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Jun 30

The Explainer: Fluffing up the budget

Fluffing up the budget

IN Season 5, episode 8 of The West Wing, the US government shuts down after the White House and Capitol Hill fail to agree on a budget in time for the new fiscal year. In this scene, the theoretical underpinnings of the budget process are revealed in a meeting between the Speaker of the House and the President.

To adapt the Spanish expression, the President proposes, but Congress disposes.

While our Congress is on vacation, the Palace, theoretically, is tidying up its proposed budget for 2009, which, again, theoretically, the President’s supposed to submit to Congress when she makes her State of the Nation Address in a couple of weeks.

How does the President make her national shopping list? And does it hide any goodies in its many, boring pages?

So tonight, we’ll look at how the President prepares a budgetary proposal for Congress, and next week, at how Congress cooks up the national budget.

 

I’m Manolo Quezon. The Explainer.

 

The power of the purse

WHEN King John of England imposed an income tax, his barons ganged up on him and forced him to let them veto any new taxes if they found them excessive. And so, at Runnymede in the year 1215, King John signed what’s known as the Magna Carta.

Four hundred years later, in 1688, this man, William, Prince of Orange, a Protestant, invaded Britain to kick out his Catholic father in law, James II. The British parliament set a condition for formally agreeing to kick out their lawful king: a Bill of Rights, which William and his wife Mary, accepted.

Among the rights agreed upon, was that no king could impose any taxes without Parliament’s approval.

These two events, in turn, inspired people like James Otis, a Massachusetts lawyer, to famously declare, nearly a century after Britain’s “Glorious Revolution,” that taxation without representation is tyranny! He might as well have added that taxation with representation is misery.

For anyone who’s had to pay income tax here at home can thank America, for the idea.

When Woodrow Wilson imposed an income tax in America in 1917it meant the US government would get a windfall, once a year. However,  paying income tax required people to shell out money, from this year’s income, on what they earned last year: and that made them grumpy.

So a generation later, during World War II, a fellow named Beardsley Ruml, who was an economist, treasurer of R.H. Macy & Co. (owner of Macy’s Department Store), and chair of the Federal Reserve Bank of New York, came up with the idea of the withholding tax to raise funds for the American war effort without hurting morale.

He called his idea, “pay-as-you-go,” and here’s how he put it, as quoted by the American journalist David Brinkley:

It was all quite simple, but also revolutionary: let everyone pay this year’s taxes this year by having the money deducted from paychecks before he ever sees it. Then, everyone would start each year clean, free of debt.

-Beardley Ruml

And let’s have the late David Brinkley explain to us what, exactly, was so neat about this scheme:

Beardsley Ruml, from his locked room and his overstuffed chair, had produced a revolution in American public finance. When people became accustomed to paying taxes as they had always paid for automobiles-on the installment plan-Congress and president learned, to their pleasure, what automobile salesmen had learned long before: installment buyers could be induced to pay more because they looked not at the total but only at the monthly payments. And in this case there was, for government, the added psychological advantage that people were paying their taxes with not much resistance because they were paying with money they had never even seen. The term ‘take-home pay’ now entered the language.

-David Brinkley, in “Washington Goes To War”

 

Now this is all a way to introduce you to a harsh reality of representative government.

And that reality is, once you’ve consigned your rights to representatives, you’re at their mercy until the next election.

This is what I meant when I suggested that taxation with representation is misery.

Because, what can you do? Thanks to the withholding and value added taxes, oodles of money is automatically collected by the Executive.

The money’s supposed to go straight to the National Treasury until and unless, the holder of the purse, the House of Representatives, has approved how the money’s to be spent.

We trust the principle of checks and balances to ensure that presidents don’t spend like drunken sailors on shore leave; or that if congress is irresponsible, the president has the veto power in reserve.

But what if the entire ship of state has officers who are all drunken sailors, what then?

Well, it all depends on who’s the captain of the ship.

If the captain’s a basically nice guy like Elpidio Quirino, the crew can gang up on him. And so it was that for the first time ever, a president was deprived, by Congress, of the power to reallocate funds.

If you’re basically a wily guy like Ferdinand Marcos, you play along with the gang but plot putting them all in the brig. Which is exactly what he did –he ended up abolishing Congress, putting the budgetary process entirely in his own hands, and made sure the only thing that the Batasang Pambansa, which replaced Congress, could do, was make suggestions.

And oddly enough, even after Edsa, the budgetary balance between presidents and congress has never been restored to where it was prior to martial law.

But first,  a short break. When we return, we’ll go through how our chief executive prepares a proposed budget.

 

Presidential easter eggs

[West Wing Season 5, Episode 8, “Shutdown”:  38:00-38:44 “No!” to “Equitable treatment.”]

