Conservatives should be ashamed of themselves with their insistence on Cut, Cap and Balance, for a balanced budget and a pledge of no new taxes (as it is currently envisioned) will lead to the rise of the regulatory state and even more tax expenditures, ultimately ushering in a new socialistic entitlement state the likes of which have never been seen before. Remember to beware getting that which you wish for as there are always unintended consequences.
Let's take each of these concepts in isolation and see why they are such bad ideas. The idea of cutting government expenditure itself isn't a faulty one but how do you define government expenditure? For example, suppose that we look at the Earned Income Tax Credit. Is that an expenditure or merely a tax cut? Does it only become an expenditure when it results in a refundable credit? If not, what about things like the mortgage interest deduction?
What is the difference between a charitable contribution deduction or tax credit and simply giving the charity the money out of government coffers? In the end, very little. The charity has more money. The individual who gave to the charity has less. The government is merely the pass-through agent. Now, some would say that the difference is that when an individual gives to charity, they are directing the money to that purpose, whereas when government does the same, they are robbing everyone to accomplish the same goal. That is one way of looking at things. However, at the same time, if money goes to charities through private giving, there is less of a "need" for government redirection of funds. As such, government expenditure goes down but it is merely replaced with private expenditure. The biggest difference is that individuals, rather than the voters, are making the decisions as to the allocation of funds. Thus, it is equivalent to giving more votes to those with more money rather than based on 'one person, one vote.'
At first, this seems like a good conservative principle. After all, what could be better than having each individual decide what is best to do with his or her own money. Yet, by giving a tax credit or deduction, what really happens is that everyone else is forced to pay for the charitable contribution. Think about it for a second. If we reduce government spending to what conservatives believe it should be: national defense, maybe the department of state, a few public works projects, and that's about it, tax credits and deductions represent a regulatory state gone amok. It basically favors certain types of behavior over others and, by creating these incentives to reduce your taxes, those of us who do not believe in such activity are left holding the bill for the things that we all truly do need (national defense, etc.). However, this all begs the question: why is government regulating through an incentive mechanism private behavior at all? Furthermore, why should you get to pay less for national defense because you are giving to your church, while I don't?
In addition, the truly insidious and onerous aspect of government isn't that it taxes, but that it regulates--and regulation can occur even if the government doesn't tax at all! Why bother giving subsidies for 'green energy', just ban 'non-green energy'! Why worry about redistribution of income through the tax system if you require everyone to tithe or go to jail? These may be extreme examples but the government can get almost anything it wants done through regulation, including things that it could not accomplish through taxation.
Now what about cap and balance? Sounds like a good idea, doesn't it? We need to balance our family budget, so why not the government? Shouldn't we cap government expenditures?
Actually, the answer is 'no'! We should instead cap government revenues but let government expenditures rise and fall with the business cycle. Furthermore, we should not cap at 18% but rather during good times we should be saving about 20% of GDP (and if the public won't do it, the government should)--and that doesn't even include government expenditure on the military and public works (which should be no more than about 10% of GDP or so)! Where did I get this idea?
Well, God told me.
Even God himself has dictated that 'cut, cap, and balance' is a bad idea (and, if conservatives believe in anything, it is God). Indeed Keynesianism, if properly practiced, is conservative thought and anything different is, well, sinful. So sayeth the Lord in the story of Pharaoh and Joseph:
Genesis 41:17-40 (New International Version):
17 Then Pharaoh said to Joseph, “In my dream I was standing on the bank of the Nile, 18 when out of the river there came up seven cows, fat and sleek, and they grazed among the reeds. 19 After them, seven other cows came up—scrawny and very ugly and lean. I had never seen such ugly cows in all the land of Egypt. 20 The lean, ugly cows ate up the seven fat cows that came up first. 21 But even after they ate them, no one could tell that they had done so; they looked just as ugly as before. Then I woke up.
22 “In my dream I saw seven heads of grain, full and good, growing on a single stalk. 23 After them, seven other heads sprouted—withered and thin and scorched by the east wind. 24 The thin heads of grain swallowed up the seven good heads. I told this to the magicians, but none of them could explain it to me.”
25 Then Joseph said to Pharaoh, “The dreams of Pharaoh are one and the same. God has revealed to Pharaoh what he is about to do. 26 The seven good cows are seven years, and the seven good heads of grain are seven years; it is one and the same dream. 27 The seven lean, ugly cows that came up afterward are seven years, and so are the seven worthless heads of grain scorched by the east wind: They are seven years of famine.
28 “It is just as I said to Pharaoh: God has shown Pharaoh what he is about to do. 29 Seven years of great abundance are coming throughout the land of Egypt, 30 but seven years of famine will follow them. Then all the abundance in Egypt will be forgotten, and the famine will ravage the land. 31 The abundance in the land will not be remembered, because the famine that follows it will be so severe. 32 The reason the dream was given to Pharaoh in two forms is that the matter has been firmly decided by God, and God will do it soon.
33 “And now let Pharaoh look for a discerning and wise man and put him in charge of the land of Egypt. 34 Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. 35 They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. 36 This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.”
37 The plan seemed good to Pharaoh and to all his officials. 38 So Pharaoh asked them, “Can we find anyone like this man, one in whom is the spirit of God[a]?”
39 Then Pharaoh said to Joseph, “Since God has made all this known to you, there is no one so discerning and wise as you. 40 You shall be in charge of my palace, and all my people are to submit to your orders. Only with respect to the throne will I be greater than you.”
However, note what the story says: we must save during the good years to spend during the bad years. We must balance the budget, not yearly, but rather over the business cycle (in the days of Pharoah, the business cycle followed the grain cycle). And how much should government take? Look at Genesis 41:34: "Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt." So "cut, cap, and balance" is a horrible idea and so is the balanced budget amendment. It would lead to us squander our treasure during our feast years, only to starve during our famine years.
So ideally, from a conservative perspective in good times, government should take 30% of our GDP and be required to SAVE 20% of GDP (so that would mean a $2.8 trillion budget surplus). In bad times, 0% (yes, cut all taxes to zero during recessions--I mean they are recessions, right?) and run a budget deficit of whatever it takes to generate full employment during recessions. Now that's a good conservative prescription for success.
Only one potential problem (and it is a big problem -- probably fatal to this plan): how do we know we are in good times or bad times? Unfortunately, too many people think it is the famine time even when it is the feast time. Oh well.
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