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A Real Rebate

Let's give Congress incentive to cut spending AND put more money in our pockets at the same time.

by James Leroy Wilson
November 20, 2008

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A Real Rebate

Many federal programs don't cost the taxpayer all that much. Based on the assumption that every resident in the country is, directly or indirectly, a taxpayer, a $100 million pork barrell project costs the average taxpayer less than 33 cents. But it fills the pockets of a few people in some part of the country. Big Government is achieved by thousands of cuts to the taxpayer. But no one single project causes much harm.

The result, however, is budget deficits, because Congress is willing to spend more than it is willing to tax. Deficits have an inflationary effect on the economy. To finance them, the Federal Reserve creates new money our of thin air. This increase in dollars decreases the dollar's value, which means prices rise. But price hikes create the illusion of greater demand and a booming economy, prompting over-production and mal-investment. When the bad investments go south, the alternatives are bankruptcy or government bailouts. Either way, credit is tightened. And either way, consumers begin to doubt their own job security and are more cautious in their spending. The result: recession. Budget deficits are a cause of the boom-and-bust cycle.

Last week, I proposed corporate tax relief as one way to get the economy moving again. This week, I propose another way: cutting federal spending and putting some of the savings into the bank accounts of taxpayers.

But Congress will need an incentive to introduce them. Here's my idea.

Congress should cut spending from last year. With the money saved,

  • return one-third to the taxpayers in the form of a rebate to all who filed taxes.
  • return one-third to the state governments.
  • use one-third to cut the deficit and/or pay off the national debt.

For the purpose of rounded numbers, I will use budget and population figures of a couple of years ago. Let's say the budget is $3 trillion and the population is 300 million. The cost of the federal government is $10,0000 per person.

And let's say that in year one Congress cuts 10% of the budget, or $300 billion. $100 billion would go to tax filers. Assuming for simplicity that everyone in the country is in a household that filed income taxes, each person would be entitled to $333 and change. A single filer would get that amount. A head of a household of three would get $1000.

Then another $100 billion will go to the states using a sliding scale based on population and per capita income. This will solve many of the budgetary problems in a lot of states. It would also encourage the federal government to put an end to pork and to cut federal regulation and spending over areas that should be exclusive state jurisdiction anyway, such as education and infrastructure. Congress could say, "Why fund this program? We could just return the money to the states." Many agencies and lots of pork will be abolished.

Finally, $100 billion will go to deficit reduction. This will serve as a check on inflation and restore international confidence in the dollar.

This leaves us with a federal budget of $2.7 trillion, with the people rebated $100 billion, the states rebated $100 billion, and the nation digging itself $100 billion out of bankruptcy. Representatives could boast of the tens of millions of dollars returning to the taxpayers in their districts in the form of rebates. Senators could boast of all the money returning to their states. And they all could boast, along with the President, of possessing some semblance of fiscal responsiblity.

And the next year, the people will want their rebate, as much as if not more than the previous year. So will the states. And so the pressure will be on Congress to repeat the process, and try to cut another $300 billion to reduce the budget to $2.4 trillion. Pretty soon, a lot of the petty federal agencies are out of business entirely and now the big-ticket Defense contractors are in sight. Cutting $100 billion from Defense? The people will go for it because it means an additional rebate $100 per taxpayer and $667 million per state on average, not to mention $33.3 billion in deficit reduction.

And now, federal revenues will begin to exceed federal spending, meaning there will be debt reduction and a call for tax cuts, putting even more money into our bank accounts. Congress could again congratulate themselves for giving back to their districts and states in a fiscally-responsible manner, this time with tax cuts to boot!

In another year or two, Congress would have to confront Social Security and Medicare reform as a way continue their rebates to taxpayers and the states. And a few years after that, there will just be a bare-bones federal government that is hardly involved in our lives at all, with most of our taxes going to nothing but rebates, state governments, and debt reduction. The downsized federal government will be a blessing to personal liberty, and to the economy.

This end result may be far-fetched. But if we can find a way to create incentives for Congress to a) cut federal spending and reduce deficits, and b) put more money in our pockets, I'd go for it. Today, Congress is concentrating on pouring money into the economy while neglecting the deficit. That is, at best, just a recipe for another round of inflation and recession. At worst, it will make way for Great Depression II. 

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