Taxes Versus Spending

The Committee for a Responsible Federal Budget, a DC group, had this to say about Ted Cruz’s campaign proposals:

“Republican presidential candidate Senator Ted Cruz (R-TX) has, by our count, put forward seven sets of policy proposals on his campaign website covering areas such as immigration, military spending, and tax reform. By our very rough and initial estimates, these major initiatives could add anywhere from $3 to $21 trillion to the debt over the next decade, with our central cost estimate being that they would add $12.3 trillion to the debt, including interest.

Assuming this central cost estimate, debt held by the public would increase from nearly $14 trillion today to about $36 trillion by 2026 (compared to $24 trillion under current law).1 As a share of the economy, debt under these policies would grow from roughly 75 percent of Gross Domestic Product (GDP) today to 131 percent of GDP in a decade (compared to 86 percent of GDP under current law). Under our high-cost estimate, debt could reach as high as 163 percent of GDP, and under our low-cost estimate – assuming significant economic growth – debt would remain on roughly its current course relative to the economy and reach 84 percent of GDP.2 Even this lowest estimate leads to an unsustainable result.” (February 29, 2016)

Given the assumptions made by the organization, it looks as if their estimates have some merit.  But must we accept all their assumptions?  The federal debt is a big problem, now and especially in the future.  But who says we have to keep all present spending constant and add Cruz’s proposals, plus some minor cuts?  The real issue being ignored is the size of government, size being in terms of its power to “do things,” which of course, given that power, leads to incredible spending.  Why must we capitulate to the thinking that we can never hope to reduce the scope of the state?  Granted, in the present institutional environment, the incentives are all one way—spend as much as possible now.  If each (or most) member of Congress wants to be re-elected in that current environment, he usually has an incentive to “bring home the bacon” to his constituents in more “things.”  That translates into more spending.  If every member acts the same way the treasury becomes a sort of “common pool resource” or a common trough, at which all feed freely without much care about the overall outcome.

In the above analysis the CRFB said Cruz’s proposal would have better results if he raised his flat tax from 16% to 24%.  But why raise taxes when the real problem is spending?  What I am suggesting is that Congress ought to take a hard look not only at its actual spending numbers but also at its legislative imperialism over the years.  Of course, Congress collectively won’t do that, despite its rhetoric (this is one reason why voters have been supporting Donald Trump).  What to do?  It seems the only real long-term solution would be a constitutional amendment to limit spending to some small percentage per year, with exceptions for war time (declared war).

How feasible is a constitutional amendment?  Given the amendment process, it would not be easy.  But if voter-citizen demand were intense enough, perhaps it would be easier.  Nevertheless, I believe the central problem begins with how much Congress appropriates, and that is caused by an eagerness to be elected, and that is ultimately tied to the incentives created by the “gap” in the Constitution that allows those strategies on the part of individual members of Congress.  Institutional design does make a difference.  But to go even one more step back, the problem allowing spending strategies like those I mentioned is due to an expansion of congressional power and scope over the past 80 or so years, and the willingness of the Federal courts to sanction that expansion.  We find in history that legislative bodies will expropriate as much power as they are allowed.  Formal and enforceable checks only can halt that tendency, apart from violent upheaval.

Back to the beginning, the problem is not, as I see it, Ted Cruz’s “low” tax rate, but our high and unsustainable spending, caused in turn by the exploding scope of governmental power at the Federal (and state and local) levels in the past decades.  The need is critical to engage in discussion of that issue first and to entertain seriously the idea that governmental power must be drastically limited.

23 thoughts on “Taxes Versus Spending”

  1. You state “But why raise taxes when the real problem is spending?”

    I state – bingo!

    Additionally, and finally, I thought there was someone in congress (or even a group) trying to assign a percentage of spending to GDP levels. I could be wrong on that though.

    Yet again, another GREAT piece from BATG!

  2. You sound upset that this group was critical of Cruz’s proposals because they didn’t take into consideration cuts. But when a candidate says this is what I’m going to do, you have to judge the value and effects of that, not on what other things may or may not happen. He had proposals related to spending also.

