July 24, 2014

The Sky's The Limit

Volume VI, Number 2
March 3, 2000


Congressional negotiators are reportedly near agreement on an aviation spending bill. The good news is that the Senate has rejected a House plan to take the aviation trust fund off budget. The bad news is that the deal may include an on-budget "firewall" that has the same effect: to turn aviation spending into a de facto entitlement. Two years ago, Congress caved in to pressure to exempt highway spending from the regular budget process. At the time, fiscal hawks warned that this was a dangerous precedent. Now Congress is poised to give special treatment to aviation. At risk is not just fiscal discipline, but the future of general purpose government.

A Dangerous Departure

Those demanding special treatment for aviation spending make two arguments. The first is that the aviation trust fund has accumulated large reserves that unfairly remain "locked up" under current budget rules. The problem with this argument is that these reserves have not been accumulated in any fiscal or economic sense. There are more than 150 federal government trust funds, none of which effects genuine savings. Changing the budgetary treatment of the aviation trust fund would in no way alter the economic bottom line. On budget or off budget, a government trust fund is never anything more than a bookkeeping device for recording earmarked revenues and outlays. This brings us to the second argument: that the aviation trust fund is primarily funded by excise taxes on airline carriers and passengers, and that spending this money on anything but aviation is therefore robbery. The argument is independent from the argument about accumulated reserves. And indeed, off-budget and firewall advocates are mainly intent on guaranteeing that future trust-fund revenue go exclusively to aviation. While the goal may seem reasonable, it is actually a dangerous departure. Excise taxes and user fees may create the expectation of a quid pro quo, but they never obligate government. All federal revenues are fungible, and Congress is always free to spend whatever taxes it collects on whatever priorities it deems most pressing. Let's not forget that the primary purpose of government is to serve the general interest. If the taxes airline passengers pay obligate government, what about other constituencies? Should teachers and truck drivers have their own separate guarantees? Should the residents of different regions, states, and cities? Going down this road can only result in a divisive balkanization of the budget-and ultimately, of the entire political system.

Unfunded Entitlements

None of this presents a real problem so long as trust funds remain subject to the fiscal discipline of annual appropriations. It is precisely this discipline, however, that the aviation advocates want to do away with. The off-budget proposal passed by the House would in effect give the aviation trust fund a permanent appropriation equal to future trust-fund receipts. The details of the evolving House-Senate compromise are not yet available. But it also appears to guarantee that trust-fund spending will equal receipts. If that guarantee is enforceable-as is the firewall for the highway trust fund-it amounts to another means to the same end. That end is removing any incentive for Congress to make trade-offs between aviation spending and other priorities. Advocates claim that exempting aviation from the regular budget process will make more room for other discretionary programs. But that's absurd: Since the relevant constraint is total federal spending, the advocates' proposals mean that other spending must fall. In the end, the problem with these proposals is that they turn bookkeeping claims into unfunded liabilities and expectations into de facto entitlements. Once spending is on autopilot, the sky's the limit. Social Security and Medicare are unfunded entitlements, which is why they are so difficult to reform. This is the last direction we should push the one-third of all federal spending that remains discretionary-that is, subject to the yearly give and take of democratic government. FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Robert Bixby