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Press Release

Spending Moves Forward While Tax Cuts Languish

06/11/2002

As the number of days in the legislative calendar dwindle, the priorities of Congress become more apparent. Not surprisingly, efforts to boost spending are far more prominent than attempts to lower taxes. While the long-term survival of President Bush’s tax cuts remains in question, the Senate has approved an emergency supplemental spending bill for 2002 of $31.5 billion—almost $5 billion more than the administration had requested. The difference is largely highway spending and other pork related items. Despite highly publicized hand wringing over the return to deficit spending, Congress is a creature of habit; tax cuts have fallen by the wayside as politicians push spending levels ever higher.

The Founders were all too aware of the propensity for government to grow at the expense of individual liberty. As Thomas Jefferson noted in 1816, "Private fortunes are destroyed by public as well as by private extravagance. And this is the tendency of all human governments." To this end, the Constitution created a system of checks and balances to limit the centralization of power and the growth of government. Over time, however, many of these checks have eroded, and politicians and bureaucrats have become adept at avoiding intended constraints.

This is reflected to some extent in history. For roughly the first 150 years of U.S. history, the size of government was relatively stable, with spikes in times of war, but always returning to earlier levels afterwards. The 20th century, however, was marked by a rapid and sustained growth in the size of government. This growth has puzzled economists, who have offered a number of theories to explain the last century’s expansion in the size of government.

One explanation suggested by Professor Gordon Tullock is that increased “rent-seeking” might play a role in the expansion of government. Rent-seeking refers to interest group competition in political markets to extract rents, or benefits, through legislation and regulation. Ultimately, much of what Congress does is redistribute income. Tax revenues are collected and then distributed to various government programs or projects. Interest groups and lobbyists vie for such resources, and in a world where politicians are constantly seeking re-election, tax dollars can be spent on political expediency rather than economic efficiency. As Tullock notes, although we assume that income redistribution transfers resources to lower income groups, the large majority of income transfers are to relatively well-off individuals or groups. Recent steel tariffs to protect well-paid union jobs, billion dollar farm subsidies, and giveaways to various energy producers make this amply clear.

Ironically, some evidence suggests the seeds of government growth were sown in 1920s, a time when Republicans were the dominant political party. Professor Randall Holcombe suggests that government growth was set in motion in the 1920s and would have occurred even in the absence of the Great Depression and the New Deal. Progressive era ideas still held sway in the 1920s and the size and scope of government gradually expanded in more aspects of the taxpayer’s life.

It should not be surprising, however, that a more expansive government began to solidify in times when Republicans dominated Washington, or that more recent Republican leadership has led to sharp increases in government spending. The incentives that drive Congress are irrespective of party. Rent-seeking and income redistribution are the stuff of Congress, and they will continue to drive the size of government regardless of party. Different interest groups may fare better under different parties, but the pressure to expand government always exists. Professor Holcombe notes that in the 1920s, due to the lack of a strong presidential agenda, policy defaulted to Congress, where programs providing benefits to specific interests came to dominate policy debates, to the detriment of limited government.

The unprecedented growth in government that came to dominate the last century led many to review the incentives faced by politicians and bureaucrats. The original checks and balances of the Constitution were faring poorly, sparking a renewed interest in the institutions surrounding government decision making. Term limits, a balanced budget amendment, and the line item veto reached a new popularity among proponents of limited government. It had become apparent that the incentives facing any politician—Republican or Democrat—were biased toward government growth and new constraints were necessary to limit government growth. Putting the right party in the White House, or controlling Congress is not a sufficient condition to reduce the size of government.

There are some bright spots, however. The House recently passed legislation to permanently repeal the death tax. In addition, Rep. Pete Sessions (R-Tex.) has introduced a tax limitation amendment that would require a two-thirds majority of both houses to raise taxes. In addition, Rep. Jim DeMint (R-S.C.) has introduced the “Date Certain Tax Code Replacement Act,” which would sweep away almost a century’s worth of special interest tax legislation and start the process of fundamental tax reform.

Clearly, this is only a start. Getting these bills through the Senate is an uphill battle. Yet efforts to limit the growth of government are an important step forward that will require a demonstration of widespread support. It is clear that the biases of Congress are toward more government. Unless politicians hear otherwise, they will be content to spend. Grassroots pressure can check the temptation to spend and implement reforms to constrain the growth of government. Fundamental tax reform or a tax limitation amendment would force politicians of all parties to make more prudent decisions when it comes to spending. These reforms would generate institutional changes to alter the incentives of politicians. Taxpayers would become a more important part of the debate, at the expense of the vast array of special interests seeking more out of government, and that is a battle worth fighting.