4 Stupid Moves Your Taxes Paid For
After years of wasteful government spending, battles are starting to brew at both the federal and state levels between those that want to make significant changes and others that are hopeful the issues will work out over time. A credit crisis and ensuing recession that have cut tax receipts significantly have served to exacerbate the problem, and it means at least a few rounds of belt tightening to improve things. Below are five of the most egregious examples of waste to come out of the government, many of which have been occurring for some time now. (For related reading, also take a look at Is The U.S. Census A Waste Of Money?)
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1. Entitlements
Government entitlement programs include Medicare, Medicaid, unemployment insurance and Social Security. The first three are extremely costly and make up nearly 40% of government expenditure, according to a recent study, but serve specific and meaningful purposes. Social Security makes up 20% of spending and is arguably one of the biggest federal wastes of money.
In the book "Ron's Road to Wealth," investor Ron Muhlenkamp details that the average life expectancy when the Social Security Act was passed in 1935 was 63-years of age. Benefits started when an individual turned 65, which obviously meant that few actually ended up collecting Social Security. In other words, it was meant as a safety net for those that were old and unable to work. These days, it is run as an entitlement plan where most people receive benefits and not all need the money to survive in retirement.
2. Government Overlap
A 345-page report just issued by the U.S. Government Accountability Office (GAO) suggested that there is serious overlap between government agencies. It listed 34 areas of the government with major overlap, such as 44 federal job training programs and more than 20 agencies and 56 programs that encourage financial literacy. Each area represents hundreds of millions in potential savings and suggests waste and inefficiency on an alarming scale, such as 15 agencies that regulate food safety to some extent, including the USDA, FDA, FSISA and the Food Safety Working Group that was created in 2009 to further "coordinate" federal efforts to make sure food is safe.
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3. Amtrak
Amtrak has been in government hands since 1971 and since that time has burned through an estimated $37 billion in subsidies. Despite talks of high-speed rail and other systems to decrease reliance on gas-guzzling automobiles, the primary rail system for transporting individuals across the country has operated with an annual operating loss of around $1 billion for a couple of decades now. Why it remains in federal hands is anyone's guess.
4. Cash for Clunkers
At the height of the financial crisis, the government spent an estimated $3 billion to offer a few thousand dollars in rebates to individuals to trade in their old cars. The original intent was to jump-start a plummet in auto sales, but the program only proved to boost trade-in activity for a short time and it had no lasting impact on market demand. In fact, it may have contributed to a more volatile market by shifting demand to a short period of time, then leaving a significant drop off as it returned to more normal conditions. Additionally, reports surfaced that the government vastly underestimated demand and did not have the personnel or resources to handle the mountain of claims. This left many dealers without reimbursement for participating in the program.
The Bottom Line
With government expenditures exceeded tax receipts by a fairly wide margin, there are literally thousands of valid examples of waste and room for improvement from both a federal and state standpoint. An economic recovery should help out the top line going forward, but there will still be the need for hundreds of billions in cost cutting moves to cut years of built-up fat from the government. (For additional reading, check out What The Government Doesn't Want You To Buy.)
IN PICTURES: Top 5 Reasons Why People Go Bankrupt
1. Entitlements
Government entitlement programs include Medicare, Medicaid, unemployment insurance and Social Security. The first three are extremely costly and make up nearly 40% of government expenditure, according to a recent study, but serve specific and meaningful purposes. Social Security makes up 20% of spending and is arguably one of the biggest federal wastes of money.
In the book "Ron's Road to Wealth," investor Ron Muhlenkamp details that the average life expectancy when the Social Security Act was passed in 1935 was 63-years of age. Benefits started when an individual turned 65, which obviously meant that few actually ended up collecting Social Security. In other words, it was meant as a safety net for those that were old and unable to work. These days, it is run as an entitlement plan where most people receive benefits and not all need the money to survive in retirement.
A 345-page report just issued by the U.S. Government Accountability Office (GAO) suggested that there is serious overlap between government agencies. It listed 34 areas of the government with major overlap, such as 44 federal job training programs and more than 20 agencies and 56 programs that encourage financial literacy. Each area represents hundreds of millions in potential savings and suggests waste and inefficiency on an alarming scale, such as 15 agencies that regulate food safety to some extent, including the USDA, FDA, FSISA and the Food Safety Working Group that was created in 2009 to further "coordinate" federal efforts to make sure food is safe.
IN PICTURES: 8 Great Companies With Top-Notch Health care Benefits
3. Amtrak
Amtrak has been in government hands since 1971 and since that time has burned through an estimated $37 billion in subsidies. Despite talks of high-speed rail and other systems to decrease reliance on gas-guzzling automobiles, the primary rail system for transporting individuals across the country has operated with an annual operating loss of around $1 billion for a couple of decades now. Why it remains in federal hands is anyone's guess.
4. Cash for Clunkers
At the height of the financial crisis, the government spent an estimated $3 billion to offer a few thousand dollars in rebates to individuals to trade in their old cars. The original intent was to jump-start a plummet in auto sales, but the program only proved to boost trade-in activity for a short time and it had no lasting impact on market demand. In fact, it may have contributed to a more volatile market by shifting demand to a short period of time, then leaving a significant drop off as it returned to more normal conditions. Additionally, reports surfaced that the government vastly underestimated demand and did not have the personnel or resources to handle the mountain of claims. This left many dealers without reimbursement for participating in the program.
The Bottom Line
With government expenditures exceeded tax receipts by a fairly wide margin, there are literally thousands of valid examples of waste and room for improvement from both a federal and state standpoint. An economic recovery should help out the top line going forward, but there will still be the need for hundreds of billions in cost cutting moves to cut years of built-up fat from the government. (For additional reading, check out What The Government Doesn't Want You To Buy.)
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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