Latest posts by Jesse Hathaway (see all)
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- Brady’s Tax Reform Proposal Could Unleash America’s Economic Engine - November 29, 2017
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No one knows exactly from where they come, but they descend like a horde of locusts, consuming resources people have labored all year to gather. Tasked with serving the “collective,” they take our resources without providing anything in return and then return from wherever they came.
Who are they? They’re the taxmen, and they’re coming to take your money.
Instead of setting the taxmen free to scour taxpayers’ wallets for increasingly more money, state lawmakers should limit how much the government can spend and demand accountability.
In some states, such as Alaska, lawmakers are doing just that. In February, Alaskan lawmakers proposed revising the state government’s existing limits on spending. The proposal would require caps on government-spending hikes to be adjusted for economic and demographic factors, such as population increases and monetary inflation rates caused by the Federal Reserve.
According to the National Association of State Budget Officers, a nonpartisan professional association of state finance officers, state governments spent about $1.9 trillion in fiscal year 2016, which amounts to $5,887 for every man, woman and child in America. Additionally, state government spending has increased every single year since 2012.
In 2016, state government spending grew 4% compared with spending in 2015. Of that spending bloat, transportation infrastructure spending hikes were the biggest consumer of government funds financed with in-state taxpayer money. Entitlement spending was the biggest consumer of all funds available to state governments, including taxpayer money provided by the federal government.
More government spending means less consumer spending and economic growth. Every dollar spent by the government is a dollar taken from taxpayers, who would otherwise use that dollar on something they want now or save the money for later.
Government-spending increases often require government-taxation increases, creating a feedback loop. The more the government spends, the more the government must tax. The more the government taxes, the less money people have to spend on things that are not taxes.
The government continuously expands, crowding out better uses of people’s money. Slowing government’s growth allows the private-sector economy to have a chance to grow faster than the government, thereby reducing the size of government in a proportional sense.
However, spending caps don’t just reduce the relative proportion of government spending; they also reduce spending in real terms. University of California-Santa Barbara economics professor Henning Bohn and Robert Inman, a professor at the prestigious Wharton School at the University of Pennsylvania, used government data from 47 states to search for a link between enforced government-spending restraints and states’ fiscal health(nber.org). Unsurprisingly, Bohn and Inman found state governments that are required to spend within their means are less likely to spend money they don’t have.
“After controlling for other possible economic and political determinants of state deficit behavior, our analysis concludes that tight end-of-year statutory and constitutional balanced budget requirements act as a significant constraint on state general fund deficits,” Bohn and Inman wrote.
“States facing tight balanced-budget constraints run general fund surpluses which are, on average, about $100 per capita larger than surpluses found in states facing only soft constraints.
“Further, replacing a soft constraint by a tight constraint reduces the average annual probability of running a deficit in a sample state from (26% to 11%). When we examine the composition of state budgets, we find that the increased surpluses induced by tight constraints are associated with reduced current spending rather than increased taxes.”
It is in government’s nature to increase its power over people’s lives, but spending caps can keep the beast on a chain, preventing it from gobbling up everything in sight and keeping government consumption at manageable levels.
By enacting free-market policies, making their states conducive to economic activity and constraining spending, state lawmakers can work to put government back in its place, benefiting consumers and taxpayers alike by freeing up resources to be used on things they want, instead of government bureaucrats’ salaries.
[Originally Published at Investor’s Business Daily]