How Capitalism Will Save Us (38 page)
Read How Capitalism Will Save Us Online
Authors: Steve Forbes
Opposition politicians seek to score points by blaming tax cuts during the Reagan and Bush presidencies for increasing federal budget deficits. But tax cuts—as we have shown above—increased the size of the economy and federal tax revenues. The problem was that Washington spent the extra money and then much, much more.
Despite Ronald Reagan’s best intentions to limit the size of government, he was ultimately unable to rein in Congress on domestic spending. Reagan did sharply boost defense outlays—and that investment paid off. We won the Cold War. Reagan’s effort to maintain fiscal discipline was stellar when compared to that of his successors, especially George W. Bush, under whose administration domestic spending growth exceeded that of Democrat Bill Clinton.
According to the Heritage Foundation, “from 2001 through 2008, federal spending surged 60 percent—6.9 percent per year, on average.” In 2008 alone, it increased by some $249 billion or more than 9 percent.
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Heritage analyst Brian Riedl says Bush would have been able to balance the 2008 budget “had [total] spending increases been limited to 35 percent—4.4 percent annually.”
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And what about the legendary “Clinton surplus” and prosperity that Paul Krugman—not to mention former Clintonites such as Robert Rubin, Robert Reich, and Larry Summers—tout as being the result of Clinton-era tax increases? People forget that while he raised income taxes (which slowed economic growth for two years), Bill Clinton subsequently cut the capital gains tax from 28 percent to 20 percent. And as we’ve discussed, he
ended up cutting other taxes as well, and kept the Internet a virtually taxfree zone.
If Bill Clinton had not cut capital gains taxes, his economic record would have been far different. In a report prepared for the Heritage Foundation, Dan Mitchell wrote that Clinton administration documents showed that
in early 1995, nearly 18 months after enactment of the 1993 tax increase, the Clinton Administration’s Office of Management and Budget projected budget deficits of more than $200 billion for the next 10 years. Clearly, events after that date—including the 1997 capital gains tax cut and a temporary reduction in the growth of federal spending—caused the economy to expand and the budget deficit to vanish.
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Mitchell concluded, “The Clinton tax increase delayed the economy’s resurgence and had nothing to do with the budget surplus.”
Tax hikers at this point invariably insist that the size of government is a given, that its services are needed, and that there’s nothing that can be cut. That’s simply not true. Because government lacks the discipline of having to compete in the marketplace, there is no incentive for cost-effective management, as there is in the private sector. Politicians simply keep tapping the public for money. Bureaucratic fiefdoms keep getting bigger. Costs keep going up.
Can the size of government be cut while still preserving essential services for people who need them? You bet they can. Writes Heritage’s Brian Riedl: “A real war on government waste could easily save over $100 billion annually without harming the legitimate operations and benefits of government programs.”
Riedl offers ten examples of egregious government spending that, if corrected, could slow today’s hemorrhage of red ink. We won’t list all of them here. But they include:
“Medicare Overspending.”
As Riedl reminds us, “Medicare wastes more money than any other federal program, yet its strong public support leaves lawmakers hesitant to address program efficiencies, which cost taxpayers and Medicare recipients billions of dollars annually.” The program pays as much as eight times what other federal
agencies pay for the same supplies. Payment errors, frequently the results of fraud as well as plain mistakes, cost more than $12 billion annually. “Putting it all together, Medicare reform could save taxpayers and program beneficiaries $20 billion to $30 billion annually without reducing benefits.”
“State Abuse of Medicaid Funding Formulas.”
Says Riedl, “Significant waste, fraud, and abuse pervade Medicaid, which provides health services to 44 million low-income Americans. While states run their own Medicaid programs, the federal government reimburses an average of 57 percent of each state’s costs.” States overreport their Medicaid expenditures to receive larger reimbursements. Riedl says the problems have begun to be addressed, but more could be done that could produce billions in savings.
“Redundancy Piled on Redundancy.”
Decades of regulation by Washington have produced a jungle of overlapping fiefdoms. As of 2005, Riedl says there were “342 economic development programs; 130 programs serving the disabled; 130 programs servicing at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural and training exchange activities; 72 federal programs dedicated to assuring safe water.” And that’s not even the whole list. While he acknowledges that some duplication may be inevitable, consolidating those programs would save money and improve government service.
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Those are just three key areas where cuts could produce billiondollar cost savings. Additional savings would come from better oversight in routine administrative matters such as, yes, making sure government employees turn in their unused airline tickets. An audit in the mid-2000s found that the Defense Department had purchased approximately 270,000 fully refundable commercial tickets that were never used. No refunds were issued. Total cost: $100 million. Also wasting your tax dollars: employee abuse of government-issued credit cards. In one case, employees at the Department of Agriculture were discovered to be using government cards meant for office purchases to pay for personal items—like Ozzy Osbourne tickets, tattoos, bartender school tuition, car payments, and cash advances.
With government not accountable to taxpayers like a publicly held company is to shareholders, it’s unlikely we’ll soon see an end to these abuses. And no tax increase—or reduction—will be able to prevent the mother of all deficits expected as a result of Obama administration stimulus measures combined with already rocketing Social Security, Medicare, and Medicaid costs. According to a projection by the Heritage Foundation using data from the Congressional Budget Office, unless spending is slowed, this “coming tsunami” will push debt to inconceivable levels—300 percent of GDP by 2050 and 850 percent by 2082.
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REAL WORLD LESSON
No amount of revenue can cover the debts incurred by spendthrift government
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“Don’t Regulations Safeguard the Public Good?”
THE RAPWithout regulations and statutes imposed by government as the referee of capitalism, greed and selfishness would run rampant in unfettered markets. Regulations safeguard the public good. They promote public safety and ethical business practices, preventing businesses from cheating and ensuring that citizens abide by the rules of the road.
THE REALITYThe rule of law is essential to the successful functioning of democratic capitalism. Certain regulations are necessary in an open economy. Yet others are a response to political pressure from self-interested constituencies. Politically motivated, overly meddlesome regulations and rules produce unintended consequences, hurting the very people they’re supposed to protect. They micromanage the economy and stifle innovation, favoring incumbents at the expense of innovative outsiders.