Item Veto Will Either Flop or Fuel Irresponsibility

Federal spending is now projected at $1.1 trillion for fiscal 1989. This represents an increase of 24% in real terms since the last year of the Carter Administration. This is despite the seven-year presence in the White House of that staunch “fiscal conservative” Ronald Reagan.

As a means of shifting the blame to Congress for the gulf between rhetoric and reality, Reagan for years publicly has sought the “item veto.” This purportedly will reduce the ability of Congress to logroll pork-barrel spending past the President in gargantuan spending packages, the ultimate absurdity of which was the recent omnibus spending bill. Reagan signed it, but vowed to reject such a bill “next time.” With an item veto, the President supposedly would be able to veto the pork without rejecting kosher items included in the same bill.

A few years ago, Congress passed a bill extending for 30 years the Hoover Dam contract under which many electricity users in California, Nevada and Arizona receive federal power at heavily subsidized rates. Did Reagan use this opportunity to exercise, in effect, an item veto on a blatant federal pork-barrel arrangement? Hardly. The Administration supported the bill and the President signed it, accompanied by the loud applause of many good Republican burghers and “fiscal conservatives.”

Nor is that example unique. Reagan continually has overridden spending reductions proposed by the Office of Management and Budget, often after direct appeals to him by special-interest groups and their bureaucratic allies. His endorsement of Cabinet status for the Veterans Administration is only the latest example.

Remember the 1984 presidential campaign? The Reagan-Mondale contest had all the suspense of an election outcome in the Soviet Union; and yet Reagan felt compelled politically to endorse a Social Security cost-of-living increase not mandated under the formulas. Furthermore, not only did he declare the benefits of then-current Social Security recipients sacred, but those of future beneficiaries as well. And during his debate with Geraldine Ferraro, Vice President George Bush boasted loudly and often that welfare spending had gone up, not down, during the first Reagan term. Morever, Bush’s current quest to be “the education President” will carry a price tag, not for education quality, but instead for the needed political support of the education lobby and others constituting the requisite coalition.

Democratic processes tend to subsidize concentrated interests at the expense of the diffused and more general “public” interest. This outcome results from the political incentives of politicians to bestow benefits that are measurable and to impose costs that are not. The item veto asks the President to swim against that tide by rejecting specific items funded, typically, out of general revenue.

The states’ experience in this regard is revealing. Some form of item-veto power is held by 43 governors. Excluding Alaska and the District of Columbia, both of which have the item veto and very high per-capita spending, average per-capita state and local spending for these states in 1984 was $2,080. For the seven states without an item veto, the average was $1,995. While these data do not prove anything, they do demonstrate that the common assumption that an item veto would produce fiscal discipline is too glib.

Experience at the federal level before and after enactment of the 1974 Congressional Budget and Impoundment Control Act is consistent with the state experience. Presidential power to impound funds became much more restricted beginning about fiscal 1975; yet the growth rate of federal spending since then has been the same as that of the earlier period.

Either the item veto is ineffective or it encourages legislatures to behave in ways even more irresponsible than would be the case otherwise. In effect, it would allow congressmen to boast to constituents about all the manna from Washington for which they are battling, while permitting the President to masquerade as the last bastion of frugality, with little net effect on total spending. While Congress can be viewed as a series of special-interest coalitions, Presidents are likely to respond to special interests in large states that are competitive in the electoral college. Thus, neither Congress nor the President is driven by the general interest. To the extent that the item veto is utilized as a curb on total spending, it is likely to fall upon general-interest spending (such as defense) more systematically than special-interest programs, in part because much entitlement spending is authorized by Congress but not appropriated as line items. The item veto thus is likely to shift the composition of the budget inappropriately, even as it has little effect on total spending.

What is needed is institutional reform that shifts the incentives of Congress and the President toward spending restraint. The item veto will not do that. Instead, it will encourage Congress to approve more spending. And it assumes that Presidents will be willing to take the political heat for cutting while Congress claims credit for spending. That hope is of the same class as “The check is in the mail.”