Monday, November 22, 2010

Another Reason To Oppose Tax Increases

I'm not reflexively anti-tax, as I recognize the government needs revenue to carry out its legitimate functions. There are two parts of the problem, though. The first is that the government, at both the state and federal levels, is spending money on functions in which it should not even be involved; no one wants their taxes raised so that more money can be wasted. The second is that when government does get more money from taxes, it always spends even more money than the taxes bring in:

In the late 1980s, one of us, Richard Vedder, and Lowell Gallaway of Ohio University co-authored a often-cited research paper for the congressional Joint Economic Committee (known as the $1.58 study) that found that every new dollar of new taxes led to more than one dollar of new spending by Congress. Subsequent revisions of the study over the next decade found similar results.

We've updated the research. Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.
Starving the beast seems the only way.

4 comments:

mazenko said...

"Starving the beast" has been a mantra for forty years - it's never inhibited any party or any Congress. It won't without a balanced budget amendment - and that will never happen for basic, and at times valid, constitutional reasons. States have balanced budgets, the Fed won't. Simply opposing revenue streams will only increase the debt. The best option is not opposing new taxes or members who support them, it's choosing candidates who oppose new spending and are committed to paying down the debt and deficit.

Anonymous said...

"States have balanced budgets, the Fed won't."

It may be worse than you think. California has a requirement to balance the budget, but this just means that the state is required to *borrow* the extra money the politicians wish to spend.

The federal government works the same way right now...

-Mark Roulo

Wesley Fryer said...

I agree "starving the beast" hasn't worked and won't work. We need to make systemic changes in the way campaign finance works in our country and the ways federal budget dollars are allocated. We have to make changes which remove as much corruption and potential corruption from the system as we can.

We have to eliminate earmarks. Everyone knows this, but because of the benefits those bring to local areas (and other reasons) we have not acted. The line item veto should be given to the President. Additionally, we should enact Congressional reforms which stop earmarks from being tacked into bills. This is ridiculous, clearly corrupt in many cases, and is a major contributor to the overspending which you cite in this post.

I also think we need campaign finance reform. This is an issue around which there has been a lot of talk but little action. Mazenko is right, we need to elect different officials, but simply electing new officials into the same system and political culture is not going to change things broadly. Fix Congress First is one initiative which is trying to do this:

http://www.fixcongressfirst.org/

The work of the Sunlight Foundation is also critical, relating to transparency and the potential to leverage social media tools for democratic change:

http://sunlightfoundation.com/

The recent report of People for the American Way, "Citizens Blindsided: Secret Corporate Money in the 2010 Elections and America’s New Shadow Democracy," shared by political reformer Larry Lessig, points to our continuing problems with campaign finance which will persist until we (the voters) make systemic changes:

http://www.pfaw.org/media-center/publications/citizens-blindsided-secret-corporate-money-the-2010-elections-and-america-

http://twitter.com/lessig/status/5701590669328384

Darren said...

Earmarks and other pork barrel projects represent such a small percentage of federal expenditures. It's like trying to balance your family budget by not buying chewing gum anymore.

No, we need to get *entitlements* under control. It's our socialism that's driving us to bankruptcy. Your suggestions merely tinker around the edges.