This week, both the feds and states have been struggling with the idea of balancing the budget by making cuts or increasing taxes. Today’s Fix the Tax Code Friday question is:
If you had to choose, would you rather see tax increases or spending cuts? If “spending cuts” is your answer, are there any cuts that are completely off the table (i.e. health care, education, transit, military, terrorism protection)?
KPE –
I would rather see spending cuts any day.
No departmental budget should be spared.
There is so much pork in the budget of any governmental entity – federal, state (some states more than others) and local – and this pork finds its way into every department.
I would not want to necessarily cut “programs”, but administrative costs, fees, perks, etc.
When a business faces a deficit it can not always automatically raise prices to close the gap – it must look to trimming the fat. Unfortunately with government it can always “raise prices” by raising taxes, fees, etc, which is a lot easier than cutting expenses. And we know full well that politicians are basically lazy and when in doubt will always choose the easiest solution.
TWTP
I reject the premise of the question, as it is a false distinction. If I had to choose, I would cut tax spending. All of those targeted tax breaks that narrow the tax base, complicate the Code, facilitate political games, and help the government to choose winners and losers.
There is no substantive difference between providing a 30% Tax credit for solar panels or wind turbines, and using the same amount for direct spending on those renewable energy sources. Similarly, you could reduce government spending on Education, by rolling back the Hope and Lifetime Learning credits. I am not advocating a cut in funding for renewable energy sources or education spending. I just think if you want to spend money, do so outside of the tax code. At least that way the public as a better perspective on what is actually being spent, and a real discussion on its value can be had.
Politicians have been using tax expenditures as a decoy for decades. When congress adds a tax credit or deduction, they say they cut taxes, but it effectively increased spending. If they remove or limit credits and deductions, they will be chastised for increasing taxes, but at the same time they have in effect reduced government spending.
Sure it would be great for governmental departments to cut their direct expenditures, as there are inefficiencies and many government agencies that would never be tolerated in a competitive business environment. However, tax expenditures are a bigger problem. They allow politicians to increase spending while calling it a tax cut; interfere with free markets by picking winners and losers; narrow the tax base, distorting it way from a true, income tax; and increases complexity in an already complex tax code.
I agree with the above post that the federal govt (and states) should cut out tax credits.
Additionally, I believe that the govt should reduce its spending across the board spending except military and national defense.
And no more new taxes rather the tax rates should be cut across the board and corporate taxes should be eliminated
Paleoconservative checking in.
Spending should be cut. I think the feds should cut about 90% of their spending, leaving the money in the states that produced and go back to the 50 state experiments model.
I’d pull our troops out of the rest of the world – let Europe pay for her own defense. Israel too.
Social programs would be the last to go. We’ve created 3 generations of people who are convinced they can’t survive without massive government spending, and it would take that long to wean them back into productivity and self-reliance.
I can’t think of anything that’s off the table. By it’s very nature, government spending lead to bloat and inefficiency, so while I would never advocate, say, slashing education budgets, I would absolutely insist the system needs an innovative overhaul.
Cut spending or increase taxes is a false dichotomy. Spending should be cut and taxes should be cut.
1940 federal budget – $9,468,000,000. (9.4 trillion)
2009 federal budget – $2,853,473,000,000. (2.8 quadrillion)
(http://www.whitehouse.gov/omb/budget/fy2005/pdf/hist.pdf)
$9,468,000,000 adjusted for inflation only equals $145,870,000,000 (145 trillion) today. The budget has increased 20 times the rate of inflation since 1940 (I’m sure it’s much higher since 1913 when the fed was created and inflation became a problem, but the budget tables listed above only go to 1940).
Angela is correct, spending should be cut 90%. However, it shouldn’t take much longer than one generation to eliminate the welfare spending.
I think Tim’s idea is great. Since a tax credit is the same thing as writing a check to a taxpayer, why not force Uncle Sam to do that? Send a check to the taxpayer for each and every behavior that is now subsidized or encouraged with a credit. Further — to really put some teeth in the measure — add FULL DISCLOSURE of all checks written to all taxpayers worldwide.
Imagine that for every Alternative Energy credit, Hope Credit, Payback-For-Supporting-My-Pet-Project Credit, and so on, we could look on http://www.ustreas.gov and see exactly who the check was written to, when it was sent, and how much. Imagine that your neighbors could look you up and see how much money the Treasury sent you last year. That, I submit, would change people’s behavior more than any other legislation, and cause the biggest tax-policy revolt, in history. All that without making any substantive change to the Tax Code!
While we’re at it — since I’m on a roll here — let’s get rid of withholding and make everyone pay quarterly taxes by writing a check. Another revolutionary change, which would cause a massive tax revolt, without making any substantive change in the Tax Code!
Urb
Having worked in government for 9 years I would add this: In Milwaukee, our local leaders don’t want to look like bad guys by raising taxes. So their magical solution is to create fees for everything and then they just raise those. So, as a property taxpayer, I’d rather have my taxes go up because at least deduct them from my income tax. With fees, there’s no tax break anywhere. But as a government insider, I can tell you that anytime government “cuts spending” it is NEVER from the pork. Why? Because “pork” to you may be a valuable service to another person. What you call a handout, I may call a lifeline. Now multiply that by the number of people in the constituency and you begin to see that fixing government isn’t as cut and dried as it appears. What actually happens when government cuts spending is they either reduce or eliminate valuable services or they lay off low level employees (i.e. the worker bees that perform the services). It’s an unfair question, to me. If you lower taxes then there is less revenue to pay for needed services. Cutting spending means cutting those same needed services. I vote for forcing people to buck up and stand on their own two feet. Less dependency on government means less need for government services – – then we can both lower taxes and reduce spending.
Jill, I worked for the state of Arizona from 2001-6 — you remember how bad things were in 2002-3 or so, I’m sure — and even in the worst of budget crunches, there was always a little money left over at the end of the fiscal year. My manager asked me, one year as we approached June 30th, “Is your PC performing OK? If it’s not adequate, I might be able to get you a new one; we have a little money we haven’t spent, so we have to get rid of it before the end of the fiscal year. Let me know, and I’ll see what I can do.” I told him, “Thanks — but my computer’s doing okay; I’m good for at least another year or two.” This was in a year when our department had cut our budget by almost 20% because of revenue shortfalls. There is ALWAYS some fat. Things are much worse here in Rhode island, with decades of patronage, union-mandated seniority-based “bumping” when layoffs are needed, a one-party legislature, and — more cynical types than myself might suggest — control of government agencies by former organized-crime bosses gone legit. (I’m sure you remember that the ex-mayor of Providence spent five years at Club Fed. His successor at City Hall isn’t much better — his brother is a former mob lawyer with a penchant for bouncing checks.)
In tough times, public agencies always claim they’re going to have to cut crossing guards, close fire stations, euthanize zoo animals (that’s the outrage du jour in Massachusetts), and otherwise cut budget items that they know will make the public scream. They never talk about closing the Department of Business Regulation, ending the practice of having state troopers sit at every highway construction site for $35/hour, or granting full pensions to 48-year-olds. This is how it works.
In ten minutes, the average american could find billions of waste in every state and the federal budget. Now if you consider all the wasted money on government programs and pork, the opportunities to cut spending are abundant.
If government could spend itself into prosperity, we would have seen it by now. The fact is that they cannot and the burdens of all the wasted money and debt will live long past the time when the money was wasted.