Penny wise, pound foolish

Updated
 

Not all spending cuts are created equal. Congressional Republicans struggle with this, but there is such a thing as “penny wise, pound foolish.” Yesterday, Sahil Kapur highlighted one of my favorite subjects.

Cuts proposed by House Republicans to programs designed to weed out waste and abuse within Social Security could end up costing taxpayers more in the long run than the spending cuts themselves are designed to save, according to the program’s chief actuary.

An appropriations bill that last week cleared a GOP-led subcommittee slashes 2013 funding for disability reviews and eligibility redeterminations, which seek to ensure that seniors and other eligible beneficiaries don’t receive more funds than they are entitled to. The proposed cuts would shave this specific budget item from the $1.024 billion agreed upon in the debt limit law last year to $272 million, saving nearly $800 million.

And how much would these “savings” cost? According to Social Security’s chief actuary, we’ll lose “between $5 billion and $6 billion more over the lifetime of those who would not be reassessed due to the reduced funding.”

In other words, Republicans want to cut spending, which will end up costing taxpayers more, not less. The efforts GOP lawmakers want to cut and the same ones that prevent waste – eliminate the prevention and you’re left with more spending overall.

Rep. Lloyd Doggett (D-Texas) explained, ‘ “No business in America would cut an investment that produces between $6 and $9 in savings for every one dollar spent, but that’s the very plan Congressional Republicans have put forward. They follow their extreme ideology even when it is clearly contradicted by common sense.”

This may seem counterintuitive. How can spending more save more?

Consider this example Suzy Khimm published earlier this year.

The Internal Revenue Service got hit with a 2.5 percent budget cut for 2012, paring back money for tax enforcement even as tax compliance has gotten worse. The agency got $300 million less than in the previous year – including $193 million less for tax enforcement.

The IRS estimates that every additional dollar spent on enforcement brings in about $4 to $5 dollars of additional revenue, which would mean that the 2012 budget could lose taxpayers anywhere from $772 million to $965 million — more than twice what it originally saved through the cuts to enforcement. As a result, the recent IRS budget cuts would actually be contributing to the deficit, according to Nina Olson, who runs an independent watchdog for taxpayer advocacy within the IRS. According to Olson’s latest report to Congress, the budget cuts combined with the IRS’ growing workload have become “the most serious problem facing U.S. taxpayers.”

In the short term, Republicans see the savings – they’re cutting spending that otherwise goes to the IRS. But just beyond the short term, the “savings” turn into costs – if the IRS isn’t collecting revenue, we lose out on the funds needed to fund the government and pay our debts.

Every time this comes up, I think about a Senate hearing last year in which Sen. Rand Paul (R-Ky.) seemed flabbergasted by the notion that the government can actually save money through specific kinds of investments. “The idea or notion that spending money in Washington somehow is saving money really flies past most of the taxpayers,” he said at the time.

As I explained a while back, this 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, we save a little money on enforcement, but pay a lot of money to clean up financial catastrophes.

And if we cut spending on efforts to root out waste and abuse in the Social Security system, we’ll end up spending more than we save.

The “penny wise, pound foolish” idiom has been around for a long while for a reason.

Government Spending and Social Security

Penny wise, pound foolish

Updated