Saturday, August 11, 2007

It's the SPENDING, Stupid!

Only yesterday (or so it seems) the Republican-dominated Wisconsin Legislature utterly failed to pass TABOR.

As it happens, I am not comfortable with the State's arrogance in making spend/tax decisions on behalf of local Gummints. It's a clear violation of the Principle of Subsidiarity, and that Principle is implicitly endorsed in the text of the 9th/10th Amendments to the Constitution.

That doesn't make the supporters of TABOR (or like legislation) evil; but it does emphatically undermine their position.

Another part of the problem for the Leggies was the question: exactly what do we restrain? Taxes? or Spending?

My answer (when asked by a legislator) was Spending!! By all means, Spending!!

Always nice to know that I'm right, even though it was the Clinton Administration which proved it.

Federal spending declined as a share of national income during President Clinton's two terms in the 1990s. Fiscal responsibility -- the need to curb the budget deficit -- was a consistent theme. The deficits that Clinton inherited, which put the squeeze on spending, were bequeathed by the earlier large tax cuts (and increases in defense spending) of the Reagan administration.

There is NO argument that the Reagan tax cuts were "bad." In fact, we all know that Fed revenues hockey-sticked UP following the tax cuts. The problem was that Fed spending (not only on defense, by the way) ALSO hockey-sticked up--at a rate greater than revenue increases.

A new study [PDF] by Richard Vedder and Jonathan Leirer for the congressional Joint Economic Committee, for instance, found that over the past 60 years every dollar raised in extra taxes has given rise to more than a dollar in extra spending.

Here's a "DOH" for you: in general terms, the "Supply-Side/Republican" people don't care about deficits--they reduce taxes because it's politically popular. This is called "starve the beast" rhetoric. Conversely, the Democrats care about deficits--and figure that the "right thing to do" is to increase taxes. But when they increase taxes, they ALSO increase program expenditures, continuing the deficits. Sometimes (Clinton is an example) they actually reduce the deficits, but leave massive downstream minefields.

"Starve the beast" exponents are not demanding packages of lower taxes and lower spending. They are saying that lower taxes will sooner or later wear spending down anyway. When you look at those cases -- instances where taxes have been cut independently, with no connection to new spending plans -- spending does not fall, say the Romers. In fact, it rises a bit. "Starve the beast" does not work.

The commonality between the "starve/supply-side" gang and the Democrats is easy to spot: they BOTH spend money as though it were going out of style.

And therein, my friends, lies the answer.

No PIG (Party-In-Government) member in his right mind will act on that, of course.

HT: McIlheran

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