    What would you cut? You want a smaller government. Do you want to remove the safety net for the poor? Do you want to cut education? Do you want to cut the military?

    Where would you cut the hundreds of billions of dollars that the government NEEDS to cut (or raise in taxes) immediately?

    1. Every program is subject to the possibility of cutting. Inefficiency is not confined to some agencies or programs and not others. In addition, some programs just should not be governmentally funded or provided. And I do have criteria for that assertion. I was quite clear about the poor–those who cannot help themselves through no fault of their own. Education is much better privately provided, with some funding for the very poor (and school choice). And as I said, some agencies should simply be eliminated.

  3. If there is problem with debt in this nation, it is with discretionary spending, NOT mandatory spending.

    Social programs Social Security and Medicare are NOT the causes of the (so-called) problem. They have funded themselves for many years. Social Security has had a surplus every year since around 1984. Medicare is in OK shape, for now. Its surpluses will be exhausted by 2030, which means that benefits will still mostly be paid with receipts. In other words, at the moment Medicare still has a surplus and does not required borrowed money to fund its expenditures.

    If health care costs continue to stabilize, as they have under the ACA, that might help even more.

    The problem with the federal budget, rather, is with the OTHER parts of the budget. Over half of the discretionary part of the budget consists of military spending. Many Americans are completely ignorant about the budget and believe erroneously that education spending, or foreign aid, or energy/environmental spending are the causes for the deficit.

    They are wrong, probably because they have not taken the time to question the lies they have been told.

    Some presidential candidates, indeed, have run for office calling for the elimination of the Department of Education and the Department of Energy, or for ending all foreign aid (who could ever forget Rick Perry’s forgetting on stage which departments he wanted to eliminate?), as if those are programs are leeches that are bleeding the body politic.

    Fact is, even if those departments were eliminated, it would barely make a dent in the discretionary part of the budget.

    Cruz’s budget would sharply increase military spending, and many other Republicans support such an increase. And then they go about complaining about the deficit. Such hypocrisy makes no sense, because one cannot support a balanced budget and lower taxes while increasing military spending. The math does not work. It does not even come close to working. It is pure budgetary alchemy.

    Think about it: many if not most in the GOP want to CUT the part of the budget that is fully funded (SS and Medicare), while INCREASING the part of the budget that requires borrowed money (i.e. debt). And then they have the nerve to complain about social programs and to promise people all kinds of military action on the campaign trail.

    If people want lower taxes, then they are going to have to make due with a smaller military. Yes, this will hurt areas that are highly depending on defense spending, but you cannot have guns and butter and low taxes at the same time. It is mathematically impossible.

    Maybe it is possible in Shangri La, but not in the real world.

    1. When you say the cause of the so called problem, are you saying the deficit isn’t a problem?

      1. If the deficit were a serious problem, we would see EVIDENCE of that in interest rates. We don’t. the 30 yr yields around 2.7, barely more than inflation.

        There are plenty of more serious problems, one of which is the seemingly unstoppable rise of Donald Trump and the ongoing obliteration of the GOP as a national party.

      2. The deficit is a huge problem, but it can only “work” because politicians are allowed to spend more and more, because they have appropriated that authority (that they really don’t have and which the courts have allowed). “Starve the beast” by cutting its power.

    2. Could I get a citation for your claims about Social Security/Medicare’s financial status? I find them hard to believe. A quick Google search indicates that yes, indeed, Social Security is running a deficit, and SS and Medicare’s contribution to the national debt is significant.

      As to your continual griping about even the most common-sense positions in the GOP, I want you to read this Wikipedia page (pay particular attention to the pie graph on the right):

      https://en.wikipedia.org/wiki/United_States_federal_budget

      A Google search will readily confirm the 2014 numbers listed.

      As you can see, half of government spending is SS and healthcare. Military, which is explicitly defined as part of the actual job of a Constitutional government (unlike retirement plans and healthcare), has seen its spending dramatically reduced, as can be seen here:

      http://www.npr.org/sections/money/2012/05/14/152671813/50-years-of-government-spending-in-1-graph

      And to no net benefit. SS and Medicare continue to balloon out of control, eating up half of the federal budget and pushing us further into debt.

