HOW MUCH IS IT? FREE? GIMME A DOZEN!

2/27/09

Of course I’m against the tax increases in the Obama budget. But I also would have been against the spending increases under both Presidents Bush and Obama that have made these tax increases necessary. Don’t give me the oft parroted supply line that we can “grow” our way out of these deficits if only we keep marginal tax rates low enough; these deficits, the largest since World War II, are incapable of being eliminated by sufficiently strong growth, even if such growth were anywhere on the horizon. We have to raise taxes to pay for the profligate spending of Messrs. Bush and Obama. While the so called “small government conservatives” in the GOP have rightly opposed the Obama spending increases, in a largely quixotic and half-hearted manner, they raised nary a peep when their boy was going about spending in a fashion that would have made LBJ blush.

This leads to a larger point. I am for a balanced budget amendment…period. Years ago, I was in favor of balanced budget amendment that included a limitation on government spending to a certain percentage of the GDP. The fear was that a balanced budget amendment without such a limitation would simply give politicians, largely Democrats, license to raise taxes, as in “Hey, I don’t want to raise taxes, but, gee, the Constitution says we have to…” But now I’ve come to realize that license to raise taxes in order to pay for spending is the very beauty of a balanced budget amendment.

Public Finance (which is really a branch of Economics, rather than Finance, despite its name) teaches that government has an innate tendency to grow because the benefits of government programs are concentrated in the hands, or pocketbooks, of a vocal few who will passionately demand and defend such programs. The opposition to government programs comes from those who must pay for those programs while seeing little or no benefit. But the latter group is a far larger group than the former; benefits are concentrated, costs are spread. The recipients feel strongly, those paying feel not nearly as strongly (because the costs to each payer is low due to the spreading of those costs), so programs get enacted, and government grows.

Such argumentation, though compelling, is old-fashioned; in an era of unfettered deficit spending, the recipient/payer imbalance has grown far worse. As things stand now, there is very little incentive for the taxpayer to oppose the growth of government because government is effectively free. When the federal government can continually run deficits, the cost of government programs becomes nothing, or close to it at today’s interest rates. The beneficiaries of such programs, obvious and not so obvious, are obviously going to support such spending. Since no one, at least no one in the current generation, is paying for the programs, there is little but token opposition. The demand for anything, even government, is unlimited when the costs of that thing are zero. So there is no throttle on the growth of government, other than some pointless yammering about the size of our deficits, which are now measured in numbers so huge that the human mind stutters and stumbles when trying to deal with them.

On the other hand, if the budget had to be balanced, and thus new programs would have to be paid for with tax increases, there would suddenly be an incentive for the taxpayers to oppose new programs: these programs wouldn’t be “free” any more. Sure, we would still have the problem of concentrated benefits and dispersed costs, but at least there would be some costs to consider when some almost inevitably moronic, counterproductive program springs whole out of the head of some Congressman trying to please someone who wrote him a campaign check. And with costs would come opposition, real opposition, to the growth of government.

So, while I am opposed to tax increases of any kind, I am for a mandatory balanced budget that would necessitate tax increases in some cases. Why? Because I agree with Dr. Friedman’s argument that the true cost of government is not the taxes we pay but the amount the government spends, that the method we choose to finance government spending is not nearly as important as the drag on the economy, on a nation’s wealth, that government spending presents regardless of how it’s financed. I believe in a balanced budget amendment because I, unlike all but one or two Washington politicians, genuinely believe in the concept of limited government. Making people pay full cost for government is the only way to limit government.

But it’s probably too late anyway. Government is well on its way to gobbling up our economy, which was once as bright and shining a tribute to human endeavor and freedom as was our experiment in self-government, which also had gone by the wayside in the interest of expediency and self-centeredness.