Wednesday, May 28, 2003

Is new thinking on taxes and spending possible for lawmakers?

By Darrell McKigney

It's telling what makes front page news these days. Recently, this headline appeared on the front page of the Washington Post: "GOP Eyes Tax Cuts as Annual Events."

The Post story reports that the Bush administration may actually be considering pushing for a tax cut each year, big news in the nation's capital.

Why? To put it in perspective, it wouldn't be a story at all, much less a front page story, if the Bush administration announced it was going to make spending increases on any particular government program an annual event.

After all, in Washington and in state capitals and city halls around the country, that's just the way it's done. And in the minds of many, that's the way it always has been and always will be, and to suggest anything to the contrary is something both irresponsible and radical. It's the paradigm we're in, and anyone who dares think outside that box is truly a heretic in modern political culture.

The gospel of ever-increasing government spending is being practiced with the fervor of a tent revival. As detailed in a recent SBSC report on state spending authored by our chief economist, Raymond Keating, state and local spending alone nationally increased from 1992-2000 by almost 40 percent, some two and half times the rate of inflation.

As result, spending was $1000 per person or some $271 billion more in 2000 than if spending increases had been held to inflation. Federal spending has also been increasing along the same lines.

State spending has increased so fast, state governments can't even catch up. Forty-seven states entered the year facing budget deficits, and the shortfall is so great that the U.S. Senate voted to borrow $20 billion (which we'll all be paying interest on for decades) to help bail them out.

In most of these states, the idea of even slowing down spending, much less rolling it back, is regarded as a dangerous heresy.

In Minnesota, which spends more per person than just three other states, new Governor Tim Pawlenty is standing by his no-new-taxes campaign pledge and is shrinking the growth of state spending to 5 percent to keep that pledge. This seemingly modest move has been blasted as a "radical departure from Minnesota's values and traditions" by the state's largest newspaper.

The Pawlenty plan also drew fire from a bipartisan group of four former Minnesota governors who actually argued that a tax increase was the only way to keep the state's economy growing.

Former Republican Governor Arne Carlson, himself a tax raiser, argued, "You have to protect the infrastructure that allows you to drive economic growth." Of course, if Minnesota state spending returned to the levels of the last year of the Carlson administration in 1998, it would be roughly a third less than it is now, which he would consider to be irresponsibly low today.

In New York, which spends more per person on state and local government than all but one state, a Republican Senate and Democrat-controlled Assembly teamed up to override Gov. Patacki's veto of a tax increase. If the veto had been sustained, New York state spending would have been "radically" reduced by less than 1 percent.

The good news is this nation is moving towards a new way of thinking at least when it comes to the level of taxation.

Around the country, voters in even the traditionally highest taxed states such as Minnesota, New Mexico, Rhode Island, Vermont, Hawaii and Maryland have elected new leadership which is publicly committed to, and for the most part is, keeping commitments to keep the lid on taxes in the face of the cries and lamentations of old guard politicians, newspaper editorial boards, lobbyists and flogging ad campaigns from various labor unions.

In Oregon, where state and local spending per person is the seventh highest in the country, state lawmakers who were afraid to raise taxes themselves put a tax increase on a statewide ballot and loaded the deck by legislating automatic cuts in popular programs such as police protection and nursing homes should it fail. It did.

And for the most part, politicians who are sticking to their no-new-taxes pledges are faring better in the polls than tax-hiking governors, such as California's Gray Davis, who is pushing an $8 billion tax hike, and finds his public approval has slipped to a lowly 24 percent.

The bad news is that real, long-term tax reduction requires actual reductions in spending, and seemingly no one, even the Bush administration, is publicly thinking that far out of the box.

Those who do make that argument are now regarded as crazy, kind of like those radicals who once argued that we should try to roll back communism, or end welfare as we know it.

Minnesota's Pawlenty, for example, is staunchly standing his ground in defense of his no-new-taxes pledge, but offers the consolation that he doesn't actually see deep tax cuts or a move to cut spending in the future.

In the Washington Post story, NFIB Vice President Dan Danner dismissed the idea of annual tax cuts during the Bush years as "not very realistic."

But in reality, a political shift on spending may not be as far off with the public. The dramatic growth in support for politicians who pledge not to raise taxes, a once radical notion initiated by Americans for Tax Reforms' Grover Norquist less than 20 years ago, has spread like wildfire and has fundamentally transformed the debate in Washington where most of the highest profile critics of the 2001 Bush tax won't speak of repealing it. And, it's quickly taking hold in state capitols as well.

It's taken hold for two reasons.

First, more and more people simply don't see any marginal benefit in additional spending. In some states, they've seen state budgets double without any noticeable improvement in schools, roads, police protection or other fundamental services. And in cases such as welfare spending, they've seen increased spending lead to real harm.

Second, there is a growing reawakening among the public that government is not the sole benefactor of the public good. There is an increasing recognition that other institutions such as the family, businesses, churches and charities also play key roles, and that government spending competes for dollars with these institutions.

It is this second reason that holds the key to arguing for actual reductions in the size of government. Politicians and reformers need to learn to frame the debate on these terms. They need to understand and point out that small businesses are the first department of economic development. The family car is the first department of transportation. That families, churches, and charities are key providers of health, education, and welfare.

When the public and the politicians begin to see government as a competitor, rather than the only source, for funding, the spending debate will change.

When politicians begin to articulate that every additional dollar spent by government comes at the expense of the rest of the social infrastructure, that the choice is not one of spending more or doing nothing, then perhaps they can start sticking their heads outside the current spending box.

Now that would be front page news.

[Darrell McKigney is president of the Small Business Survival Committee, a national nonpartisan small business advocacy organization. Find out more at www.sbsc.org.]