      Honestly, Jeff, if you claim SS and Medicare don’t contribute to our national debt, then YOU are living in fantasy land. If you believe that in the middle of our deleterious election cycle and the ISIS crisis we should CUT our military, you are living in fantasy land. If you think healthcare is stabilizing under Obamacare, you are living in fantasy land. (I don’t have time to Google this one for you, but the issues with the plan are readily apparent to anyone with a good economics book.)

      You cannot honestly say that the government would be worse off by returning 50% of its budget to its, you know, governmental functions. You could perhaps argue that the poor would be worse off (in the short term, anyway), but as you imply, we are not budgetary alchemists – we can’t fund things with money we don’t have. The GOP, for all its faults, at least wants to return a portion of our budgetary funds to a program the government should be prioritizing anyway. Which is worse – forcing freeloaders to get jobs and poverty-stricken families to go to charities, or driving the whole country down under an economic burden it will never be able to lift?

    3. I’m not sure where to begin. ALL spending is subject to cuts and all programs are subject to reduction or elimination. Even military spending is subject to cutting, as I see it. Inefficiencies are not limited to just some agencies. And government simply should not be doing some things at all. It is possible to have guns and butter and lower taxes if one sees beyond the narrow confines of pet programs and realizes that every program has to be subject to possible cuts or elimination, mandatory and discretionary spending. I am looking for smaller government overall, a smaller scope, less power for the DC crowd, more freedom for the rest of us.

      1. One observation: it would be morally wrong, for one thing, to cut SS.

        It would amount to a broken promise to those taxpayers who thirty years ago had to go through increased payroll taxes. Now that these same taxpayers are retired or are retiring, why should they have to see their benefits cut (or have to endure later retirement dates, an idea which some GOP presidential candidates have proposed, for some reason).

        Considering SS is the most completely funded part of the budget, it should be left alone.

        You say, “Even military spending is subject to cutting, as I see it.” EVEN? It should be the very first thing, since it is that part of the budget that is funded largely through debt. And yet the GOP wants to INCREASE this part of the budget, while CUTTING taxes.

        Haven’t we heard that line before? And it did not work back then. That is the problem with math: politicians can make promises, but the math can easily undo them, turning their sweet promises into sweet nothings.

        But voters still fall for it. When will they ever learn?

  4. Marc said, “The deficit is a huge problem, but it can only “work” because politicians are allowed to spend more and more, because they have appropriated that authority (that they really don’t have and which the courts have allowed). “Starve the beast” by cutting its power.”

    If this is supposed to be an objection, it is seriously lacking.

    You have not demonstrated that the deficit is a huge problem. You have merely thrown out big numbers, something that anyone can do, really.

    If the deficit is a huge problem, then why are long-term interest rates so low? Or are YOU right and every lender to the federal government is wrong?

    1. You have not demonstrated that the deficit is NOT a huge problem. If your only evidence that deficits are not a problem is that interest rates are low, I would say it is your arguments that are lacking. The absence of one particular symptom does not mean the disease does not exist and will not begin to cause problems in the future.

      And for the record, it would be far more immoral to not have a properly equipped military that is fully capable of performing what is required of it than to cut SS. The military should never be the first thing to cut. If anything, since the primary duty of a government is to protect its citizens from external threats, the military should be the first part of the budget that is completely funded. Don’t misunderstand, I am not arguing for simply throwing whatever money we want at the military. We can have debates about what level of funding is necessary and proper and how best to make efficient use of funds and allow that to determine the amount needed so that we do not overspend, but all that should come first. Then we should talk about social programs.

      But if SS is the most completely funded part of the government and the military is funded largely though debt then that demonstrates a total lack of understanding of the primary purpose God had for government in general and the purpose the founders had in mind for the federal government of the United States.

      Its time we rediscovered the 10th Amendment and realized that aside from common defense and protection of Constitutional liberties, much that the federal government now does was originally intended to be left to the purview of the States. Let the federal government deal with what it is supposed to deal with and let each State take care of the social needs, etc. of its people as it sees fit. Each State has different needs and requirements and as much as possible they should be left to govern their own affairs.

