NCPA - National Center for Policy Analysis

The Politics of Budget Cutting

November 15, 2010

Cutting borrowing and spending is inevitable if America is to avoid a Greece-like implosion.  But as the blood sport begins, we should remember the strange politics that govern the process, says Victor Davis Hanson, a classicist and historian at the Hoover Institution.

First, no one ever reduces government in good times, when we would be far better able to limit spending, and the public needs less assistance -- it only happens after the economy falters and the money runs out.

Second, raising taxes has limits, as we see from the California meltdown.

  • There, a 10 percent state income tax on upper incomes and a sales tax of nearly 10 percent did not result in balanced budgets, but instead sent many high earners and businesses out of state, and made the ones that stayed stop hiring and buying equipment.
  • Employers will prefer to shut down or hide rather than take risks while they feed the ever-growing state beast.

Third, politicians promise the easy cutting of generic "waste and fraud," "foreign aid" or "unnecessary wars."

  • The problem, however, is that waste, wars and aid probably account for less than 5 percent of the federal budget this year.
  • In contrast, more than 60 percent of yearly spending is devoted to Social Security, Medicare, Medicaid and defense expenditures not directly related to war.

Fourth, self-interest governs the entire debate, says Davis Hanson.

  • Roughly half the public pays no income tax and roughly half of Americans receive all of their income or a large part of it from the federal government.
  • Beneficiaries vote for higher taxes on others and more benefits for themselves.
  • Benefactors obviously prefer fewer payouts for others and lower taxes on themselves.

Fifth, there is always a "you go first" element to budget cutting.  The party that imposes discipline is demagogued, even as its opportunistic opposition usually claims credit for the improved economy that follows from the responsible policies of others.

Source: Victor Davis Hanson, "The Politics of Budget Cutting," National Review Online, November 11, 2010.

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