In the latest example of the so-called “Tea Party Class” of House Republicans not living up to the hype, GOP freshmen on the House Agriculture Committee voted overwhelmingly to approve a bloated $957 billion farm subsidy/​welfare bill.

The overall vote was 35–11. Only 4 Republicans voted against it – the rest appear to be Democrats who weren’t happy that the bill doesn’t spend more money on food stamps. Republican freshmen occupy 16 of the 25 GOP seats on the committee. Only 3 out of the 16 voted against the bill.

• Bob Gibbs (Ohio)
• Tim Huelskamp (Kansas)
• Marlin Stutzman (Indiana)

Here are the names of the 13 GOP freshmen who supported it:

• Austin Scott (Georgia)
• Scott Tipton (Colorado)
• Steve Southerland (Florida)
• Rick Crawford (Arkansas)
• Martha Roby (Alabama)
• Scott DeJarlais (Tennessee)
• Renee Ellmers (North Carolina)
• Chris Gibson (New York)
• Randy Hultgren (Illinois)
• Vicky Hartzler (MO)
• Robert Schilling (Illinois)
• Reid Ribble (Wisconsin)
• Kristi Noem (South Dakota)

The question now is whether the House Republican leadership will allow the bill to come to the floor. According to the Washington Post, Speaker Boehner hasn’t decided:

Agriculture Chairman Frank Lucas, R‑Okla., feels the committee did “an awful lot of good work,” Boehner said at a weekly news conference. But “no decisions about it coming to the floor at this point,” Boehner said…“There are some good reforms in this bill. There are other parts of the farm bill that I have concerns with,” Boehner said. He referred to what he said was “a Soviet-style dairy program in America today and one of the proposals in this farm bill would actually make it worse.”

Boehner has voted against farm bills in the past so he’s probably not eager to get this one to the floor, especially since advocates for free markets and limited government rightly consider the bill to be a disaster. But Boehner helped create this dilemma for himself when his Steering Committee gave Frank Lucas the chairman’s gavel after the 2010 elections. As Chris Edwards and I noted in a recent op-ed, Lucas is a big supporter of farm subsidies and takes pride in having been named a “Wheat Champion” by the National Association of Wheat Growers.

Back in December 2010, I wrote that “An indicator of the incoming House Republican majority’s seriousness about cutting spending will be which members the party selects to head the various committees.” Lucas’s chairmanship indicated that when it comes to bloated farm bills, the House leadership wasn’t serious. If this bill is allowed to reach the floor, any doubts will have been erased.

The Washington establishment loves talking about the “distribution” of income and taxes. The CBO has issued a new report on the topic that will no doubt keep the discussion rolling on.

That said, the CBO report has some interesting statistics to consider. Most important are calculations of average federal tax rates, which are total federal taxes paid as a share of income. The chart shows average tax rates by quintiles, which each contain one fifth of U.S. households grouped by income level. The households at the top are hit with the largest burdens by far. Elsewhere, I’ve discussed who some of these high-earning households are and the damage done by nailing them with such high taxes. (For example, see here and here).

Last month, I exposed some major errors that Paul Krugman committed when he criticized Estonia for restraining the burden of government spending.

My analysis will be helpful since I am now in Estonia for a speech about economic reform, and I wrote a column that was published today by the nation’s main business newspaper.

But just in case you’re one of the few people in the world who isn’t fluent in the local language, the Mises Institute Estonia was kind enough to post an English version.

Here are some of the key points I made. I started by explaining one of Krugman’s main blunders.

Krugman’s biggest mistake is that he claimed that spending cuts caused the downturn, even though the recession began in 2008 when government spending was rapidly expanding. It wasn’t until 2009 that the burden of government spending was reduced, and that was when the economy began to grow again. In other words, Krugman’s Keynesian theory was completely wrong. The economy should have boomed in 2008 and suffered a recession beginning in 2009. Instead, the opposite has happened.

I then pointed out that Estonia’s long-run performance has been admirable.

…the nation’s long-run economic performance is quite exemplary. Economic output has doubled in just 15 years according to the International Monetary Fund. Over that entire period – including the recent downturn, it has enjoyed one of the fastest growth rates in Europe.

But I’m not a mindless cheerleader (though I might become one if any of the local women gave me the time of day), so I took the opportunity to identify areas where public policy needs improvement.

This doesn’t mean Estonia’s policy is perfect. Spending was reduced in 2009 and 2010, but now it is climbing again. This is unfortunate. Government spending consumes about 40 percent of GDP, which is a significant burden on the private sector.

Being a thoughtful guy, I then made suggestions for pro-growth changes.

Estonia should copy the Asian Tiger economies of Singapore and Hong Kong. These jurisdictions have maintained very high growth for decades in part because the burden of the public sector is only about 20 percent of GDP. …Estonia already has a flat tax, which is very important for competitiveness. The key goal should be to impose a spending cap, perhaps similar to Switzerland’s very successful “debt brake.” Under the Swiss system, government spending is not allowed to grow faster than population plus inflation. And since nominal GDP usually expands at a faster rate, this means that the relative burden of government spending shrinks over time. By slowly but surely reducing the amount of GDP diverted to fund government, this would enable policymakers to deal with the one area where Estonia’s tax system is very unfriendly. Social insurance taxes equal about one-fourth of the cost of hiring a worker, thus discouraging job creation and boosting the shadow economy.

