Lessons from a Bloated Budget

Lessons from a Bloated Budget
by Laurence M. Vance, Posted March 1, 2011

President Obama has just sent to Congress the largest federal budget ever in U.S. history. His $3.518 trillion budget is also the most unbalanced in history, with a built-in deficit of $1.413 trillion.

The United States has rarely in its history had a balance of receipts and outlays. Deficit spending has been the norm, with the last real budget surplus occurring in 1957 under Dwight Eisenhower and a Democratic Congress. The handful of budget surpluses since then under Lyndon Johnson and Bill Clinton were the result of creative accounting practices involving the Social Security "trust fund."

Although the Constitution doesn't mention a federal budget, and it is ultimately up to Congress to decide how much the federal government will spend in any given fiscal year, according to the Budget and Accounting Act of 1921, the president must annually submit a budget to Congress by the first Monday in February.

The government's fiscal year runs from October 1 to September 30. That means that the budget submitted in February is actually for the next fiscal year that begins in October. On February 1 of this year, President Obama submitted to Congress his proposed FY2011 budget.

This is some budget. Not only does it promise to expand AmeriCorps, education funding, job training, biomedical research, and space exploration, it also aims to provide "opportunities for the LGBT [lesbian-gay-bisexual-transsexual] community" in the form of increased AIDS treatment, care, and prevention activities; federal employee domestic-partner benefits; and more funding to strengthen anti-discrimination efforts.

But as dark a cloud of a budget it is, this budget does have a silver lining. It should forever put to rest two ideas sometimes touted by conservatives as ways to "make the government accountable" or "bring responsibility to Washington" or "restore fiscal stability to the ship of state": a balanced-budget amendment and a national sales tax.

A legitimate budget?

Although the idea was not new at the time, a balanced-budget amendment gained national prominence when it was included as part of the Republican Contract with America in 1994. Although passed by the House, it was rejected by the Senate. The problem with balanced-budget proposals is threefold. One, they almost always contain a super-majority exception in the case of national emergency or war. That means that Congress can unbalance any balanced budget it passes. Second, the answer to an unbalanced budget will be tax increases of some kind. Sure, there might be some spending cuts, but the tax increases will always end up being more than the spending cuts. Third, and most important, compliance with a balanced-budget amendment legitimizes the budget.

Would Obama's $3.518 trillion budget be acceptable if it were balanced? Of course it wouldn't. And neither would Bush's trillion-dollar budgets. The Republican Revolution that culminated in a Republican majority in the House, Senate, and White House under George W. Bush was, of course, an absolute failure. The national debt increased by about $5 trillion on Bush's watch. Pardon my cynicism, but I just can't get excited about the Republicans in the House and Senate who just recently and unanimously rejected the Democrats' increase in the federal debt limit to $14.3 trillion. The debt limit was raised seven times during the Bush years. And there was even a Republican majority in Congress for more than half of the time that Bush was president.

Any talk of balancing a federal budget that so grossly exceeds what could even broadly be considered constitutional is ludicrous. There is nothing congressmen would love better than to be able to talk about how fiscally responsible they are because they have a balanced budget, while at the same time spending more than $3 trillion confiscated from the pockets of taxpayers. The budget doesn't need to be legitimized by being balanced; it needs to be slashed, and slashed drastically. That is true of Obama's budget just as it was true of Bush's budgets, Reagan's budgets, Carter's budgets, Nixon's budgets, and even the "balanced" budgets of Johnson and Clinton.

The national sales tax

The other idea that Obama's bloated budget should lay to rest is any notion of a national sales tax. Legislation to replace the income tax with a national sales tax, called the FairTax, has been introduced in Congress since 1999 by Representative John Linder (R-Ga.). The FairTax is a consumption tax in the form of a national retail sales tax of 23 percent on all services and the final sale of all new goods. All services, except tuition, would be subject to the FairTax. And although the FairTax would be levied only on new goods, nothing would be exempt, including food and Internet purchases. In return, there would no longer be federal income taxes, capital-gains taxes, social-insurance taxes, unemployment taxes, or estate taxes. However, all tax deductions would be eliminated, and all other federal taxes would be retained, as would state sales and income taxes.

