SPENDING MATTERS.
Deficits are a symptom, but the underlying problem is over-spending.
SPENDING matters. All deficits derive from over-spending that is not paid for from taxes.
SPENDING matters. It is SPENDING that determines the actual cost of Government.
Deficits actually don’t matter much compared with spending, since deficits are a result of accounting for how to pay for Govt. Deficits are taxation-by-installment-plan. We pay later.
Lowering deficits by increasing taxes does NOTHING to reduce the cost of Government; it just shifts the accounting forward on the price paid for that cost to the present day from a future one. As such, attempts to close deficits by higher taxes can create more pain in reduced economic activity for very little gain in terms of added revenue. The result, which you see in Cali, Michigan or third world countries, is a death spiral of Govt unable to pay for itself. The fundamental cause is not “deficits”, but a GOVT THAT IS SPENDING BEYOND ITS ABILITY TO PAY.
Changing tax laws and tax reform likewise can reduce burden of taxation if improved in a way to make taxes less punitive and more efficient (eg lower tax rates improve the economy via less tax avoidance), but tax reform and tax reduction can NEVER REDUCE THE COST OF GOVERNMENT. Only changing the SPENDING can do that.
School that pay for things with bonds could conceivably raise taxes to pay for those same things, but the burden to taxpayers is not reduced thereby. For such capital expenses, bond-based deficit spending has been used to good effect. But it remains that all spending is eventually paid for somehow, now or in the future. So SPENDING MATTERS.
The USA under obama may well enter in a zone of unsustainable over-spending. The CBO scoring on Obama’s budget is beyond tragic - $10 TRILLION in new debt in 8 years, driven by a Federal spending level that next year will eat up close to 27% of GDP. The Govt is taxing at the 17% level. Higher taxes will cripple the economy NOW, $10 trillion in new debt will cripple the economy LATER. That is a Hobson’s choice - the real answer: Fix the SPENDING.
That mismatch of price of Govt via taxes and cost of Govt through spending creates deficits. In the case of Obama, this is a huge yawning chasm.
Since 100% of spending eventually has to be paid for,
SPENDING MATTERS.
Focus on the SPENDING - fix the spending - and you can resolve the deficit and the problem with excessive burdens of taxation as well.
As Carville would put it: It’s the SPENDING stupid.
Exactly right.
Most government expenditures replace superior private expenditures. When the government provides charity, it replaces more effective private charity. When the government provides insurance, it replaces more effective private insurance. Of course, I could go on and provide a long list.
One common element is moral hazard. Government programs, in their legislative and administrative simplicity and inflexibility, create faulty incentives. For example, government charity encouraged out-of-wedlock births. Women only received aid if they had children and no father to support them. More children, more aid.
Another common element is that people spend their own money best. For starters, only you know your true desires. How much do you really want that make and model of car? How much do you want particular features? You are the only one who knows.
Spending someone elses’ money, on some elses’ behalf is not as effective. When people in government spend the taxpayer's money, they are not frugal or wise. It's not their savings they are depleting; they have no alternative uses to consider. When their department gets a bigger budget, that indicates that they are doing more "good" and are more important - a faulty incentive within government. Government spending on defense, justice, and (probably) roads, is unavoidable. The government should be restricted to its proper role. The government which rules least, rules best.