Commentary: No hit in the same old refrain - tax, spend and plan
This article first appeared in the St. Louis Beacon, May 22, 2009 - I have come to the conclusion that politicians and policy makers are channeling the lyrics to the hit by rock group Ten Years After: "I'd love to change the world." Consider the line "tax the rich, feed the poor, till there are no rich no more." Hasn't that become the mantra for fiscal policy discussions in Congress and state legislatures around the country?
The governor of Illinois, for example, recently suggested that tax rates should be raised on the rich because, well, it was just the fair thing to do. California's Legislature also tried the tax increase route to solve its budget woes and met with public defeat.
Voters in California defeated ballot measures that, among other things, would have sustained tax increases already in place, capped state spending and allowed the state to tap the lottery. These measures were promoted as necessary to save the state's dysfunctional budget system. The one referendum item that did pass was a freeze on pay raises of legislators and other office holders during years in which the state runs a budget deficit.
The voters' voice infuriated the political left. The LA Times reported the outcome with "California voters exercise their power -- and that's the problem." The New York Times took a not so transparent swipe at the voters with the headline "Calif. voters reject measures to keep state solvent."
What concerns many observers is that governments at the state and federal levels are just not being held accountable for bad decisions. Many states ran budget surpluses that were squandered with profligate spending. Rainy-day funds were not set aside. Now, as state economies are experiencing major shortfalls in revenues, those built-in expenditures are creating massive deficits. The solution? "Tax the rich ..."
Not only are the rich in danger, so are beer and soda drinkers and smokers. All three products face tax hikes, the revenues from which are ostensibly earmarked to fund various medical programs. It is well known that such taxes are highly regressive, but that anti-poor fact hasn't fazed legislators seeking funds to enable their spending.
Besides increasing the taxes you pay, the government is making significant and lasting inroads into the economy. We have all suffered an economic shock. And during times of stress most of us would just like someone else to make the decisions. The refrain from "I'd love to change the world" has become the public response to ever increasing government intrusion: "I'd love to change the world, but I don't know what to do. So I'll leave it up to you."
It is important to resist such temptation.
Is there a role for government? Yes, even the most die-hard libertarian agrees that governments must set the rules of the game. But the current movement is more than that. It smacks of a reincarnation of national industrial policy hailed 25 years ago as the only avenue to a prosperous economic future.
With the economy emerging from what was the worst recession in the post-war era, Democratic contestants in the 1984 presidential race uniformly advocated using government-directed policies to save the nation's industrial markets. Proponents claimed that such a policy would ensure the economic prosperity enjoyed by countries employing national industrial policies, like Japan. Voters in that election rejected that push to the left.
The facts support the voters' distrust of national industrial policies. Japan's economy crumbled in the early 1990s and has yet to fully recover. The U.S. economy, in contrast, experienced significant economic growth from 1982 into this century.
Centralized economic policy and expanding the tax base to fund such activities will not foster future economic growth. Ten years from now, when the rich are no more and smoking has been taxed away, where will new tax revenues come from?
Rik Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.