Can We Do Better?

I often hear two major themes in criticism of the government.  First, government is too big and second, government spends too much.

These are easy ideas to get the mind around.  We accept the first statement as a given – the government is bloated; ergo, the government spends too much.  This strawman invariably leads to inter-congressional squabbling over outlays and revenues impacting taxation policy and fiscally responsibility.

We are looking for easy solutions for the problems facing this country.  Unfortunately, a simple solution does not exist.  The fact we demand simplicity highlights how intellectually bankrupt, as a country, we are.

We continue to look at the problem asking the wrong questions and argue over the margins of the issue.  This is not a matter of increasing the marginal tax rate on the wealthy by 3 percent – while this may provide a slight bump in government revenues, it does nothing to address the underlying cancer this country faces – how do you balance the budget?  All things being equal, our elected leaders (Republican or Democrat) are incapable of addressing the question.  Oh, each and every one of them will cite a plan which in theory can balance the budget in 8-10 years, and each and every one of those plans isn’t worth the paper they’re written on.

Here’s a simple fact and if accepted as true, should form the starting point for all future discussions:

Government expenditures should be less than the revenues it brings in.

If that is accepted as a given, then it is incumbent on whichever party is in control of government to establish a requisite fiscal policy that meets this requirement.

The wrong math is too often applied to the equation itself.  It shouldn’t require calculus to answer a simple algebraic problem.

The hard part is to ask and justify for what exactly should the government spend money on.
Once established however, then the government has a responsibility to raise the requisite revenues to cover every dollar of spending.  Any excess, and there should be at least some excess each year, should be applied to paying down the nation’s debt.

Manipulating the current tax code to meet this challenge is a fool’s dream and will never be accomplished.  The code is written as a public policy tool designed first and foremost to drive behavioral change in the citizenry and NOT to balance the book and actually pay for the government.  Moreover, these tax credits and loopholes are far too often driven by corporate lobbyists to best serve their micro-constituencies and not the average citizen.

Eliminating loopholes and tax credits and implementing a progressive flat tax is the first step to the restoration of sanity in government revenues.  I wrote several months ago on just how a progressive flat tax could be applied:

These tax rates need not be, nor should they be, fixed rates – but annually reviewable, and adjustable, to meet budgetary outlays.

Doing so would make the majority party that much more accountable to the will of the people!

In order to make it work, Congress must be required (as is its statutory responsibility) to pass the budget prior to the beginning of the fiscal year (September 30).  As House and approximately 1/3 of the senate elections are held every other November, there is ample time for citizens to approve or disapprove budgetary choices and the requisite tax rate that supports the budget.

Think about it for just a moment – Suppose liberal democrats are in control of congress and their agenda calls for increased spending for the next years’ budget.  A larger budget requires by default higher tax rates in order to meet the larger expenditure.  This tax increase is either accepted by the majority as a necessary outlay of government revenue or rejected in turn by voting out the incumbent party.  On the flip side, fiscal conservatives are in power and opt in favor of lower tax rates which in turn means less money available to fix infrastructure or provide basic services to the citizenry – this too can be rectified.

Circling back to the idea that government is too big, it should be worth noting that in terms of percentage of population, it is the smallest it’s been in half a century.

In 1962 the population of the country was just over 180 million.  The number of federal employees (to include military members) was just over 5.3 million –roughly 3% of the population was employed by the federal government.  Fast forward to today.  The nation’s population has nearly doubled to 309 million, while the number of federal employees has declined to just over 4.4 million – almost half the comparative size, in terms of percentage of population, the government was in 1962.  When viewed objectively, the government is not large – in fact a case could be made that government is too small!

This is not to argue that the size of the government budget is not excessive; however, that is the next question that needs answered.  It’s very easy to look at the numbers and make a fast conclusion that there is something amiss.  If the government plans to spend $3.7 trillion and only collects $2.2 trillion in revenues – it is fair to conclude that the government is spending $1.5 trillion too much in the year.  

On the flip side, there may be some that say $3.7 trillion in spending is a reasonable amount for government spending in the largest economy in the world – if that were the case, then tax rates should correspondingly be adjusted to meet the expenditure.  

The ugliest side of this political kabuki dance we engage in, me included, is we allow ourselves to get distracted by the minutia.  Whether by design, or because they themselves are ignorant, our politicians continuously play a shell game with the voting public to distract and detract.  Isn’t time we disengage from the bullshit and focus on the real issues in front of us?

The title of Thomas Friedman’s latest book is “That Used To Be Us.”  That is essentially what this country’s headstone will read if we don’t demand better now.
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