Incentives Matter: Rand Paul Proposes Bonuses for Federal Employees that Identify Budget Savings

Erika Johnsen
Posted: Feb 13, 2012 7:33 PM

If a munificent benefactor were to hold out their hand and freely offer you a large hunk of cash, you would very likely take it -- unless you had a very good reason not to. This is a persistently terrible problem with our large, liberal government: every year, federal departments, agencies, and services are allotted a particular budget, and they are usually bound and determined to spend every dime of that money; why shouldn't they be? They want to prove that their department and all of its operations are absolutely essential, lest they invite downsizing in future years' budgets. They therefore spend all of their money, which often results in huge amounts of waste -- and when that munificent benefactor is as faceless as The Taxpayer, the transactions are pretty guilt-free.

Sen. Rand Paul (R-KY), one of the few senators or congresspeople to return a portion of his designated budget to the Treasury unused, is once again demonstrating his grasp on what should be a common-sense principle of basic economics: incentives matter. On Sunday, he introduced legislation that could actually incentivize federal agencies not to spend every penny of their budget, and instead offer bonuses to federal workers who propose budget spending cuts. From The Hill:

"Under current law, agencies are required to spend all of the money they are allocated and have no incentive to identify areas in the budget where savings could be found," Paul said. "When this occurs, federal agencies with surplus funds must rush to spend the funds before the end of the fiscal year, often on unnecessary purchases."

The Cost Savings Enhancement Act is supported by Citizens Against Government Waste and Americans for Prosperity. In a letter from last week, the latter group said the bill creates an employee suggestion program under which federal workers would get as much as $10,000 if their suggestions for trimming are adopted.

Teachers' unions, welfare recipients, federal employees, and the like -- they have few reasons to compete for efficiency, performance, savings, innovation, or any real progress; and, at least in theory, I think changing the game with incentives is a pretty neat method of approaching a solution to government waste.