Federal arts funding: a trace ingredient in the sausage factory of government spending

As has been previously reported, public funding for the arts is one of the many foci of our national debate over fiscal policy. While funding cuts for the National Endowment for the Arts and the National Endowment for the Humanities (and potential but unrealized cuts at the Smithsonian) all made national headlines, the Corporation for Public Broadcasting, which unwillingly and inaccurately functions as a proxy for NPR in the public imagination, was the hottest of the hot potatoes. The House of Representatives voted to defund the CPB entirely, but in the end, appropriations were essentially unchanged from the year before. This may seem like a dead issue for the moment, but there is an extremely good chance these battles will resurface in the fiscal 2012 budget process.

Federal arts funding is a small share of the budget
So, how much money are we talking about? The CPB is getting $455 million (of which about $90m goes to radio stations). The Smithsonian gets the biggest federal arts allocation, at $761m. If you add all arts-related federal programs together, funding for the current fiscal year totals just over $2.5 billion. Honestly, that number looks pretty large to me. I can’t imagine what a billion of anything really looks like. But the total federal budget for this fiscal year (which runs through September) is $3.82 trillion. So the federal arts funding we’ve identified is 0.066% of the total federal budget. And when we’re only shouting about CPB, we’re talking about 0.012%. That is twelve one-thousandths of one percent.

So, why? Why was this a central topic in budget debates this spring? Was it really all about this James O’Keefe scandal? Are we going to rehash the entire set of arguments again this summer and fall as we debate the fiscal 2012 budget?

Maybe the real reason we keep putting Elmo’s head on the chopping block is because we don’t really understand the numbers, after all. According to a CNN poll, most Americans do not think the CPB gets twelve one-thousandths of one percent of the budget. Actually, only 27% of those surveyed believe the CPB gets less than 1%1 of the total budget. 40% believe the CPB gets 1-5%. Everyone else believed the appropriation to be greater than 5%, and an astonishing 7% of those surveyed believe the Corporation for Public Broadcasting gets more than 50% of the budget (which would have to be close to $2 trillion). If that were true, it would put the pledge premium tote bag and mug industry completely out of business, and This American Life would be hosted by Robin Leach. The survey also asked whether funding for different funding categories should be increased, decreased, kept the same, or eliminated. 16% of respondents wanted CPB funding to be totally eliminated.

We care about other spending, too, right?
It’s interesting to examine the other spending categories in the poll. The survey asked about Medicare, Medicaid, Social Security and defense. Those are pretty big portions of the budget, so it makes perfect sense they’d be in the list. The rest of the categories are decidedly different: foreign aid (also highly overestimated by respondents), benefits for retired government workers, food and nutrition assistance for poor people, housing for the poor, and federal education funding. And that’s it.

But, what’s missing here? Quite a lot, actually. What about subsidies to the oil & gas industry, which the Obama administration claims add up to $4 billion (about 9 times CPB funding)? What about direct subsidies for farmers, which were about $5 billion last year? Tax exemptions for ethanol production aren’t mentioned, either. Nor are the $8.5 billion in subsidies given to the airlines since 9/11 simply to help them survive. These subsidies went to for-profit industries, which are theoretically subject to the rigor of the free market and exist for the profit of their shareholders. And yet, more discussion is generated by $2.5 billion in subsidies to arts organizations, both governmental and non-profit, that explicitly exist for the public benefit and do not have shareholders.

Why didn’t CNN ask about mortgage interest tax deductions of $88.5 billion in 2008, 200 times this year’s CPB funding? What about first time home buyer and hybrid vehicle tax credits? In 2008, contributions to employee retirement and pension funds, and tax deferrals on the earnings in those funds, lost the federal government $117.7 billion in tax revenue. There are many, many more examples. Decisions to fund and subsidize these sectors of the U.S. economy are just as important as decisions about arts funding. And the amounts are significantly higher than the $2.5 billion of federal arts funding in question.

How is it so easy for Congress to ignore all of this during budget battles, and instead focus on whether Juan Williams should have been fired or not? One reason is that subsidies can easily be swept under the rug, when the rug is the tax code.

Tax breaks: spending with less scrutiny
Tax deductions and credits, also called tax expenditures, are a form of government spending, as we can see clearly from the now-ended hybrid vehicle tax credits. The federal government wanted to provide incentives for the purchase of fuel-efficient vehicles. It would have cost the federal government about the same to send a check directly to hybrid buyers, perhaps processed at the dealerships, as it cost to reduce tax bills by the same amount. (Transaction and processing costs might be different, but the bulk of the cost would have been the same.)

