“It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.”
In the movie Brewster’s Millions, a minor league baseball pitcher (Monty Brewster) finds out he has inherited $300 million as long as he can spend $30 million in 30 days. The money cannot all be gambled or donated. Monty has to spend the money and acquire no new assets, making him spend the money quickly and without much concern for future financial problems.
Much like Brewster’s money, though it would have to be called Brewster’s Billions, the federal government gave Oklahoma 1.9 billion in America Recovery Plan Act (ARPA) funds with some conditions in how it could be spent attached. The most severe limitation for the ARPA funds is they cannot help reduce taxes or make deposits into pension funds. There must also be plans to spend the funds by the end of 2024 or use them by year-end 2026.
If Oklahoma violates these limitations, the federal government will request reimbursement. Like Brewster’s Millions, the ARPA funds are subject to a short time frame. Both the use and time limitations drastically alter how the state can use the ARPA funds. Removing these constraints would allow the money to be saved or used for other government demands.
The parameters for the ARPA funds have been altered slightly in the last few weeks. According to a ruling by a federal judge, the funds can now be used for tax reduction. Unfortunately, these funds still cannot be used to pay down pensions. This ruling has no impact on Oklahoma already lowering the state personal income tax from 5% to 4.75% and the corporate income tax from 6% to 4%; the state used surplus revenue to fund these tax reductions. With a clear ruling on tax reduction limitations, it allows for planning in the future, as something that could be acceptable use one year could change in the next.
The removal of ARPA tax reduction restriction is an improvement to the program though it still fails to address the many faults of increasing government spending to such a degree. Plans exist for the remaining funds to increase investment in innovation, state services, and infrastructure.
The limited use for this money has already caused increasing prices. Because many states are trying to achieve the same goal, the means needed to achieve that goal are scarce. The scarcity of those goods will drive prices upward as demand increases. For example, one of the projects many states are starting is broadband expansion, which uses PVC pipe. Partly because of the increased demand, the price of PVC pipe has risen by over 50%.
Imagine the government created a program in the 1900s for everyone to have a car. The demand for cars would increase. With increased demand, the price would increase, as would scarcity. The program could very well have slowed the invention of the assembly line. Instead, it allowed everyone to purchase vehicles as such individual decisions made economic sense. Consumers were better off, with those most in need of a car paying the higher prices early. The staggering demand allowed car companies to invest and then produce at a lower cost. Also, this allowed for those who knew how to build cars to increase their knowledge. Cars became less expensive as production followed demand without government plans. The natural development of production makes it cheaper to produce.
The ruling to allow ARPA funds to lower taxes is an improvement, but it is not enough. A large amount of government spending has distorted the market, discouraging entrepreneurship, and causing inflation. Brewster could have done a lot more with his millions had there not been strings attached. Maybe Oklahoma should ask him for some tips on how to spend money quickly.
Jason Lawter is Fiscal Policy Fellow at 1889 Institute. He can be reached at [email protected].
The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.