2010-07-26

Silly Idea: Balanced Budget Tax

When I was in my teens and twenties, I was a Reagan Republican. I watched Family Ties and never understood that Alex P Keaton of Family Ties was meant to be a joke. I looked at certain things and said "Its simple and thus makes sense." and with the blinders of youth went my way. One of those things was that if you lowered taxes continuously eventually you would starve the Government beast and have a smaller government. Well 30 years later, we have found that when you untie spending from taxes.. "We the People" will just treat it like a Credit Card and spend spend spend because we are sure that we will somehow be richer in 2 weeks and be able to pay it all off.

I could blame Congress for this, but well Congress is just people that "We the People" have the responsibility of voting into and out of office and keeping track of what they do. And basically as long as they gave us stuff and billed us later we have been over-all happy with them. So anyway, as an experiment in a great line of experiments that the American democracy has had, I would say that "Starving the Beast" has been a flop. So its time to come up with something radical from the other side of the coin. If "we" will spend like crazy when Taxes are down.. then lets raise see about the other route. Thus a call for the Balanced Budget Tax:

All taxes are raised per year to make sure that the United States Budget is balanced, and any outstanding debt will paid off in no more than 20 years. Congress may not put off costs to future years but make sure that any program is paid for with current funds. (Basically treat the current debt as a traditional fixed rate mortgage that we will pay off in 20 years.)


I have the feeling that this might have a stronger incentive to get people to understand what is being spent and what for. If a super majority of people want more government programs it is paid for now versus future generations.

Yes this idea is too simple and would fall over badly in the real world... however this seems to be the year of silly idea.

3 comments:

Casey said...

You must not have been a very good Reagan republican if you think that's how that worked.

The point is not to starve the government. The point is to increase the incentive for people to be productive by letting them keep more of the money they earn. I have never heard anyone outside of this blog talk about "starving the beast" as you put it.

Whether you buy directly into the "Laffer curve" idea or not, the second flaw in your idea is that you can increase taxes and thus get more money. As mentioned above, taxation affects the overall productiveness of the economy. More taxation puts more stress on the system, which means it produces less goods to be taxed. Think about the rising gas tax; the government doesn't even do it to make money. They just want you to stop buying gas. The prevalent Reagan economic theory stated that lowering taxes would actually increase government revenue. Whether that works as a larger theory or not, in that time and place it did appear to work.

The buget deficit increase for the Reagan era was much smaller than the massive increase in defense spending during the same period. Whether the latter was good policy or not, Reagan administration fiscal policy did prove successful in practice, yielding the longest period of peacetime expansion in history, as well as one of the few periods where minorities saw the same economic improvement as non minorities and where all income brackets saw positive growth (the rich got richer faster but the poor did not get poorer).

Smooge said...

@Casey I was in my teens at the time for most of the Reagan cycle. Looking up where the "Starve The Beast" was used first I found that it started to become prominent in the Reagan years (not by Reagan himself).

www.independent.org/pdf/tir/tir_12_01_01_bartlett.pdf

While not always called starve the beast.. the basics as espoused where I was growing up was basically the following:

At a hearing of the Senate Finance Committee
on July 14, 1978, Alan Greenspan, who had lately been chairman of the Council of
Economic Advisers (CEA) under Ford, endorsed the Kemp-Roth bill with this ex-
planation: “Let us remember that the basic purpose of any tax cut program in today’s
environment is to reduce the momentum of expenditure growth by restraining the
amount of revenues available and trust that there is a political limit to deficit spend-ing” (Senate Finance Committee 1978, 172).

Smooge said...

@Casey I do not doubt that my idea has major flaws.. it is a silly idea.

The basic idea is that by raising taxes to an exorbitant amount for "The People" to get off their duff and see what is being spent on versus letting other people in other places do it for them. As a basic idea it makes for some sense.. however in actuality it is most likely tragically flawed.