The difference between tax expenditures and direct spending is that the former are not part of large budget bills, the kind that can shut down the government if not passed. Tax expenditures can certainly be treated as political footballs. But they are far less likely to be at the center of a showdown. Not only that, if Congress adds a tax expenditure in some legislation, it is a spending increase that can be framed to look like a tax cut, because it reduces tax revenues. That makes it more politically palatable for both parties, even if it has nothing to do with taxed income, and even if it distorts markets.

Consider a very large tax expenditure: $88.5 billion (2008 figure) worth of mortgage interest tax deductions (almost 200 years of Corporation for Public Broadcasting funding). Interest you pay on your mortgage gets deducted from your taxable income. Thus, if you’re comfortably into the 25% tax bracket, this tax expenditure is worth a quarter of what you paid in mortgage interest during the year. This creates an explicit incentive for people to buy their own homes by borrowing. If creating a home ownership and borrowing incentive sounds a little off to you, you might be recalling the financial collapse that precipitated the Great Recession. Like the repackaging of loans into mortgage-backed securities that contributed to the housing price bubble of the previous decade, this deduction effectively makes borrowing cheaper. If borrowing is cheaper for everybody, then everybody has more to spend, and if everybody would like to buy a somewhat nicer or bigger home if they could, then all the home prices are simply going to increase. This deduction, therefore, distorts the market and leads to increased prices. Who benefits if all prices in the market are inflated to take advantage of this deduction? It helps the realtors, who get paid a percentage of the sale price. And it helps the home building industry.

What is the point? Do I want a repeal of this tax deduction? Personally, no, I’ve already got a mortgage, and of course I want to keep my deduction. It is simply important to understand that this is spending, too. The mortgage interest deduction is really a government spending program that encourages people to buy instead of rent, and has the unintended effect of inflating home prices. And it’s a pretty large one! Why don’t we publicly debate this spending program, which is 200 times greater than the CPB budget, and is of debatable long-term utility? We don’t have to talk about it, because it’s not in the budget. It’s in the tax code, so it looks like a way to reduce taxes, rather than a way to subsidize the home sale industry.

Reframing the conversation
If subsidized arts workers are labeled as something like freeloaders in public discourse, then farmers, homeowners, hybrid vehicle buyers, the airlines, and the oil & gas industry are freeloaders too. Ayn Rand is very popular again among conservatives, so where is the conservative outcry against oil & gas subsidies? Instead, we are offered a redefinition of the “free market capitalist system” as something that requires government subsidy. Oxymorons rule the day when the free market must be subsidized, and arts created explicitly in the public interest, without a profit to distribute, must stand alone.

The issue of arts funding is quite likely to be revived when the fiscal 2012 budget is to be presented this fall. Conservative legislators have been able to score political points with this issue for years. But we have also seen President Obama bring greater scrutiny to bear on oil industry tax breaks, and he was making political progress in April. If uncertainty regarding oil supplies in the Middle East fades by this fall, we can perhaps expect that some part of the government spending conversation will deal with oil and gas tax expenditures.

Arts advocates, however, should not sit on our hands and wait for the President to shift the focus to federal subsidies of other industries in the budget and tax code. We are supposed to be very good at telling stories, so we ought to thoughtfully study our budget and tax code and engage with our citizenry on those issues that are most relevant and significant. It’s not just a matter of self-interest, though that is obviously part of the equation. America’s budget deficit and public debt is ours. And when we only discuss federal budgets when we launch a campaign to save our NEA grants and Sesame Street, we are lending legitimacy to those who would focus on the nickels and dimes while ignoring the big budgetary issues. We have the capacity for wider scope.

Notes
1. If you look at the wording of the poll question, you can see it is potentially a bit misleading. It asks, “Just give me your best guess — you can pick any number from one percent to a hundred percent, or if you think it was less than one percent, you can say that too.” The question first asks people to choose between 1-100%, so it anchors the idea of whole number percentages in the listener’s mind, then offers a less than 1% option as an alternative, after they’ve already framed the question in terms of whole number percentages.

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11 Comments

  1. Crystal
    Posted June 2nd, 2011 at 10:47 am | Permalink

    Aaron- this was excellent. Rarely have I seen this issue explained so well. I completely agree with you:

    “when we only discuss federal budgets when we launch a campaign to save our NEA grants and Sesame Street, we are lending legitimacy to those who would focus on the nickels and dimes while ignoring the big budgetary issues. We have the capacity for wider scope.”

    But I wonder how to do that while remaining nonpartisan?

