Fumbling
the Future
The
failure of the political class to deal with government
over-spending means taxpayers need to take action.
By Dennis Schiffel
A
recent Cato Institute publication noted that government
spending at all levels “consumes 31 per cent of the
nation’s economy.” Think about it: 31 per cent of national
spending is determined by politicians. For a free-market
economy this seems like a shocking figure. It suggests a huge
amount of what economists call dead-weight economic loss and
distorted economic incentives. Yet government spending
continues to grow. According to the Tax Foundation and the
National Taxpayers Union, federal outlays (spending) increased
by over 30 percent between 2001 and 2005, far outpacing
revenue growth. The annual federal budget deficit is large by
historical standards as is the national debt. The trends in
government spending, deficits and political intervention in
the economy are troubling.
Unfunded
government mandates and entitlements greatly compound the
growing fiscal problems. Take a moment to reflect on a few
examples: social security and Medicare face a combined massive
deficit in future years estimated at over $70 trillion (yes, trillion,
not billion). Numerous state and local pension funds are
badly underfunded (with the poster child of such
irresponsibility being the City of San Diego). The federal
Pension and Benefit Guaranty Corporation (PBGC) is in deficit.
And, the nation faces an unknown large unexpected expenditure
to honor political promises to rebuild a Gulf Coast ravaged by
hurricanes.
Unless
action is taken now, the fiscal problems will not only become
worse, they will become unmanageable. Without effective action
in the near term, promised future benefits to large segments
of the population will be reduced or denied, federal, state
and local taxes will be higher and public expenditures on a
wide variety of socially desirable activities will be reduced.
This
is a situation that should be immensely troubling to both
Democrats and Republicans. There cannot be much dispute about
the trends, the numbers or their implications. Where is the
action plan from either party? There isn’t one and recent
actions are not promising.
A
pitifully small and inadequate $50 billion reduction in the
federal budget has been proposed in the Senate. It is not
clear that it will pass or, if it does, in what amount or
form. Not long ago the Congress passed the pork-laden highway
bill. Partisans from both parties doomed social security
reform of any type despite abundant evidence of a financing
problem. Pay as you go, paygo, seems to have been abandoned by
Congress and the Administration.
Politicians
and bureaucrats seem to have an insatiable appetite for
spending. To feed their addiction to spending, they must raise
taxes now or later. Recall that presidential candidate George
Bush (the first) said: “Read my lips, no new taxes.”
Subsequently, he signed one of the largest tax increases in
U.S. history. In Nevada, Governor Guinn—having assured
voters in his first campaign that he was a fiscal
conservative, then remaining silent on taxes while campaigning
for re-election—supported the largest tax increase in Nevada
history. Who can you trust to sensibly manage spending and
taxes?
With the failure of elected officials to better manage
spending, taxpayers will need to take action. Nevadans are
being presented with several opportunities to begin taking
action at the state level.
Voters
in the next election will likely have an opportunity to vote
for a tax limitation similar to California’s Proposition 13,
which limits increases in property taxes. More
comprehensively, Nevada voters will have the opportunity to
vote for a Colorado style-initiative which limits the growth
in government spending and taxation to the percentage growth
in state population plus the percentage increase in inflation.
The key idea is that politicians can spend only what the
taxpayers give them. It is putting elected officials on a
budget controlled by the taxpayers. And, while it doesn’t
stop an increase in government spending, it limits the rate of
increase.
Some
Nevada politicians oppose the caps these proposals place on
taxing and spending, alleging they will undermine effective
representative government and the flexibility of elected
officials to govern. Of course, what they really object to is
being put on a budget and denied the opportunity to favor pet
programs or special interests. They do not like the prospect
of having to make hard choices about the most effective and
efficient use of limited taxpayer funds. Even more, they do
not wish to ask voters for approval to spend more than the
caps allow. Accountability is not something politicians and
bureaucrats seek. Yet, creating greater accountability and
requiring explicit trade-offs among priorities improves
government.
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words>
Dennis
Schiffel is a former a former senior associate at the National
Science Foundation and a policy fellow of the Nevada Policy
Research Institute.
