Red Ink (10 page)

The United States’ biggest dams—among them, Hoover on the Nevada/Arizona border, Oroville in California, and Mossyrock in Washington State—are owned by the federal government or by big government-run utilities.
But 65 percent of dams in the United States are privately owned, nearly all of them small earthen structures built years ago; most of the rest are owned by state and local governments. With all the demands on the federal budget, the safety of these lesser dams might be seen as one thing Washington could leave to the states, and indeed every state but one (Alabama) has a law regulating dam safety. But according to the American Society of Civil Engineers, “
Many state dam safety programs do
not have sufficient resources, funding, or staff to conduct dam safety inspections, to take appropriate enforcement actions, or to ensure proper construction by reviewing plans and performing construction inspections.”
South Dakota, for example, has only three dam inspectors—one for every 782 dams. In Iowa, it’s one for every 1,674 dams. When these dams do fail, the results can be devastating.

A 1972 dam collapse in West Virginia claimed 125 lives. Another—in Idaho, in 1976—resulted in eleven deaths. The following year, thirty-nine people died when a dam failed in Jimmy Carter’s home state of Georgia, prompting the new president and Congress to step in to protect people and property downstream.
The Army Corps of Engineers was told to build what’s now the National Inventory of Dams (84,134 at last count, 17 percent of them deemed very hazardous).
And thus was born the National Dam Safety Program, eventually reorganized into the Federal Emergency Management Agency, which now lives within the sprawling Department of Homeland Security.

The program—which officially coordinates the Interagency Committee on Dam Safety—employs just three people and operated last year with a budget of only $8.9 million. Most of that gets spread around the states to pay for inspectors who check the dams and are supposed to get owners to prepare emergency evacuation plans and fix dangerous conditions. In budgeting, the more an office spends, the more advocates it has, which ought to make the minuscule National Dam Safety Program
ripe for plucking. But it has a protective political edge: no one wants to argue that the country would be better off letting unsafe dams deteriorate further. Besides, protecting the nation’s infrastructure—including bridges, dams, and levees—became sacrosanct after 9/11. And so the National Dam Safety Program, like hundreds of similar federal backwaters, soldiers on. In the early 1990s, Susan Tanaka, who is now research director at the Peter G. Peterson Foundation, says she tried to kill the program when she worked at the Office of Management and Budget. “Most of the dams are on private property and pose no threat to public safety,” she reasoned. “The program is too small to do much and it didn’t seem a national priority.” She failed. “It was too small for anyone to care about,” she says today. All those “too smalls” add up, though.

NASA is as famous as the National Dam Safety Program is obscure, and a heck of a lot bigger. Created in 1958 to explore space separately from the military, the agency was not yet three years old when it was asked by John F. Kennedy to put a man on the moon before the end of the decade—and it did. At its peak in the mid-1960s, NASA accounted for more than 4 percent of all federal spending. Today, the agency spends, adjusted for inflation, about half what it did then and its budget represents about 0.5 percent of all federal spending. It’s still a
substantial sum: $18.5 billion last year, roughly the size of the entire budget of the state of Iowa.

Polls suggest the public remains enthusiastic about spending money to explore space.
A 2011 Pew Research Center poll found 58 percent deemed it “essential” for the United States “to continue to be a world leader in
space exploration.” In a
Gallup poll taken on the fortieth anniversary of the 1969 moon landing, an identical 58 percent said the space program has brought enough benefits to justify its costs. Presidents of both parties and many members of Congress offer lofty rhetoric about it. In 2004, George W. Bush directed NASA to focus on returning humans to the moon by 2020, and then sending them to Mars and “worlds beyond.” Before the end of the decade, though, it became clear that fulfilling these missions would cost far more than either the White House or Congress was prepared to spend. Obama scrapped the return trip to the moon but promised to come up with enough money so humans could orbit Mars by 2030 and land there in his lifetime. “Space exploration is not a luxury,” he said in a speech at the Kennedy Space Center in Florida. “It’s not an afterthought in America’s quest for a brighter future—it is an essential part of that quest.”

In that speech, delivered on Tax Day, April 15, 2010, Obama raised the pregnant question for a debt-burdened government: “Why spend money on NASA at all? Why spend money solving problems in space when we don’t lack for problems to solve here on the ground? We have massive structural deficits that have to be closed in the coming years.” But that is “a false choice,”
he insisted. “For pennies on the dollar, the space program has improved our lives, advanced our society, strengthened our economy, and inspired generations of Americans.” Not to mention creating jobs. NASA administrator Charles Bolden noted as he unveiled the agency’s budget in 2012: “
Every dollar spent on space exploration is spent here on Earth.”

Still, Congress has been squeezing NASA’s budget—by $250 billion in 2011, or 1.2 percent less than the year before. For 2012, Congress pared another $685 million, or 3.7 percent. And in February 2012, Obama proposed shaving $59 million from NASA’s overall budget in fiscal year 2013 to make room for other spending under the congressionally imposed cap. That still left room for, among other things, the 2018 launch of the increasingly expensive James Webb Space Telescope, with its mirror twenty-one feet in diameter and a sun shield as large as a tennis court; education and administration (more than $600 million a year); and the U.S. share of the International Space Station ($3 billion a year).

