

Two news items last week once again drove home the extreme difficulty in doing anything about the federal budget deficit.

[IMGCAP(1)]First, a New York Times/CBS News poll released Tuesday reconfirmed for the umpteenth time what everyone who follows the federal budget debate knows quite well: A majority of Americans want the deficit to be reduced, but about equal percentages don’t want spending cut or taxes increased to do it.

Then, just two days later, came the tremendous reaction to the announcement that the $1 billion appropriated for “cash for clunkers— had already been committed and the program was out of money. Car dealers, automobile manufacturers and clunker owners, many of whom undoubtedly would have responded to the New York Times/CBS News poll by demanding that the deficit be reduced by cutting spending, immediately and loudly insisted that more money be spent. The House of Representatives quickly complied with an additional $2 billion.

I’ll leave it to others to debate the environmental and economic benefits of the program. But from a budget perspective, the critically important point here is that, when faced with the option of saying the fiscal equivalent Roberto Duran’s “No más,— many of those who in theory want to do something about the deficit and were in a position to make it happen instead demanded that additional funds be provided. The discretionary program that had been enacted with a specific dollar limit on what could be spent quickly became the equivalent of an entitlement with anyone who qualified being allowed to participate.

If the Senate goes along this week, spending will be increased substantially — $2 billion is still a great deal of money — so the dealers and manufacturers that want to sell more new cars will continue to have a federal subsidy to do so and the clunker owners who moved too slowly to get the benefit in the first few days will still be able to participate.

In other words, the budget deficit that only two days earlier a majority of Americans said was more important than economic recovery was, in reality, a much lower priority. The fact that it was spending was irrelevant. The results undoubtedly would have been the same had the benefit instead been provided through a tax break.

At most this is a reconfirmation that very little has really changed in the budget debate. Even those who over the past few months have been routinely and resoundingly criticizing the federal deficit as being too high are willing to tolerate it being even higher if they personally benefit from the spending increase or tax cut being considered. It’s still everyone else’s subsidies, benefits and tax reductions that are questionable.

The fact that the additional money for the clunkers may end up being paid for by cutting funds for another program is largely irrelevant because the dealers and owners who immediately agitated to keep the program going did not in any way insist that the funds be offset elsewhere in the budget. In fact, as far as I can tell, until the additional funds were debated in the House, no one who publicly demanded the program be continued insisted that it be paid for either by cutting other spending or increasing revenues.

The New York Times/CBS News poll almost certainly will be repeatedly cited by many in the coming weeks as an indication that current budget policy is misguided and not what “the American people— (Does anyone else hate it when elected officials use that phrase?) really want. The chances are, however, that they’ll refer to the poll and not the cash for clunkers maneuvers that, if included in the analysis, would tell a very different story.

Here’s the additional clunker-related information we need to know to get the full picture.

First, it almost goes without saying, but let’s see if the cash for clunkers program is extended again when, if it’s appropriated, the next $2 billion runs out.

Second, by state and Congressional district, it would be good to know how many people take advantage of the program. My strong suspicion is that it will be as popular in districts considered fiscally conservative as those generally thought to favor more spending. This, rather than a poll that doesn’t cost the respondent anything to respond, will be a far better assessment of what the American people actually believe.

Third, a similar analysis by income would also be helpful. Anecdotal reports so far seem to indicate that the program is as popular with those who earn more as those who earn less. This would not be surprising but would still be good to know when assessing the real politics of today’s deficit.

Finally, we should watch to see if any of the associations that regularly demand the deficit be reduced but have members who will benefit from the program support more cash for clunkers dollars regardless of whether the additional spending is offset.

In the meantime, it seems clear that the old standards such as waste, fraud and abuse, administrative expenses, earmarks, economic growth and anything with the word “reform— in it will continue to be the favored way to reduce the deficit. Trying to limit popular spending and revenue provisions, even if they’ve only been in effect for a few days, is at least as difficult now as it’s ever been.

See You in September. This is the last Fiscal Fitness until after Labor Day. To keep up with the latest budget happenings and get your daily ration of tax tidbits, fiscal finger food and budget bonbons until then, please visit Capital Gains and Games, where Andrew Samwick, Pete Davis and I will keep you enthralled, educated and entertained. Have a great summer.

Stan Collender is a partner at Qorvis Communications and author of “The Guide to the Federal Budget.— His blog is Capital Gains and Games.

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