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Taxes Versus Spending

02 Mar 2016

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.