The appeal of the FairTax is its simplicity: no more complex tax code, no more arcane tax forms and schedules, no more tedious record keeping. But that simplicity comes with a price. The FairTax plan creates new taxes, new taxpayers, and new tax collectors. And in addition to a multitude of other problems with the FairTax, its main deficiency is that, like all other current tax-reform plans, it is revenue neutral. It allows the federal government to raise more efficiently the same amount of revenue that it does currently. The FairTax merely changes the way that taxes to fund a $3.518 trillion budget are collected. It shifts the debate from how much wealth the federal government confiscates to how the wealth is confiscated. Yet, as Congressman Ron Paul (R-Tex.) has remarked on several occasions, "The real issue is total spending by government, not tax reform."

Under the FairTax, all federal departments, all federal programs, all federal agencies, all federal projects, all earmarks, all pork-barrel spending ­ they would all continue just as now. Thus, Congress could continue its spending orgy while taking credit for simplifying the tax code and making it fairer. The root of the problem is clearly taxation itself, not the tax code. The problem with the code is not that it is too complex, too intrusive, too long, too full of loopholes, too unfair, or too progressive. The problem is that it is used to fund trillion-dollar budgets.

Twenty years ago federal spending was only about one-third as much as it will be in FY2011. Congressional spending is clearly out of control. What we don't need, though, is a freeze on discretionary spending (as proposed by Obama), baseline budgeting, spending increases limited to the rate of inflation, a cap on federal spending at a certain percentage of GDP, or a rollback in discretionary spending to some previous fiscal year (as proposed by Republican Sen. Jim Inhofe).

What Republicans want is a slight reduction in the welfare state with an increase in the warfare state. Democrats regularly call for just the opposite: a slight reduction in the warfare state with an increase in the welfare state.

As I have maintained, government spending should be slashed, and slashed drastically. But it shouldn't just be slashed because of skyrocketing congressional appropriations. It should be slashed because it is funding a government that habitually exceeds its limited constitutional authority.

The proper role of government

The issue is the proper role of government. Limiting government to its proper role will automatically cause the spending problem to disappear. The government needs to be gotten completely out of the places it doesn't belong. In his powerful pamphlet Common Sense, Thomas Paine remarked, "Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one." The federal government today embodies the role of government described by Volaire: "The art of government is to make two-thirds of a nation pay all it possibly can pay for the benefit of the other third."

Consider just two issues that are always in the news: health care and education. Because the proper role of government is not the issue that it should be, the debate over health care and education among liberals and conservatives and Democrats and Republicans is always how government should fix or reform health care and education instead of why the government should do it. It is precisely because of government intervention into health care and education that they are in the condition they are in.

In Article I, Section 8 of the Constitution there are delegated specific powers to the federal government. The Tenth Amendment says that whatever is not delegated to the central government is reserved to the states or to the people. The national government has been delegated no authority concerning health care and education. Because state constitutions have provisions regarding health care and education, we can and should debate ­ at the state level ­ the necessity of the states to provide, control, or regulate those things. At the national level, however, everything is perfectly clear: There should be no federal laws whatsoever concerning health care or education.

That means that there should be no federal laws regarding medical licensing, medical devices, organ sales, medical insurance, medical records, or hospital admissions. There should be no agencies such as the FDA, the Department of Health and Human Services, or the National Institutes of Health. There should be no programs such as Medicare, Medicaid, or SCHIP. There should be no federal funding of laboratories, databases, community health centers, medical research, clinical trials, family planning, vaccinations, or HIV/AIDS prevention initiatives. There should be no federal regulation of physicians, nurses, hospitals, nursing homes, drug companies, pharmacies, or the practice of alternative medicine.

Likewise, when it comes to education, there should be no Pell Grants; no federal student loans; no research grants to colleges; no educational vouchers; no Department of Education; no National Math and Science Initiative; no bilingual education mandates; no legislation such as the No Child Left Behind Act, the Race to the Top Fund, the National School Lunch Act, or the Elementary and Secondary Education Act; and no funding of any public or private school.

The surest way to return the size, scope, and cost of the federal government to its proper constitutional authority is to drastically reduce its funding. Obama's budget shouldn't be legitimized by making it comply with a balanced-budget amendment, and neither should it be funded by replacing one tax with another. Like the budgets of his predecessors, Obama's budget should be scrapped for so grossly exceeding what could even broadly be considered the constitutional functions of the limited government established by the Founders. Restoring the republic depends on it.

http://www.fff.org/freedom/fd1011e.asp