Cutting Big
Government: Imagine the Possibilities
GrassTopsUSA Exclusive Commentary
By Gennady Stolyarov II
06-18-07
It is possible
have a truly limited government and pay zero taxes. Yes, you read
that correctly. Half of the allegedly inescapable duo of “death and
taxes” is not unavoidable after all.
Furthermore,
it is possible to transition from the current situation of the
gargantuan and ever-expanding administrative state to the kind of
government which requires no taxpayer contributions to maintain,
performs its proper functions well, and has built-in checks against
future growth. During the transition to this kind of government, it
is also possible to solve the problem of monetary inflation and pay
off the national debt.
Many
individuals – conservatives, libertarians, and even some of today’s
liberals – desire to cut the size of government or at least to
reverse its colossal growth. But no matter which party or which
people have been in power, the overall size of the U. S. government
has expanded consistently since the Herbert Hoover administration.
Even the devotion to limited government of such individuals as
Ronald Reagan failed to stop the rise of the Leviathan.
The reason why
government keeps growing is not a lack of good intentions. There are
plenty of people today who sincerely believe that federal power
ought to be reduced, and many superb thinkers have presented
sophisticated political, economic, and ethical defenses of limited
government. Numerous policy proposals – including tax reform, social
security privatization, welfare reduction, and the abolition of a
host of federal programs – have been suggested to reduce
government’s size. And yet the massive growth has continued.
The problem is
one of incentives. Under the current system, politicians are able to
grow government without even being aware of doing so. They simply
lobby for increased funding to a particular program they favor, or
for the creation of a new public project in their district. They do
not strive to expand government as such, but this is precisely what
they accomplish, several million dollars at a time.
Under the
present system, one of the best ways for a politician to assure
funding for his favored program is to form an alliance with another
politician who is trying to do the same with his own projects of
choice. “I’ll vote for your program if you vote for mine,” they say
in ever so many variations, and both end up disposing of a greater
amount of money than before.
Some of these
politicians might even be trying to increase spending for a
legitimate program, such as a military defense initiative, but the
current system places them in an uncomfortable position. In order to
get their additional defense money, they must often consent to
support the expansion of federal involvement in education,
environmental regulation, health care, transfer payments, or
taxpayer subsidies to “avant-garde artists.” So every justified
government expenditure is accompanied by a host of unjustified ones,
often packed into a single bill with thousands of provisions which
have absolutely no relation to one another except that they grow
government.
All the good
intentions in the world cannot solve this dilemma, but changing the
incentives offered by the political system can. Indeed, we can
imagine a simple remedy which can guarantee that the government will
halt its growth and gradually diminish in size.
The key to
cutting the size of government is the implementation of an amendment
to the U. S. Constitution, in three sections which might be worded
in a manner similar to the following:
Section
I. The United States Federal Government shall henceforth be
prohibited from annually spending in excess of the dollar amount
allocated for the 2008 Federal Budget. This amount shall under
no circumstances be adjusted for inflation in the future.
Payments of the existing national debt and the investment of
public funds into interest-bearing accounts are exempt from this
provision.
Section
II. The United States Federal Government shall henceforth be
prohibited from raising tax rates above the percentages which
existed as of January 1, 2007.
Section
III. The United States Federal Government shall henceforth be
prohibited from spending in excess of its tax revenues.
For future
convenience, I shall refer to this proposal as the Fiscal
Restriction Amendment. In laymen’s terms, the three sections
accomplish the following: 1) prohibit the government from spending
beyond the current amount, 2) abolish the raising of tax rates in
perpetuity, and 3) forbid all federal deficit spending.
If passed,
this amendment, by itself, would entirely shift the incentives
offered by the American political system. Because of the ban on
deficit spending, the size of government would experience an
instantaneous reduction by roughly the amount of the current
deficit. But the Fiscal Restriction Amendment does not specify where
this reduction is to take place. Rather, it channels the political
process to work this out.