      “The government closest to the people serves the people best.” -Thomas Jefferson

      1. “You have not demonstrated that the deficit is NOT a huge problem.”

        Right off of the bat, you have committed a logical fallacy–an appeal to ignorance.

        The burden of proof is the one making the claim. That is how the game is played.

        “If anything, since the primary duty of a government is to protect its citizens from external threats, the military should be the first part of the budget that is completely funded.”

        Then taxes will have to be raised, not cut. End of story. If you don’t believe me, do the budget math.

        Unless you are proposing that the payroll taxes that are supposed to fund SS are to be stolen from taxpayers to be used for something else. Is that what you are proposing? Theft? Fraud?

        “But if SS is the most completely funded part of the government and the military is funded largely though debt then that demonstrates a total lack of understanding of the primary purpose God had for government in general and the purpose the founders had in mind for the federal government of the United States.”

        That is clearly your opinion, one that is not supported btw from many scholars of the Constitution. You may feel that Ron Paul, etc offer compelling interpretations, but there are many people smarter than you and me that would disagree. By that your political opinion is God’s, which is at the very least borderline heresy. Unless there is some verse that I missed that specifically says that government spending on social programs is a sin.

        What is your evidence that the FF believed in air defense? Is air defense (which makes up a great deal of military spending and waste) in the Federalist Papers?

        What is your evidence that the FF believed in a military that is so large that it has to be funded through debt (military spending doubled between 1998 and 2011)?

        What is your evidence that the FF believed in a military that should be fiscally irresponsible, spending billions on failed, money-burning projects such as the F-5?

        I agree that there has to be a military. But there is no reason why it has to be so large that is needs to be funded largely through debt. Moreover, if taxpayers want an unusually large military, it should be willing to pay taxes for it.

      2. I cannot speak for others, just myself, but, first off, whenever you invoke your “fallacy” terminology, it only signals that you have nothing of any true substance to say.

        That said, you obviously didn’t read what I actually wrote since your response attacks me for things I never said.

        First, I was addressing how things should be, not what they really are. As for SS, it does not work like a savings or retirement account (maybe it should). Some people pay more into social security than they get back, others pay less into it than they get out of it. So if you think it is immoral for someone to get less from SS than they paid in, guess what, it already happens. If we actually operated a SS system in which one was legally entitled to the same amount they paid in, you would have a very valid argument. Unfortunately, the SS tax is just that, a tax. Once the money goes in, it is Uncle Sam’s, not the individual’s. SS is, essentially, a redistribution of wealth that shifts money from one generation (the younger, paying generation) to another (the older, receiving generation).

        I could easily give you verses that talk about the Biblical role of government but it would merely be a waste of time as you would simply come up with one of your ubiquitous convoluted solutions as to why I have taken Scripture out of context or that it means something else entirely.

        “What is your evidence that the FF believed in air defense? Is air defense (which makes up a great deal of military spending and waste) in the Federalist Papers?”

        What sort of idiocy is this? Under this logic we might as well ask what evidence there is that the FF believed in the Abrams battle tank, the B-52 bomber, the F-16 fighter jet, the submarine, or the air-craft carrier. After all, the Federalist papers don’t mention any of those things so I guess you oppose funding them as well?

        “What is your evidence that the FF believed in a military that is so large that it has to be funded through debt (military spending doubled between 1998 and 2011)? What is your evidence that the FF believed in a military that should be fiscally irresponsible, spending billions on failed, money-burning projects such as the F-5?”

        I am note sure why you think I was arguing this since I specifically said in my post “Don’t misunderstand, I am not arguing for simply throwing whatever money we want at the military. We can have debates about what level of funding is necessary and proper and how best to make efficient use of funds and allow that to determine the amount needed so that we do not overspend…”

        So I NEVER argued in any way whatsoever that the FF believed in a military funded through debt or one that was fiscally irresponsible.

        In response to “If anything, since the primary duty of a government is to protect its citizens from external threats, the military should be the first part of the budget that is completely funded.” you wrote “Then taxes will have to be raised, not cut. End of story.”

