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Thanksgiving gives pause for reflection. For taxpayers and consumers, the year has seen a few bright spots, but a great deal happened in Washington that most will find unpalatable. While a sluggish economy has shaken consumer confidence, Washington continues to spend and government continues to grow. As always, the tension between big government solutions and markets frames the policy debate in Congress. A review of the year’s policy questions suggests that Washington continues an agenda with a big-government bias that may be out of touch with consumers and taxpayers:
The Deficit Returns: Between the war on terrorism and the search for economic stimulus, Washington has been unabashed when it comes to spending. The federal budget is now more than $2 trillion a year, and Congress is again spending more than it is collecting in revenues. In fact, the deficit is projected to be roughly $160 billion for the current year, and forecasts by the Congressional Budget Office predict deficits at least through 2005. For taxpayers, the news gets worse. State governments are expected to run a cumulative deficit of over $40 billion in the coming fiscal year. The disappearing surplus in the wake of an economic downturn suggests that it was private sector growth, not government prudence that generated the surpluses in the first place. Taxpayers now face renewed efforts at the state level to increase taxes to cover future shortfalls.
The Congressional Spending Spree: At the federal level, there has been little attempt in Congress to trim spending to conform to the expected decline in revenues due to the slow economy. In fact, spending has expanded substantially, from the $171 billion farm bill, to the terrorism reinsurance bill, to the homeland security bill. Moreover, Congress approved more than 7,800 earmarks for spending on pet projects by various members of Congress. Even in the slow economy, little has been done to curb spending, despite the acknowledged management problems within the federal government. The General Accounting Office has been monitoring 22 high-risk programs or projects across the government, where ineffective management creates unnecessary or redundant expenditures of taxpayers’ dollars. American families have had to adjust to the slow economy by eliminating expenditures they cannot afford; Washington needs to do the same and trim unwarranted and wasteful spending.
Expanding IRS: Although Americans face one of the most complicated and inefficient tax codes in the world, the Internal Revenue Service appears more intent on expanding its authority to enforce the existing code rather than working for fundamental tax reform. On a variety of fronts, the IRS has been quietly expanding its enforcement efforts to the detriment of American taxpayers. Line-by-line audits, for example, are making a comeback as the IRS launches a research project to identify where taxpayers make mistakes or cheat on their taxes. In addition, the IRS is expanding reporting requirements for foreign deposits in American banks, despite the fact that these deposits are not even subject to taxation by the IRS. Finally, complexities in the tax code place American corporations at a competitive disadvantage in the global marketplace. Adverse tax rulings and a burdensome tax code have forced many corporations to think twice about doing business in the United States. Unless taxpayers are willing to accept an expanding role for the IRS, the tax code must be simplified. A more transparent, simple, and fair tax code would reduce the burden for all taxpayers and promote economic expansion in a sluggish economy.
Social Security at the Polls: One promising development this year was the voters’ response to the need for social security reform. Faced with a system that is fast heading for insolvency, voters rejected scare tactics that downplayed the need for reform in favor of the status quo. Voters realize the current system is unsustainable, and have responded favorably to reforms that propose personal retirement accounts. Moving beyond “third rail” politics to meaningful discussions of reform would be an important step toward resolving one of the largest issues confronting the retiring baby boom generation and all succeeding generations.
Putting Innovation Back in the Market: After four years of litigation, the Microsoft trial is winding down, and competition is moving out of the courtroom and into the marketplace. While far from perfect, the settlement removes much of the uncertainty hanging over the high-tech sector, allowing developers to focus on consumers rather than lawyers. Consumers should enjoy the benefit of a high tech sector that competes through innovation, providing better products at affordable prices. Courtroom competition does little for consumers as producers vie for market advantages through legal barriers rather than better products. While the settlement leaves in place significant regulatory oversight, it set consumer satisfaction as the highest priority. In a case where consumer harm was never demonstrated, the court appropriately avoided remedies that would destroy a company for the sake of its competitors.
On balance, Washington appears intent to let government grow. Most activities emanating from Washington this past year have signaled an expansive government that is playing a greater role in more aspects of the economy and lives of Americans. The more hopeful events of the last year arose when markets were favored over government: Voters ignoring scare tactics to entertain the idea of social security reform that allows individuals to own their retirement fund. And courts telling competitors to fight it out in the marketplace, not the courtroom. Will the Republicans, now firmly ensconced in Washington, pay heed to these trends and return to their roots of limited government and free markets?