Friday, March 13, 2009

Good Job On Cutting Spending

Everyone is congratulating the Utah State Legislature for managing to cobble together the biggest spending cut in the history of the state while minimizing the negative impact. And believe me, the $600 million spending cut is quite an achievement.

But let’s also take a little longer view than just the 2009 legislative session. Does anyone remember that in 2006 Utah ended up with the biggest budget surplus in the history of the state? Then in 2007 the state had another massive budget surplus. The surpluses from these two years amounted to about $1.3 billion.

A paltry amount of this horrendous taxpayer overpayment was budgeted as tax cuts. Times were good for state government. I was among the lonely voices calling for fiscal discipline and austerity in those long forgotten days. Like a tiny handful of others, I nagged about boom cycles eventually going bust.

It’s not that legislators were unaware that the gravy train would eventually grind to a halt. Nor were they completely irresponsible in their spending. Many worked to enact one-time spending measures aimed at preparing the state for future hard times. Some of that has actually paid off well. Otherwise, we’d be in even worse shape.

But one of the key things we did in the years Utah was flush with cash was to expand state government at a rate far beyond the normal growth in population plus inflation. Getting money for new and expanded government programs was relatively easy in those halcyon days. This year’s legislature was tasked with having to make “hard decisions” about where to cut back on the programs we grew so wildly during the glory days.

Frankly, I detest it when any politician harrumphs that they are “working hard” to make “hard choices” or something of that nature. It seems so condescending to me. What’s hard for these politicians is telling lobbyists and all those people with their hands out to government that they can’t get the amount of largess that they desire.

You see, during the boom years, it’s rewarding to play the hero. You can tell your schmoozing lobbyist friends and grubbing special interest groups that you can get them some or all of the funding they want. The flip side of the coin is that in bust years, politicians fight to avoid the pain of disappointing those that incessantly seek increased government dependency.

The bottommost consideration in all of this is the people that actually pay the cost of government. Yes, many are the same people benefiting from government. But few realize the how much we punish taxpayers and everyone involved in the economy when we expand government.

A 2006 study showed that “the cost to the private sector of providing the government an additional $1 in tax revenue is about $2.50, and in some circumstances much more.” Actually, the study considers more than just raising taxes. It also addresses increasing government spending irrespective of taxes. Government expansion produces an outsized economic drag that costs jobs and decreases prosperity.

Government is necessary and there are essential services that only government should provide. But I think that this set of services is far smaller than that to which we have become accustomed. It’s certainly smaller than most of our elected officials believe it to be.

Some speculate that people would buy far less government if they realized its true cost. I’m not so sure that is the case. Human nature is sometimes an odd thing. As long as we think we’re getting the value we want out of government, many of us assume that ‘the other guy’ is (or the rich people are) bearing the real burden. But this simply is not true. Every single person pays the cost in economic growth and jobs that will never be seen, lost opportunities, and higher prices.

So while I heartily cheer the legislature for cutting spending, I am completely confident that given the least opportunity, they would move to aggressively expand government as much as possible short of causing widespread public anger. While Utah government is a paragon of fiscal responsibility when compared with the likes of California, we are far from the ideal of liberty to which we should aspire.

1 comment:

¡Que Sí! said...

We are so used to the norm that we fail to reach to where we could be. It is indeed so tempting to just compare ourselves with the now bankrupt Joneses (California) and pat ourselves on the back, instead of striving to live to a higher standard of fiscal responsibility.