        Again, you didn’t pay attention. My argument was that if government had its priorities straight, it would ensure the military’s essential programs (note: I exclude waste which I fully agree needs to be controlled) are fully funded and paid for BEFORE anything else. The debate should never be whether to raise taxes or not to make sure our military can do its job, but whether to raise taxes or not to fund social programs.

        And on that note, I will close by saying that I NEVER said government spending on social programs was a sin. Why would I? Of course there is no Scripture to support such a ludicrous position. What I said was fund the military first THEN have a discussion over funding social programs if the government is fiscally capable of doing so. You are free to disagree with my views on the order of spending priorities but you are NOT free to claim I said something I didn’t and then argue against it.

        Pleasant day, Sir.

    2. Deficits and debt are a big problem because of (1) what we are doing to our children, grandchildren, etc. (2) the possible crowding out effect in investment, at least. They also mean more political demand for higher taxes. Interest rates don’t tell the story of the negative effects of debt. They are in part (as my colleague Jeff Haymond argues) a moral problem. And if much of the deficit spending goes to fund services that are immediately “consumed,” then there is no long term return on the “investment” for future generations–but who will still have to service that debt.

      1. In addition, Social Security (1) has grown too expansive in scope and (2) where it continues it can be much better provided with a different approach. On (2), remove government and compel individuals to contribute to some sort of investment fund. They will make MUCH more money in the long run. Better for all.

  5. I agree that the current spending and scope of our government is concerning. It is an unfortunate cycle and incentive process for politicians to “act in the best interest of their constituents” when they are really just giving them more benefits. It seems like this, as you suggest, would be difficult to reverse but I’m sure some candidate could make a case for at least eliminating waste in the government. Constituents could latch onto that notion as opposed to raising taxes.

  6. It seems like people have just given up on the idea of trying to reduce our debt, and as a result, are willing to simply agree with ideas of spending more money to achieve what they think needs to be done. I would agree that the size and power of our government is very concerning and changing that is the first step in helping to solve our debt problem.

  7. It is unfortunate how misunderstood government spending is in politics today. So often politicians spend more than necessary simply to convince people that they are working hard at fixing the economy in a way that the economy can’t be fixed. Instead of increased government spending to encourage consumption, perhaps the focus should be on the investment portion of GDP. This could benefit people by making jobs and raising employment rates. Additionally, this lower spending wouldn’t unnecessarily raise the debt at the rate that is happening in America. Under the Obama administration, and Bush before him, the debt has risen to astronomical levels. It is sad that few of the candidates seem to care much about this impending problem.

  8. Nathan D,

    “I cannot speak for others, just myself, but, first off, whenever you invoke your “fallacy” terminology, it only signals that you have nothing of any true substance to say.”

    If you do not care whether or not your reasoning is fallacious or not, then, we have nothing else to talk about.

    Since we are speaking different languages (mine is logic and reason, yours is emotion), I kindly ask that you not comment on my posts in the future.

  9. Those voters who truly care about deficits and debt should not vote for ANY of the remaining GOP presidential candidates except possibly Kasich, nor should they vote for Democratic candidate Sanders.

    If they do, then we have a classic case of saying one thing and doing that which contradicts what one has said.

    The notion that the GOP care about deficits and debt has been debunked by about three decades and a half of American history.

  10. I agree with what you had to say here. I definitely think that the government has too much power in spending and that needs to be limited. One of the problems with our system is that Politicians make promises for more benefits in order to get elected and then have big incentives to enact these policies in order to stay in their position. There needs to be some sort of incentive or way to decrease government spending and educate the public on the effects of “free stuff”.

  11. I agree with you that spending is the driving issue of debt. I also agree with you that cutting the size of government would go a long way to lowering spending. However, I’m getting tired of candidates saying that they are going to cut spending and decrease the size of the government without having a detailed plan. Cutting government spending is not something that happens overnight, and it certainly isn’t a popular decision for those individuals who are impacted by the cuts. I’m not sure that any of the current candidates will have the resolve to make the cuts that need to be made.

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