Instead of
having the prospect of expanding all federal programs, politicians
will now face the question of whose program is to get cut.
Naturally, each politician will stand in defense of his own favored
projects, but this will require him to advocate reducing somebody
else’s. Thus, instead of competing over whose program will grow the
most, as they do under the current system, politicians will compete
over whose program does not get eliminated. The Fiscal Restriction
Amendment will fix the political pie at a size smaller than its
present one and leave politicians to battle over its slices. In such
a contest, there must inevitably be losers. By virtue of those
losers, the size of government will shrink.
But the
initial spending cut mandated by the balanced budget clause is only
the first effect of the Fiscal Restriction Amendment. Once it halts
the growth of government, this amendment will work in subsequent
years to dramatically reduce government’s size. It will do so by
taking advantage of the present trend of monetary inflation.
Assuming that
inflation continues at an approximate 3% per year, a dollar’s real
purchasing power will be cut in two in approximately 24 years. But
the amendment’s first clause prohibits the government from spending
beyond the nominal dollar amount that it will spend in 2008. Thus,
in 2032, the government will actually be limited to at most half the
real spending ability that the amendment gave it in 2008, provided
that current inflation trends continue.
Due to the
wonders of compounding, it will take only another 23 years for the
real spending limit to be cut in half again. By the year 2100, the
federal government will, out of necessity, be less than 1/15th of
its current size!
As the
government’s ability to spend money diminishes, politicians will
constantly fight over whose programs are to get reduced in size. The
same people who grow government under the present system will thus
be turned by the Fiscal Restriction Amendment into instruments for
government’s limitation – whether or not they intend to be.
Alternatively,
politicians might not look forward to the prospect of their spending
ability becoming progressively less. In this case, they will
actually have an incentive to stop inflating the money supply! For
the American people, this outcome, too, will be a blessing. Their
hard-earned savings will not gradually dwindle away.
But this is
not all the Fiscal Restriction Amendment can accomplish. The
amendment prohibits increases in the tax rates, therefore giving
private citizens the security of knowing that they can always rely
on a certain portion of their earnings to be truly theirs. This will
be a tremendous stimulus to productive activity, resulting in vast
economic growth.
As the economy
grows, government’s tax revenues will actually increase. However,
because of the spending limit, the government will not be able to
use most of these revenues to fuel its growth. Indeed, as time goes
on, the Fiscal Restriction Amendment will force the government to
run an ever-increasing surplus.
What can be
done with this surplus? The first and obvious answer is paying off
the national debt, thereby cutting about a tenth from future annual
government expenditures. After the debt has been paid off, the
government will have no choice but to either cut tax rates further,
allowing individuals to own more of their earnings, or to invest the
surplus.
The latter
solution might even be superior from a long-term standpoint. If the
government keeps investing an ever-growing surplus, there will
eventually come a time when the interest alone will be as large as
the government spending limit. In that case, the government will
have absolutely no need of taxpayer contributions at all.
Indeed, it
might someday be possible for the American people to benefit from
the useful services of government – such as the military, police,
and courts – without paying a cent for them. Just as a wealthy
person who has accumulated millions of dollars can comfortably live
off the interest without working, so might the U. S. government
someday be able to function solely off the interest from the massive
surpluses it would accumulate under the Fiscal Restriction
Amendment.
So there it
is: an effective way to limit government’s size, fight inflation,
pay off the national debt, and even render taxation unnecessary. Now
to get it implemented…
Gennady Stolyarov II is
Editor-in-Chief of
The Rational Argumentator, a magazine championing the principles
or Reason, Rights, and Progress. His works have been published by
Le Quebecois Libre,
Enter Stage Right Magazine, the
Ludwig von Mises Institute,
Rebirth of Reason, and other organizations. Mr. Stolyarov can be
contacted at
gennadystolyarovii@yahoo.com.
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Copyright
GrasstopsUSA.com 2007