  2. Posted June 2nd, 2011 at 11:05 am | Permalink

    @Crystal – honestly, I don’t know how realistic it is for advocates for public arts funding to remain nonpartisan in this political environment. One of our two major parties is heavily influenced, if not outright controlled, by people who want to make government so small that it can be drowned in a bathtub. We can argue all we want, but it’s clear that for people like Sam Brownback, nothing we say is going to make a difference. All we can do is seek to convince the people who elect him to office instead.

  3. Crystal
    Posted June 2nd, 2011 at 11:28 am | Permalink

    I hear what you’re saying, Ian, but–maybe it’s just the idealist in me–I like to think that the value of the arts is one thing that everybody can agree on and that brings people together.

    I don’t begrudge people their views, because it’s healthy to have educated differences of opinion. But the key is educated. And I think that’s what’s lost in a lot of political debate, is that people who think differently from each other don’t really listen to what the other side has to say or consider things from another point of view. And until you’ve considered a situation from many points of view, you’re not educated about it.

    I just don’t know if it’s a good policy for arts orgs to alienate people of one political viewpoint by taking on a political role. I see them having a lot to lose in that situation and little to gain.

    • Aaron Andersen
      Posted June 2nd, 2011 at 1:12 pm | Permalink

      There is a fair amount of psychological research that indicates when you offer contradictory evidence to somebody with a strong opinion, it has the unfortunate effect of reinforcing their original opinion. Very counterintuitive, and definitely not rational, but exceedingly human.

      Now, multiple contradictions (or “disconfirmations”) can start to have an effect. But most people with strong political opinions (on either side) are steadily consuming lots of other opinions that they already agree with. So it’s really hard for disconfirmations to win out.

      I’m inclined to hypothesize that non-partisanship is a wonderful ideal, but one that might only work on small, homogeneous communities. For example, Iowa can have a nonpartisan Congressional redistricting process that would never get anywhere in Illinois.

    • Posted June 2nd, 2011 at 3:50 pm | Permalink

      I basically agree with Aaron, but would just add a couple of points:

      1. As 501(c)(3)s, it’s true that nonprofit arts organizations must be nonpartisan in the sense that they are not allowed to endorse a candidate for office. However, individuals working in the arts have no such restrictions under the law, so we can be as partisan as we want in our personal advocacy as long as it’s not under the organizational banner.

      2. I do think that the situation we’re in now is uniquely unfriendly to nonpartisan arts advocacy in a way that wasn’t the case, for example, even five years ago. When the arts were out of the ideological spotlight, it was possible (to an extent) to have reasoned conversations about the merits of funding public agencies to support them. However, now we are at a place where the GOP wants to make radical changes to the way we conceptualize government priorities over the next several decades, and it’s pretty clear that the arts (and public broadcasting, to boot) do not have a role in that vision. At that point it is much harder to make the case for the arts because you’re no longer just arguing about the arts – you’re fighting against the entire ideology and worldview of the person you’re talking about. I suppose it’s possible that the example of the arts can be used as a tool to poke holes in that worldview, but in order to do so, you are explicitly challenging one party’s ideology– and thus have to give up the mantle of nonpartisanship.

      3. Thus, the way I see it, the only way you can be a supporter of the arts AND nonpartisan these days is if you are willing to give up entirely on the issue of public arts funding. Which is certainly an option. Just not one that I am personally ready to take.

      • Aaron Andersen
        Posted June 2nd, 2011 at 4:48 pm | Permalink

        We can also have issue advocacy without being partisan. We’re sometimes implicated as partisan by association, but parties change. The Republicans used to the progressives, and Democrats used to be the small-government conservatives.

      • Posted June 2nd, 2011 at 6:44 pm | Permalink

        Sure. My point, though, is that in 2011, on this specific issue, issue advocacy = partisanship.

  4. Aaron Andersen
    Posted June 2nd, 2011 at 5:16 pm | Permalink

    Some more color on the issue: http://www.bloomberg.com/news/2011-05-24/norquist-emerges-as-barrier-to-u-s-debt-deal.html

    Grover Norquist’s “Taxpayer Protection Pledge” is a pledge signed by many conservatives to “oppose any and all efforts to increase the marginal income tax rates for individuals and/or business” and to “oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.” In other words, Norquist is positioning federal subsidies and spending via the tax code as a reduction in taxes. And he gets a lot of conservative politicians to agree to that approach early in their political careers. If they change their mind later, he goes after them with both barrels.

    Norquist is also the guy who wants government to be small enough that it can be drowned in a bathtub. It’s unfortunate that he’s decided that part of the way to accomplish his goal is for the federal government to continue tax expenditures that distort markets.

  5. Posted June 10th, 2011 at 10:50 am | Permalink

    Great article, Aaron.

    I think there are a couple reasons why the arts are not funded by other industries, such as oil and the airlines, are.

