Issue Position: Economic and Spending Policy

Issue Position

Our Government has a Spending, not a Revenue Problem

Burning $The United States Government, at all levels, has been living beyond its means for some time. The recent economic difficulties and greatly increased federal spending, have accelerated that situation to the point we are borrowing about 41 cents out of every dollar our government spends. Clearly, this is a totally unsustainable level of spending and if we continue on this path we will do permanent damage to the financial health of our nation, and burden our children and grandchildren with a huge and unpayable debt that will guarantee them a decreased standard of living than they should expect as Americans. We have arrived at a point of choosing. Are we to continue to be an engine of dynamic economic growth and rising standard of living with the associated inequalities inherent in capitalism, or will we choose to become a social-welfare state where equality is prized above achievement?

This situation is one that few Americans probably thought we would have to consider; yet we are at that point. The current Administration and Congress have made it clear that we are embarked on a path of government dictated equalization of outcomes vs. guarantor of equal opportunity. That distinction is stark and profound and has significant implications on how we, and our children will live. In the system we are currently racing towards, the government has an outsized role in picking winners and losers, how much money you are allowed to make and keep and how your health care, energy and other personal choices will be made. How have we arrived at this juncture?

The Financial Crisis and our Government's Response

In a separate paper we detailed the roots of the housing meltdown, here we will focus on the recent response of our Government to trying to rectify the problems we have. In 2008 before the last Presidential election, the Bush Administration asked Congress to pass an "Economic Stimulus" bill to help a clearly sagging economy get back on track. That effort was about $170B in tax rebates to boost "demand". It had a minimal and temporary impact. Then we had massive intervention into the financial system and automobile companies known as TARP at over $700B, President Obama's roughly $800B in government directed "Stimulus" spending mainly to prop up state and local governments and some infrastructure projects. Then there was few billion for "Cash for Clunkers", then the $8000 homebuyers tax credit and now another $29B to pay for teachers salaries. That is a lot of money. All borrowed money and spent to little good effect. After a few trillion in spending borrowed money we still have nearly a 10% unemployment rate, about a 17% underemployed rate, and a very low growth economy that is slowing. How is it possible to spend that much money and get such poor results? Simple: it was spent poorly.

The problem is the assumption that government spending can drive demand and create private sector growth. This is commonly known as Keynesian spending; an interesting theory to be sure, but unfortunately it has little evidence of actual success. This program was followed for about 10 years in the 1930's during our Great Depression and didn't get us out of the Depression, we had structural unemployment at greater than 15% for many years. If it worked, why couldn't it end the Depression for 10 years? In the 1990's the Japanese tried this and racked up huge debts and built lots of infrastructure, but it all resulted in no growth and they still suffer from low growth.

If spending government money could end a recession then there would never be any recessions. It doesn't work, never has and never will. Here's why. Every dollar the government spends is a dollar that the private sector can't spend or invest. Every dollar that our government gets its hands on instantly turns into about 79 cents just to fund the cost of the government itself. Then they are generally directed to politically driven projects like a bridge in this politician's district, a park in that one's, a homebuyer's credit, credit for solar panels, etc. None of which creates any sustainable economic activity. If that dollar was left in the private sector, a business with incentive to make a profit and grow will make economically driven decisions and will inherently more effectively deploy that capital. A dollar left in the private sector will turn into a $1.05 or $1.10 instead of instantly turning into $0.79 when spent by the government. We'll leave it to the reader to decide which makes more sense.

Specific Recommendations

Federal spending must be reduced. Taxes must not be raised. When I am in Washington I will push for the following changes in the way our Federal government spends our tax dollars:

Continue 2001/03 Tax Cuts -- Increasing taxes on anyone, regardless of their income level, is going to hurt our economy. We need to continue the 2001/03 tax rates across the board; there is no question about it. We need economic growth and we need job creation, raising taxes on the productive sector of our economy will hurt economic growth and job creation.

Reduce Corporate Tax Rates -- Our corporate tax rates are a disincentive to do business in this country and they need to be brought in line with our competitors for international business. Corporate tax rate should be reduced to at most 25%.

Freeze Federal Hiring -- The Federal Budget/Deficit/Debt are not the only things that have been growing. The size of the Federal Government itself has also grown wildly out of control. The Government does not need any more employees -- particularly when they cost twice as much as a private sector employee.

Cut 5-10% of Underperforming Federal Employees -- A mandated Reduction in Force should be implemented and the lowest performing employees should be cut just like they would be in private industry. Between normal attrition and merit based cuts the federal workforce should be reduced to 2006 levels as soon as possible.

Cut Federal Workers' Pay by 5-10% - Federal workers make more than twice as much in total compensation as their private sector counterparts and Federal pay has grown rapidly over the last few years. When the taxpayers have suffered 8 million lost jobs in this recession there is no excuse for increasing public sector compensation. They work for us after all.

End Baseline Budgeting -- The process of the Federal government spending what they want and not what they have to spend must end. No more starting with last years budget and adding to it as a normal course of business. We simply cannot afford this any longer.

Begin Restructuring our Entitlement Programs -- Social Security, Medicare and Medicaid must be restructured for long-term solvency. Almost nobody under the age of 50 believes that they will receive the benefits promised by these programs, and they are correct. Without reforming these programs our country will be bankrupt.

Privatize Programs within the Government's Control -- Wherever possible programs that the Federal Government oversees should be privatized. It is true that Government plays a unique role that cannot be duplicated by private industry. Those programs should remain under government control, but offloading programs that will run more efficiently under private control will do one of two things: stimulate the economy by creating private sector jobs as well as profit, and it will save the taxpayers' money every year for a program they no longer have to pay for.

Study eliminating and/or de-scoping Departments -- It is time to revisit the legitimate functions of our Federal government and what they are Constitutionally authorized to do. Departments such as Education, which educates no one; Energy, which creates no energy; Agriculture, which grows nothing, and other departments need to considered for significant cuts or elimination altogether. We simply cannot afford the Department of Redundancy Department any longer.

Bottom line is everything needs to be on the table for cuts, focusing the mission, de-scoping responsibilities or elimination. The Federal government needs to focus on reducing burdens on the private sector, helping our economy grow and getting out of the way instead of constraining our entrepreneurial drive and economic growth with burdensome regulations, high taxes and destructive spending.

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