THE scene you just saw, was the continuation of the clip with which we began this show. This is, of course, a fictional representation of government, where the different chambers jealously guard their prerogatives, even if it means confrontation.

But in the real world, political pros put a premium on getting along, and so, aside from some playacting for the evening news cameras, the reality of governance different.

Let me start this segment by suggesting that familiarity breeds contempt. Chances are, you’re more likely to encounter a congressman, than a president.

For that reason, you’re more likely to hold an opinion along the lines of this 1990s editorial cartoon from the Philippines Free Press.

But in reality, Congress really has very little say in what gets spent, and itself spends relatively little, compared to the chief executive.

Now in the papers and on the news, you’ll see pictures like this one, full of happy congressmen with Buddha smiles,

Or like this one, of jolly congressmen, smiling senators, cheerful cabinet flunkies and our charm-impaired President, all having a little drinky and a collegial tee-hee, to celebrate the signing of a law.

They’re all in it together, and I mean no malice by this. Congress never starts from scratch, when it deliberates on the national budget. It begins with what the President proposes.

The budgetary process involves four steps, the first is what we’ll focus on tonight. We’ll do number two next week.

The budget is a plan for national development, organized according to the President’s priorities.

The billions for this and billions for that, in turn, are based on assumptions made by the President’s cabinet, two of whom, the Secretaries of the Budget and of Finance, take the lead in the Development Budget Coordinating Committee. The bureaus of the Treasury, Internal Revenue, and Customs and the Central Bank, all pitch in.

How? In the following manner: by looking at the year to come, what will the exchange rate be? To what extent will the economy grow, and how will that affect income from taxes? Who needs help right away and who can wait?

After these big-picture or macro items are dealt with, the Budget Secretary then tells the rest of the government, here are your parameters as far as your own budgets are concerned: for example, you can only increase it by this much, or you must decrease things by this much, and all departments then have to submit their budgets within the established parameters of what’s called the budget call.

Then hearings are held; former National Treasure Liling Briones says these hearings are actually more important than the hearings Congress conducts, and which we’ll discuss next week. When all the consulting’s done, everything’s consolidated, checked, printed, and submitted to the House of Representatives.

At this point, Congress takes over and any of these things can happen: but this is for next week.

Now the cut-and-dried budgetary process has lots of hidden surprises.

In some computer games and programs, there are hidden surprises put in by the programmers. They’re called Easter Eggs. The term has become a popular one, used for tantalizing surprises, like the fashion these days of hiding a quick scene at the end of all those long and boring movie credits.

At this point, having introduced to you, the budget-making process in the executive department, let me bring in our guests to walk us through the ways Presidents can hide Easter Eggs for themselves in the National Budget.

Center for National Budget Legislation:

http://budgetlegislation.com/index.php

Okay first easter egg: most of the budget has to do with the executive department. Take the 2004 budget:

Second easter egg. Something called Special Purpose funds… They exceed the funding for line agencies!

Here’s how they’re broken down…

And their biggest chunk are “unprogrammed funds.”

And unprogrammed funds are growing, too!

When we return, we’ll continue our discussion with our guests, and look into a specific tax –the tax you pay on your vehicles.

 

Interview

With our guests we’re going to take a look at a tax.

It’s called this:

The Motor Vehicle’s User’s Charge…

It’s big money! Take a look at this:

42 billion pesos collected! And rising!

Now whats it all for? Four things, as this pie chart shows…

And who gets control over it? Here:

Now according to our guests, 30 billion of the 42 billion’s been spent.

Let’s see, has it been spent in…? No!

In…? No!

In? No?

So where did it go?

[discuss]

 

My view

When, under Bill Clinton, the Republican-controlled House couldn’t pass a budget, government workers were sent home and the Federal Government literally shut down, twice. From November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996. There are times when things must grind to a halt, to prove one way or another, which approach to government will prevail.

But here, at home, we try to avoid confrontation. And so, under the 1987 Constitution, Congress was deprived of the power of the purse. Instead, the presidency was handed the power of the pickpocket.

If, for some reason, Congress is unable to pass the budget, then the old budget’s automatically reenacted. The end result of this is that President Arroyo, for the first time in our presidential history, has been submitting a budget later and later in the year, which takes the House so long to work on, that the Senate ends up blamed for Congress’ inevitable failure to pass a budget in time for the new fiscal year.

The result is that the old budget’s essentially reenacted, which frees up money allocated for finished projects, to be spent on other things at the President’s discretion. This, in turn, puts Congress even more at the mercy of the President, and frees her from being scrutinized, in any meaningful manner, by Congress.

We have always had a strong presidency, but not until the present Charter, did we grant our chief executives essentially, free reign over the public purse. And there’s nothing anyone can really do about it.

 

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