    One is that in the public mind, oil and air travel are “necessary”. I think the majority of Americans still believe that the arts–particularly theater, dance, live music, museums, galleries, and so on–are not intrinsic to life. They are a “bonus”, something one does if there is time left over from doing “real things”. A leisure activity. And when we are in an economic crisis, who has time for leisure? This kind of preconception or prejudice is a significant hurdle that I think needs to be addressed, and I´m uncertain what the root of it is. Probably a multiple of causes.

    Another reason why the airline industry gets more government support than the arts by a gross margin is that their lobbyists are extremely powerful. What lobbyists are there for the arts? How are they representing the arts as a community? What is their agenda? How are they communicating with politicians on Capitol Hill?

    I have been reading emails like yours for a few years now, with growing dismay. But I am amazed at how few artists are even aware of these issues, or do not seem to care. What will it take for the artists in America to revolt?

    Brendan McCall
    Founder & Artistic Director
    Ensemble Free Theater Norway

  6. Posted June 11th, 2011 at 6:59 pm | Permalink

    Thank you for your comment, Brendan!

    Yes, the perception of the arts as a special luxury, rather than a necessity, is certainly part of the reason some would like to see it funded without the taxpayer’s help. It is possible that the idea that arts are a luxury leads people to overestimate their share of the budget. That’s pure conjecture on my part, but it would be interesting question to study: does the perceived frivolousness of an expenditure lead people to overestimate it? I may be wrong, but I find it somewhat hard to believe that if you just asked somebody, “Can we spend 0.066% of our budget on arts?” they would say no. Or if they did, I doubt that they would say no with the intensity of emphasis and prejudice seen in public debates about CPB funding.

    However, it’s not just art. Some of what we’re talking about here funds public broadcasting, which provides educational content (uncontroversial and universally liked, e.g., Sesame Street) and news content (sometimes very controversial with a strong perceived liberal bias, e.g., NPR). And of course, any arts advocate will want to make a passionate case that arts are not at all frivolous, but necessary for societal health, cohesion, and progress. I fear our demonstrated skill at making that case, however, is often not up to the task.

    As to the power of lobbyists, I’d considered going into that in this piece, but didn’t, for the sake of length and clarity. Since you mentioned it, here’s the short version.

    There is an analytical tool in political science call the Wilson-Lowi matrix. This matrix plots the concentration or distribution of costs of a policy (whether a few people pay a lot, or a lot of people pay a little) against the concentration or distribution of benefits (a few people gain a lot, or a lot of people gain a little). Most of the industrial subsidies we’re talking about, e.g., oil & gas subsidies and airline subsidies, fall into what this matrix labels “client politics.” That means that the benefits are concentrated among a few, while the costs are distributed widely across all taxpayers.

    Client politics are difficult to root out or prevent, because the people who will benefit have very very strong incentives to make the policy happen, so they work very hard to get their message across, pay a lot of money for lobbying, and essentially try to become clients of legislators like Congressman Joe Barton (R-TX), who speaks from deep inside the oil & gas industry’s pocket. On the other hand, the people who pay for it (all taxpayers) each contribute a very small share of our income to these subsidies, so we don’t have much incentive to fight against them. Individuals and groups really only fight against industry subsidies for non-financial reasons. It might be for principle or for politics, but it’s not for money.

    Arts subsidies are also examples of client politics, but the benefits are distributed more widely than most industrial subsidies. The money is spread thinly, and the intangible benefits of more art are distributed even more widely. Because the benefits are distributed more widely, there is less benefit to engaging in costly lobbying. NPR may or may not have a lobbyist under contract, but NEA grant recipients are very unlikely to be able to afford one.

  7. Posted June 15th, 2011 at 6:59 pm | Permalink

    Progress! Actual debate about tax expenditures, and Republicans breaking ranks with Grover Norquist (who talks as if he’s in charge of them). http://www.washingtonpost.com/business/economy/senate-vote-to-repeal-ethanol-tax-credit-fails-but-some-in-gop-break-ranks/2011/06/14/AGydKEVH_story.html

2 Trackbacks

  1. [...] Aaron Andersen makes a federal case Over at Createquity, Aaron walks us through the “sausage factory of government spending,” pointing out why it’s important to understand how and why it works. He also reminds us that we need to pay attention to more than questions of funding for the arts. [...]

  2. By If I Had A Million Dollars | artsactivism on November 9th, 2011 at 1:17 am

    [...] 2011 federal budget included $3.82 trillion in spending – of that, funding for the arts makes up not even a tenth of one percent.  I understand that everyone is going to have to sacrifice to bring our runaway economy under [...]

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