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The Detroit News recently
ran a series of articles called "Tax
Cut Impact." "To pay for federal tax
cuts," the News recounts, "many programs that served the working poor were
reduced or eliminated as the deficit grew. This report shows that the amount of
money millions of Americans now pay for services ranging from child care to
housing is greater than the amount they saved through the tax cuts."
The News does lay out an
impressive number of articles that are tied in some way to the tax cuts. The
message: Because a few people get large tax cuts, government programs are
gutted, and the poor suffer. Students cannot afford the high costs of
college tuition; low-income seniors
cannot
get jobs; parents cannot get other
people to pay for their
child care;
public housing units suffer from lack
of upkeep; people can’t pay the
rent; others face death when their
federal
utility-bill grants are inadequate;
and elderly Americans who want food assistance must wait until someone already
in the Meals on Wheels program
drops out or dies. All this because of cuts in the
dividend and
estate tax rates — and, the News adds,
"In many cases, the poorest lost services and
got no tax cut at all."
A full review of these
articles is beyond the scope of this commentary. Still, we should step back and
examine broader principles. Despite reporting some compelling tales of individual
struggle, the series misses larger truths that affect us all.
Just because we have
done something a certain way until now does not mean that we should continue. Budgetary shortfalls, though
difficult for government managers and the public to deal with, present chances to find new
ways of doing things. When we are forced to revisit which programs are effective and which are not, it’s an opportunity for
innovation. The Mackinac Center, for example, has recommended ways to cut
$3.5 billion from the annual state
budget, putting it on the road to structural balance. Much greater savings could
be achieved at the federal level.
Government programs are
seldom the solution they are advertised to be.
Often, they
duplicate efforts of the private
sector, as well as
each other. Further, they are not
necessarily effective at their stated goals — a conclusion that both a
Republican Congress and a Democratic president (Bill Clinton) reached in welfare
reform. In addition to providing the wrong incentives, government programs aimed
at the poor often end up, for political reasons, benefiting the
middle class, too. Why not cut out
the middleman and let the middle class keep its money, rather than funnel it
through the political process? Private citizens would have a greater ability to
voluntarily help those who need it if so much money was not being filtered
through the political worlds of Washington, D.C., and Lansing, Mich. Moreover,
deregulation and private efforts to
promote entrepreneurship often
improve the well-being of lower-income families as well as, or even better than,
the best-run government programs.
It is easy to see the immediate
effects of program cuts; it is harder to identify the overall benefits of tax cuts.
If a government-run job-training program announces that it can now serve 100
people instead of 150, it will be easy to see an immediate, negative effect of
reduced spending. Bad news dominates news coverage.
On the other hand, if
businesses are able to hire more people as a result of a tax cut, it is usually
not noted in the news. If businesses are able to retain people as a result of a
tax cut, it is not newsworthy at all. Yet since the May 2003 round of tax cuts,
the national unemployment rate has decreased from a peak of
6.3 percent in June 2003 to 5.4
percent now.
You cannot cut what does
not exist. A record
40 million people in the United States pay no income taxes at
all. These people already receive a de facto
benefit, and they continue to do so even after a tax cut. Similarly, we
should not be surprised that people paying less in taxes do not receive larger
refunds when taxes are cut.
The budgetary problem is
not too little taxation; it is too much spending.
Federal outlays on domestic spending now account for nearly
16 percent of the national economy.
In Michigan, state and local governments consume more than
10 percent of personal income. This
amount comes on top of the huge sums that state
residents pay in federal taxes.
The federal tax cuts of the
past year have been a step in the right direction. But they address only one
side of the budget. Both Congress and President Bush have emphasized the most
politically popular path by cutting taxes without significantly reducing the
size and scope of government.
Our officials in
Washington, D.C., have been irresponsible. On President Bush’s watch, nondefense discretionary federal spending has increased a remarkable
35.7 percent.
Perhaps afraid of offending
any special-interest group, President Bush will almost certainly go down in history as the only first-term president
since John Quincy Adams (who served from 1825 to 1829) to not veto a single bill.
Hidden in the various congressional appropriations bills are numerous special-interest tax credits, dubious federal
programs and plain old pork-barrel spending. Meanwhile, high tax rates and
regulation hinder economic growth, and a wretched education system — not
mentioned by the News — does more to harm the poor than tax cuts ever do.
The apparent cost of tax cuts does little to change the fundamental
fact that most of the time, government is not the solution; it is just something
that gets in the way.
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John R. LaPlante is an
adjunct scholar with the Mackinac Center for Public Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint in
whole or in part is hereby granted, provided that the author and the Center are
properly cited.
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Copyright © 2004 Mackinac Center for Public Policy
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