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The Dollar for Dollar Spending Cut

Compensating the people for smaller government.

by James Leroy Wilson
December 9, 2004

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One of the problems with tax cuts is the problem of government as a “public” enterprise. Taxpayers pay for government, but government serves everybody, taxpayer and non-taxpayer alike. The military is supposed to keep us all safe, not just the taxpayers. Law enforcement agencies are supposed to punish all crime, not just crimes against taxpayers. Schools, public parks, and libraries are supposed to elevate the cultural life of the whole society, not just of the taxpayers. And social service agencies, unemployment insurance, job training programs, etc., are to provide an economic “safety net” for all, not just for taxpayers. Just because some people can’t pay taxes, such as children, the disabled, and the jobless, doesn’t make them any less entitled to government services. If taxes are cut, then taxpayers benefit, but the “public” as a whole suffers. Tax cuts lead to cuts in government services, or to deficit spending which causes inflation and raises taxes on future taxpayers. Everyone gets hurt.

That is the theory at least. For the present purpose, I’m not going to argue against the wisdom or justice of this line of reasoning. I’m not even going to propose any radical tax reform of replacing one kind of tax with another. I will, instead, accept the argument that government services - no matter their size, purpose, or wisdom - are intended for everybody‘s benefit. I will also accept that government programs are good. And that even if government jobs and redistribution programs financially benefit some individuals over others, there is a legitimate social, cultural, or economic benefit to the public for this.

For the sake of simplicity, let’s assume our nation has 300 million people and a federal budget of $2.4 trillion. Each dollar spent by the feds had the virtuous design, in some direct or indirect way, of benefiting the American people as a whole. If that is the case, then each individual is enjoying various benefits from the federal government that equal $8000. Let us therefore assume that if the federal government cuts the federal budget, the people are robbed of the benefits of government and deserve compensation. If the feds cut a program by $300 million, each American deserves one dollar back, both taxpayer and non-taxpayer alike, for the non-taxpayer suffers from the loss of government as much as the taxpayer. If another small program is cut $30 million, we each deserve ten cents back. A $10 billion cut would mean a payment of $33.34 to everyone. The more the government is cut, the more each citizen should be compensated.

But wait, why am I suggesting this? Neither Democrats nor Republicans show desire for any actual budget cuts. Why should we do this?

Because we all know the obvious: there is much that the federal government spends that is inefficient and counter-productive. Although the federal government’s funding ought to go to those things that benefit the nation as a whole, it often goes to fund local projects such as jobs-making, votes-producing pork-barrel projects for individual Congressmen that serve no discernible benefit to the rest of the country. Or it is directed toward bad ideas with attractive slogans, like “War on Terror” or “No Child Left Behind” or “Prescription Drug Benefit for the Elderly.” Deficits do not matter to Congressmen - they won’t be held individually accountable for any future fiscal mess.

What this small reform of “compensating” each American for federal budget cuts would do, is provide a counter-balance to “politics as usual.” Each Congressman would look at a spending bill with a more careful eye. Instead of horse-trading upward - I’ll vote for your pet spending project if you vote for mine - there will now be at least some incentive to horse trade downward. I’ll vote for your proposed spending cut if you vote for mine. No guarantee, mind you, but pressure. If individual voters - and even non-voting members of their families - would be “compensated” for budget cuts, then it is in many Congressmen’s electoral interests to make sure their constituents get as much “compensation” as they can.

It provides a negative pressure, a “check” or “balance” against unnecessary government spending - something both the Left and the Right ought to endorse. Few would favor spending increases of any kind unless absolutely convinced that it was essential for the future of the nation, and every Congressman would have the incentive to go on a crusade against waste, pork, and inefficiency.

But if real budget cuts were passed, how would the American people be compensated? One simple way is to use the income tax return form. If the federal government’s budget was slashed one year from the previous year, then compensation would be calculated by the size of the cut divided by the size of the population. Let’s say the budget was cut by $120 billion - $400 for each American. For you, your joint-filing spouse, and your four dependants, you would fill $2400 on the form. This will either be added to the amount you are refunded, or deducted from the amount you owe. And single person, rich or poor, would get $400 back as “compensation” for the lost government services.

A second simple solution would be to return the money to the states according to population. This might be in the best interests of Congress. This money could then be used in tax rebates, or for paying for services that had been paid for by the federal government, or for whatever purpose each state desires. What’s California’s population, 36 million? With a $120 billion federal spending cut, they can proudly deliver $14.4 billion back to the state.

In any case, the spending cut and the resulting “compensation” would have no effect on either the tax rates or the deficit. If the budget is cut by $120 billion, so would the tax income. A $500 billion dollar deficit before, would be a $500 billion dollar deficit after. My proposal doesn’t address the fundamental problems of the income tax and government financing. Those questions are for another time.

The problem I’m addressing is that Congressmen have incentives to spend more and more, to enlarge government, and virtually no incentive to spend less. But if the spending program isn’t any good, then it is better to just give the cost of the program back to the people, then to spend money on the program. Since the people will learn that spending cuts will benefit them personally no matter their tax burden, they will apply pressure on Congressman to work for spending cuts. This instinct on the part of the people may be selfish and ill-reasoned, but unlikely to be more selfish and ill-reasoned than the arguments of lobbyists and the party leadership who demand more government.

It is simply not reasonable to assume that politicians are politicians for the sake of a dis-interested desire to advance the “public good.” Even the best-intentioned Congressmen have personal interests. And I’m not saying that they should never compromise. But I will say that there are no pressures on them to vote against unnecessary or unconstitutional government programs. The pressure is always to vote for more government, not less. My “compensation” plan, by appealing to voters and their families directly, puts electoral pressure on Congressmen to vote against wasteful programs and unnecessary and unconstitutional laws.

If pressure for more spending is balanced by the pressure for less, then the Congressman may better way a spending bill on its actual merits. This proposal would restore reason and objectivity in government.

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