And I elaborated on why reform of social insurance is not just a good idea, but should be viewed as an absolute necessity.

Reducing the heavy burden of social insurance taxes should be part of a big reform to modernize programs for healthcare and the elderly. A major long-term challenge for Estonia is that the population is expected to shrink. The World Bank and the United Nations both show that fertility rates are well below the “replacement rate,” meaning that there will be fewer workers in the future. That’s a very compelling reason why it is important to expand personal retirement accounts and allow the “pre-funding” of healthcare. It’s a simple matter of demographic reality.

In other words, Estonia doesn’t have a choice. If they don’t reform their entitlement programs, the burden of government spending will rise dramatically, which would mean a higher tax burden and/​or substantial government debt.

We also need entitlement reform in the United States. Our demographics aren’t as bad as Estonia’s, but we all know — as I explained in my post about Cyprus — that bad things happen sooner or later if government spending grows faster than the economy’s productive sector.

The California Senate’s recent vote to authorize $8 billion for the first segment of a widely panned plan for high-speed rail is another example of why the state remains on fiscal suicide watch. And because federal taxpayers are on the hook for $3.2 billion of the plan’s cost, it’s another example of why the federal government should not be subsidizing rail projects.

If California’s voters and the officials they elect want to blow the state’s taxpayers’ money on high-speed rail, then so be it. But taxpayers in the other 49 states shouldn’t be on the hook. Likewise, Californians shouldn’t have to subsidize rail projects in the other 49 states. Indeed, the federal Department of Transportation acts like a money laundering operation: money taken from each state’s taxpayers goes to Washington, gets “washed” on Capitol Hill, and then gets sent back to the states (minus a cut for the bureaucracy) as directed by the Beltway bosses.

Take, for example, Rep. Don Young’s (R‑AK) “railroad to nowhere,” which was featured on Politico this morning:

Seven years ago, the veteran Republican created a cash gusher for the touristy Alaska Railroad by giving it a share of Congress’s mass transit bucks. In June, he stared down the Senate to keep the subsidies flowing for another two years. The price tag: $62 million. Those millions were part of a package meant to help mass transit lines carry commuters, not send cargo and tourists through the Alaskan tundra…

“Throughout my career in Congress, I have fought hard to ensure a level playing field between Alaska and its lower-48 counterparts—and the Alaska Railroad is no different,” Young said in a statement to POLITICO. “There is no reason why the Alaska Railroad should be treated differently than other American passenger rail systems—and that is exactly why this provision is so important.”

Critics say it’s too much to spend on a train that carried 412,200 passengers last year, few of whom actually commute. The New York City subway system gave more than 1.5 billion rides last year. Even Salt Lake City’s light rail carries 40,000 people per day.

If Alaskans want to subsidize the Alaska Railroad, then that should be their call. But in all fairness, why should Alaskans support a federal transportation program that isn’t intended to support projects in their state? Unfortunately, instead of working to keep their state’s tax dollars from being shipped to Washington in the first place, most members of Congress, including Don Young, spend much of their time just trying to grab a share of the spoils.

I’ll conclude by noting a small victory for taxpayers. It appears that a plan for subsidized rail transit in central Pennsylvania is dead:

After at least 20 years of debate, reams of studies and millions of dollars of investment, the proposal to bring commuter rail service to the midstate is off the tracks. Not one commuter train has left the station, not even for a test run. And now the Capital Area Transit board has shunted the project to a lonely, unfunded siding. CAT’s board last month decertified the last $29,000 in federal funding earmarked for the project. The amount is small, at least in government terms, but the decision to turn the cash back to the feds means the commuter rail project has no significant pool of cash.

Remember, I said that it’s a small victory (the bolded text is my emphasis):

The mid-1990s and early 2000s saw considerable interest and backing of the concept by local governments, including Cumberland and Dauphin counties and Harrisburg. The federal government pumped millions of dollars into studies and planning. The first concept, Corridor One, called for a commuter system on Amtrak and Norfolk Southern lines from Lancaster to Harrisburg to Carlisle. Construction cost estimates caused that to be scaled back to a Lancaster-to-Harrisburg-to-Shiremanstown route that planners projected would cost $80 million to build. That figure didn’t include the significant subsidies that would have been needed to underwrite operating costs. Projections showed rider fares would not come close to covering the cost of running the system.

As former Rep. Jim Traficant (D‑OH) used to say, “Beam me up.”

[See these Cato essays on high-speed rail and transit subsidies for more on this topic.]

The government can’t seem to do anything right! It can’t even streamline activities to cut costs without creating egregious cost overruns.

Since the late 1980s, the military has gone through a number of BRAC rounds to close excess military facilities. The BRAC process has shown that Congress can pursue spending cuts if only politicians put the effort in to make it happen.

