Earmark ban backfires, and trade policy pays the price

Architect of the Capitol

Article Highlights

  • Defining earmarks isn’t easy and an indiscriminate ban on them creates problems elsewhere in the legislative process.

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  • Appropriations earmarks are spending; tariff suspensions are tax cuts.

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  • Policymaking would be better served if earmarking was an open and fair process.

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In an attempt to salvage their deteriorating reputation, lawmakers have cast a wide net over the last few years to catch and quash anything resembling earmarks. While ostensibly ridding the political system of special-interest favoritism, both parties have helped to create a net that is too wide and is currently hobbling sound economic decision-making. For example, earmark ban hysteria has inhibited efforts to advance incremental, positive trade policy in the form of the miscellaneous tariff bill (MTB).

The practice of Congressional earmarks has been under increasing public attack. From the Bridge to Nowhere in Alaska to the Turtle Tunnel in Florida, egregious earmarks have led to vehement protests among advocates of limited government and helped propel Tea Party-backed candidates into office. Public agitation prompted Congressional restrictions on earmarks in 2006. Then in 2007, Democrats adopted additional rules that required each earmark to be described in detail, while its sponsor had to certify that it held no personal financial interest for him or her. In 2010, the Democrats took it one step further and adopted a ban on earmarks for for-profit companies. Ultimately, House Republicans adopted an outright ban on the activity for the 2011 and 2012 fiscal years.

"From the Bridge to Nowhere in Alaska to the Turtle Tunnel in Florida, egregious earmarks have led to vehement protests among advocates of limited government and helped propel Tea Party-backed candidates into office." -Alex Brill

But defining earmarks is not easy, and an indiscriminate ban on the practice creates problems elsewhere in the legislative process. The prime example of this is the challenge Congress faces in lowering trade barriers by suspending import tariffs on certain goods. This periodic lawmaking process, dating back to 1982, is now being attacked as a mammoth assemblage of special-interest favoritism simply because the first-order, direct benefit of eliminating an import duty on any particular obscure wingnut may accrue to just a few firms. (A full list of the products for which a tariff suspension is being proposed is available here.) The reality is that these tariff suspensions apply to the product being imported, not to the importer. Not only does that mean they are widely available to any importer (therefore not technically an earmark), but in a competitive marketplace, the real beneficiaries will be the consumers.

Those pursuing the single-minded objective of "limited government" falsely argue that these tariff suspensions are the crony capitalism they seek to weed out of Washington. But it is misguided to say that the MTB process contains earmarks. Beyond the fact that they are widely available, the House Ways and Means Committee and the Senate Finance Committee—in charge of the MTB—have taken the opposite strategy in the vetting of these policies from the one the Appropriations Committees have historically pursued. For an import tariff suspension to be added to the MTB, it first must be introduced as stand-alone legislation. Then, that bill must be analyzed by the Congressional Budget Office and the U.S. International Trade Commission to establish that its impact is 1) less than $500,000, and 2) of no adverse consequence to a domestic producer. In addition, there is a public comment period for each of these bills, and only noncontroversial tariff suspensions are considered.

Contrast this with a traditional appropriations earmark, which could appear from nowhere in the middle of the night and steer tens of millions of dollars or more, with no economic impact analysis whatsoever. Many earmarks have been cleverly disguised in obtuse language buried in accompanying reports explaining the intent of Congressional legislation. And appropriation earmarks are spending; tariff suspensions are tax cuts.

The MTB process is a shining example of open, transparent, non-controversial decision-making. In fact, from a strict trade policy perspective, the current MTB process may be too generous in its attempt to be "fair." Reducing trade barriers almost always improves national welfare, so the Committees' determination to only pursue noncontroversial items likely leads to too few tariff suspensions. But avoiding controversy has, unfortunately, proven more important than eliminating tariffs.

The increase in scale, lack of economic rationale, and lack of transparency of traditional spending earmarks gave rise to a legitimate public uproar over the last few years. Policymaking would be better served if earmarking was an open and fair process. Therefore, rather than condemning the MTB process, lawmakers should embrace it. But those opposing these tariff reductions are interested in neither the good-government manner in which these policies are being pursued nor the economic benefits this legislation offers. Instead, they blindly confuse this modest attempt at opening our markets to trade with the Congressional culture of wasteful spending. The rallying cry of anti-establishment, anti-earmark conservatives is knocking into the principal policy agenda of free trade. Stay tuned to see who wins.

Alex Brill is a research fellow at the American Enterprise Institute and a former policy director and chief economist to the House Ways and Means Committee.

 

 

 

 

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About the Author

 

Alex
Brill
  • Alex Brill is a research fellow at the American Enterprise Institute (AEI), where he studies the impact of tax policy on the US economy as well as the fiscal, economic, and political consequences of tax, budget, health care, retirement security, and trade policies. He also works on health care reform, pharmaceutical spending and drug innovation, and unemployment insurance reform. Brill is the author of a pro-growth proposal to reduce the corporate tax rate to 25 percent, and “The Real Tax Burden: More than Dollars and Cents” (2011), coauthored with Alan D. Viard. He has testified numerous times before Congress on tax policy, labor markets and unemployment insurance, Social Security reform, fiscal stimulus, the manufacturing sector, and biologic drug competition.

    Before joining AEI, Brill served as the policy director and chief economist of the House Ways and Means Committee. Previously, he served on the staff of the White House Council of Economic Advisers. He has also served on the staff of the President's Fiscal Commission (Simpson-Bowles) and the Republican Platform Committee (2008).

    Brill has an M.A. in mathematical finance from Boston University and a B.A. in economics from Tufts University.

  • Phone: 202-862-5931
    Email: alex.brill@aei.org
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    Name: Brittany Pineros
    Phone: 202-862-5926
    Email: brittany.pineros@aei.org

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