But Obama’s “false choice,” it turned out, was a real one. Over objections from some at NASA, the White House proposed a 20 percent—$300 million—cut in the budget for planetary science, ending U.S. participation in a European venture to send an unmanned explorer to Mars. That prompted the resignation of the head of NASA’s science mission, Ed Weiler. “
The Mars program is one of the crown jewels of NASA,” Weiler says. “In what irrational, Homer Simpson world would we single it out for cuts?”

NASA administrator Bolden’s explanation: “
We could not afford the path we were on.” He insisted, though, that the United States remains intent on exploring Mars.

Nearly all of the belt-tightening in the federal budget in the past year and a half has been focused on these last two pieces of the pie, defense and annually appropriated domestic programs. But that won’t be nearly enough to bring the deficit and national debt down to sustainable levels; hence the focus on Medicare, Medicaid, and Social Security—and on taxes, the subject of the next chapter.

T
axing the people to raise money for the government has ancient roots. In Genesis,
Joseph decreed that one-fifth of every farmer’s crop should go to Pharaoh.
Large parts of the Rosetta Stone, carved around 200 b.c., detail a tax exemption for priests. In the seventeenth century, Britain’s Charles I relied on “forced loans” from landowners, who weren’t repaid.
In the eighteenth century, England and Scotland taxed windows; the rich had more of them than the poor.
Peter the Great taxed beards in czarist Russia.
In 1799, Britain, no longer collecting taxes from its former colonies in America, imposed an income tax to finance a war against France.

Today the U.S. federal government gets money primarily in two ways: it taxes and it borrows—a lot of each. Last year, it collected $2.3 trillion in taxes, fees, and other revenues—about $19,400 per household—and borrowed another $1.1 trillion, or $9,300 per household, committing future generations to tax themselves to pay that back.

Today, most federal tax revenues come from the income
tax on individuals (47 percent last year) and the payroll tax on employers and employees (36 percent).

It wasn’t always this way.

Until the Civil War, the U.S. government relied almost exclusively on tariffs on imported goods, a practice that provoked conflict between Northern manufacturers who favored tariffs to keep imports out and Southern farmers who did not. An income tax was imposed during the Civil War, but proved so unpopular that it died in 1872. In its place, the government imposed taxes on alcohol and tobacco that accounted for 43 percent of all federal revenue by 1900. Repeated attempts to revive the income tax were thwarted when the Supreme Court declared it unconstitutional in 1895. But the Sixteenth Amendment to the Constitution changed that. Less than eight months after it was ratified in February 1913, Congress enacted an income tax. It was this new source of tax revenue that made Prohibition possible six years later. “
After the income tax was passed, reformers realized there was a replacement for the revenue that came from taxing alcohol, and they started to push for a constitutional amendment,” according to Daniel Okrent, author of a history of Prohibition.

Initially, the income tax hit only the rich, those with incomes above $20,000, the equivalent of $450,000 in today’s dollars. The top marginal tax rate, the slice of each additional dollar of income the government took from the very best off, was 7 percent on earnings over $500,000, equivalent to $11 million today. The need for money to fight World War II
democratized the income tax. “
Because of the need for a lot of revenue fast, personal income taxation was expanded dramatically during World War II … transforming what had been a ‘class tax’ into a ‘mass tax,’ ” economists Joel Slemrod and Jon Bakija wrote in
Taxing Ourselves: A Citizen’s Guide to the Great Debate over Tax Reform.

In the years since, tax rates have risen and fallen in intervening years almost as much as hemlines. The top marginal rate hit an astounding 92 percent in the 1950s, though few actually paid that because there were so many ways to avoid it and so much reason to do so. Ronald Reagan’s landmark Tax Reform Act of 1986 brought it down to 28 percent by eliminating deductions, exemptions, and tax shelters, which is known as broadening the tax base. Today’s top marginal rate, 35 percent, applies to couples with taxable income (that is, after deductions and credits) of $338,350 and up. Obama wants to raise the rate; Republicans want to lower it.

The payroll tax—levied on wages but not capital gains, interest, or dividends—was imposed in 1937 to finance Social Security. It was expanded in 1965 to help fund Medicare and enlarged in 1983 to shore up Social Security. Before Medicare was born, the payroll tax accounted for only about one-sixth of all federal revenue. Today, it accounts for more than one-third.

In contrast, the tax on corporate profits, born in 1909, is a shrinking share of federal revenue.
In the early 1950s, more than 30 percent of federal revenues came from the corporate income tax. Last year, revenues accounted for an unusually
low 7.9 percent, but as the economy returns to normal, it is projected under the current tax code to account for about 12 percent of federal revenues over the next few years.

Why such a declining share? In part, because Congress has offered corporations all sorts of tax breaks. And, in part, because businesses have exploited loopholes or shifted profits overseas or legally organized themselves into entities that aren’t subject to the corporate tax. (
That last factor is a big one: in 1980, 22 percent of all U.S. business profits were booked by outfits organized so they didn’t pay corporate taxes, though their owners—like partners in a law firm—paid individual
income taxes on the profits. In 2008, 73 percent of all business profits were in entities that didn’t pay corporate taxes.)

With competition from abroad to attract businesses increasingly stiff, most economists and many politicians challenge the wisdom of relying more heavily on corporate taxes. Both the White House and congressional Republicans were flirting with corporate tax reform in early 2012, but both were talking about rearranging the burden among businesses, not raising more money from corporations.