Big
budget battles are under way now.
In
Maine, the Legislature struggles toward a bipartisan compromise,
essential for adopting a state budget, with the central issues being
tax cuts for the wealthy and education spending.
In
Washington, President Trump’s new budget proposal focuses on tax
cuts for the wealthy and reduced spending for the most vulnerable
Americans. It foresees funding core budget items without boosting
national debt by using new tax revenues resulting from a highly
optimistic forecast of economic growth.
Republicans
argue that government takes too much “hard earned” money away
from individuals to fuel a bloated government. In Maine, Gov. LePage
opposes voter-approved taxation, which he says will stifle the
economy, while the Trump budget would use tax cuts as an economic
stimulus and would save money by slashing safety net programs.
In
both cases, the GOP plays to its constituency, those who believe
taxes are too high, while Democrats support people who need and
expect help from government programs like Medicaid, food stamps and
student loans.
The
only sure way to cut taxes without boosting debt is to reduce spending.
The only way to reduce spending is to stop or reduce programs some
taxpayers like. Most who seek to reduce the size of government would
eliminate services they don’t use.
With
so many diverse interests, it’s almost impossible to cut back.
Besides, many activities are too small to produce big savings.
Safety net programs are defended by some of the most conservative
Republicans.
Cutting
back on somebody else’s programs probably produces few savings
unless the reductions are in major income support or military
spending. Trump would not touch Social Security or Medicare and
would increase defense outlays. That leaves Medicaid and support for
low-income people.
Individuals
and employers pay the bills. Individual income taxes and payroll
taxes are four-fifths of federal revenue, but don’t cover all
spending. Taxes must be supplemented by borrowing.
The
GOP “deficit hawks” have derided Democrats for “tax and spend”
policies. But, once in control, they look much like the Democrats.
For example, to pick up votes for their effort to replace the
Affordable Care Act, the House GOP readily added $8 billion in
spending without matching revenues.
They
once claimed that Congress would not add any spending without paying
for it. Now, the GOP asserts that added costs will be covered by tax
revenues resulting from almost impossible growth. If such forecasts
don’t come true, the deficit will increase.
Trump
and congressional Republicans also want to use cuts from health care
reform to pay for tax reduction for upper income taxpayers, who would
supposedly invest their tax savings, creating jobs and boosting
economic growth.
With
the prospect of few cuts acceptable to a congressional majority and
public resistance to taxes, the federal government is in trouble.
If
high economic growth doesn’t materialize and won’t pay for added
government spending and tax cuts, the national debt will continue to
grow. The bill for higher debt will eventually have to be paid by
today’s kids. Eventually, Congress will be faced with the need to
raise taxes not cut them.
In
the meantime, tax reform would help. Unfortunately, tax reform seems
always to be linked with tax reductions. True reform would leave
revenues alone, while making the system more simple and fair.
Maine,
like other states, must balance its budget, so the debt issue is less
important. Like the federal government, the state spends most of its
money in a few areas – health, education and transportation. All
are difficult to cut, though health care spending mostly reflects
national spending priorities.
For
revenues, Maine depends mostly on sales taxes, excise taxes, and the
individual income tax. But a large part of the budget comes from the
federal government.
Last
year, the voters dealt with taxes directly. Seeking to boost
education funding, voters passed a bill adding a 3 percent tax on
income above $200,000. This kind of broad-brush tax policy took the
place of serious budget making.
LePage
wants to eliminate that tax. Democrats want to keep it and the
promise of more state aid for basic education.
The
solution probably won’t be an increase in the income tax, already
too high, or in pushing costs onto the property tax, also too high.
At some point, the list of goods and services subject to the sales
tax must be expanded.
The
moral of this story is that budget reality will one day force itself
on the federal and state governments. Voters don’t really want to
cut government. Current tax policy must change.