However, the Washington Post’s Walter Pincus describes how the Pentagon has had a hard time saving money even when directed to do so by Congress:

In its latest review of the 2005 BRAC program—the largest and most complex—the GAO found that the estimated cost of $21 billion to implement the program had grown to $35 billion by Sept. 30, 2011.

… Take the consolidation of various National Geospatial-Intelligence Agency (NGA) locations at a new campus at Fort Belvoir, Va. A project that had been projected to cost $1.1 billion grew to a price tag of $2.6 billion.

… Even small BRAC projects experienced giant cost growth. …At Fort Jackson, S.C., for example, the price tag for two projects grew by more than 1,000 percent. One of them, the Single Drill Sergeant School, was supposed to cost $1.8 million. But when the Army determined that its 40-year-old facilities needed new classrooms, headquarters offices and a dining area for 250 additional students, the project’s cost grew to $27.2 million, the GAO reports.

I’ve described some of the causes of cost overruns in this essay. One of the fundamental factors that drives all kinds of federal government inefficiency is that costs are benefits to public-sector decisionmakers.

For program administrators, it always seems as though the need for services is growing, and program expansion also brings greater personal prestige.

For politicians, there is little if any downside if federal projects in their districts double or triple in cost. Indeed, cost overruns are usually a benefit to them because that means more voters in their districts will receive money from taxpayers who live elsewhere in the nation.

While decisionmakers in private markets are disciplined by the need to earn profits, there is no such mechanism in the public sector to control costs. Occasional negative stories by good reporters like Pincus may embarrass the big spenders in government, but it rarely seems to change their spendthrift ways.

Working in the same building as Michael Cannon, I’ve learned that government-created third-party payer is a big problem with America’s healthcare system. Simply stated, people won’t be smart consumers and providers won’t compete to keep costs low when the vast majority of expenses are paid for either by government programs or by insurance companies.

That’s why I want to see reforms to Medicare and Medicaid, not only to save money for taxpayers, but also because entitlement reform is one of the steps that is needed if we want market forces to bring down the cost of health care. And I want to see a flat tax, not only for the pro-growth impact of lower tax rates, but also because it gets rid of the Internal Revenue Code’s health care exclusion, thus ending the distortion that encourages over-insurance.

With all that in mind, I’m obviously a big fan of the new video, below, from the Center for Freedom and Prosperity. Narrated by Julie Borowski from FreedomWorks, the video explains that third-party payer has been a growing problem for decades and that it would have required fixing even if the Supreme Court hadn’t botched the Obamacare decision.

Now that we’re stuck with Obamacare, at least temporarily, it’s more important than ever to deal with this underlying problem.

P.S.: This new video expands upon the analysis provided in a previous CF&P video.

P.P.S.: Setting aside the debate over the morality of abortion, the abortion market is an interesting case study of how prices don’t rise when consumers pay out of pocket.

P.P.P.S.: Government-created third-party payer also is screwing up the market for higher education.

Citing Department of Labor data, CNNMoney reported today that the federal government and states overpaid an estimated $14 billion in unemployment benefits last year (about 11 percent of total benefits). The state of Indiana actually made more improper payments than it did correct ones, which has to be some sort of record for bureaucratic ineptitude.

As a Cato essay on the failures of the unemployment insurance system explains, large bureaucratic costs and misspent money are inevitable with massive, complex government programs:

State governments must raise taxes from almost 8 million businesses, with tax bills specifically calculated for each firm’s experience rating. At the same time, the states dole out individually calculated benefits to millions of workers and monitor whether each person making a claim is currently eligible. Businesses and states need to adjudicate the many disputed claims for benefits, and states need to police UI tax evasion as businesses try to manipulate the system to get a lower tax rate.

Federal and state UI administration cost taxpayers $5.9 billion in 2010. Despite this large cost, there is widespread concern among experts that the UI system is “in long-term decline” from an administrative perspective. UI computer systems are apparently far outdated in many states, and administrators say that they need more money to do their jobs competently.

One problem is that state UI tax systems are very complex. There are four different experience-rating systems, and there are three different methods of determining which businesses to charge when a worker makes a claim. States have various exclusions to the UI tax base, and new businesses have special rules because they don’t have an experience rating yet. Most states also impose a range of added charges to basic UI taxes, such as solvency taxes, taxes for socialized costs, reserve fund taxes, and various surtaxes.

Employers face substantial costs to deal with all the paperwork and tax planning needed to comply with the UI system. For example, the National Federation of Independent Business notes that regardless of eligibility, “many departing employees automatically file for unemployment compensation. They have nothing to lose; filing a claim costs nothing and it puts the ball in the employer’s court.” Businesses are then forced to spend time and money fighting unjustified claims.

There is a substantial amount of waste, fraud, and abuse in the UI system. Many people try to grab benefits improperly, including people who are ineligible, people who are not actively looking for work, and people who have taken jobs and neglect to report it. Other problems include the misreporting of earnings, the provision of false ID to gain benefits, and falsifying reasons for employment termination.