Every four years, tax reform gets a great deal of attention from candidates running for president. This cycle is no exception. Every candidate has a plan to simplify, redistribute, or make the tax code more progressive. And all claim that their plan will jump-start a staggering economy. Organizations such as the Tax Foundation carefully evaluate these proposals and normally conclude that they fall short of achieving candidates’ promises.
Economic writer Robert Samuelson recently wrote, “Both parties have constructed rationales for avoiding middle-class tax increases … But the resulting tax policies don’t come close to covering the real costs of government. For years, budget deficits have straddled the contradictions. The present campaign rhetoric will ultimately prove hollow.”
Samuelson’s analysis is clear and insightful but incomplete. It is not just the apparent wants of middle-class Americans that drive budgets higher and deficits larger. In recent decades, big companies and special interests have lobbied the government for mandates, subsidies and other actions that produce benefits for them at the expense of our overall economic wellbeing. The constituencies for bigger government are organized while those for smaller government, smaller budgets and a level playing field are not. Debates over spending and tax reform lack perspective and balance.
The recent budget agreement increasing two-year spending by $112 billion implies that everything that government is doing is worth doing, plus a little bit more. The effort to end the Export-Import Bank and its large company subsidies showed how powerful special interests thwart an idea whose time has arrived. Is it any wonder that the term crony capitalism is being used ever more frequently?
It has been almost 80 years since the last major government reform—the 1949 Hoover Commission. Since then government has grown bigger and more complex. Entitlements have been created without serious discussion about how they would be paid for and how they would be controlled. Mandates, subsidies, and loan guarantees are signed into law and take on a life of their own. Social Security, Medicare, and interest on the debt now consume a major portion of federal spending. The Peterson Institute and the Congressional Budget Office have issued repeated warnings about the dire consequences of ignoring our fiscal problems and acting in ways that make them worse. The response from Washington is to simply kick the proverbial fiscal can down the road.
The current anger expressed by voters and their distrust of government provides an opportunity for a serious discussion about the role of government; not what government can do, but what government should do. People want increasing amounts of services, such as Medicare and Social Security, but are unwilling to pay the higher taxes required to keep these programs in balance.
The Competitive Enterprise Institute published a short article this past August indicating that no one knows how many federal agencies actually exist. It cited government sources, which showed a range from 60 to over 400. If the government doesn’t even know how big it is, is it any wonder that citizens have concluded that their government is bloated and dysfunctional?
The distrust of the federal government and the anger being displayed by citizens ought to be a wake-up call. Serious reform effort is needed to bring the federal government into the 21st century by streamlining, downsizing, and focusing on activities that are necessary and best carried out by Washington and not the states.
The best examples proving that we are an over-governed society are the Code of Federal Regulations and Tax Code. According to CEI, the Code of Federal Regulations contained 71,224 pages in 1970, and 175,496 pages at the end of 2013. Regulations are created but almost never die. Wolters Kluwer CCH estimated that explaining the U.S. tax code took 26,200 pages in 1984, yet 74,608 in 2014, a growth of almost 300 percent in 30 years. The system is rigged to favor those who can afford lobbyists and lawyers.
Our fiscal and economic problems will only get worse if the President and Congress continue to avoid a serious national discussion and reform initiative. The Hoover Commission and Base Realignment Commission are models that could be applied to restructure and reform the federal government. A bipartisan commission of individuals with national credibility and competence should be tasked with developing a restructuring plan that would have to be voted up or down by Congress.
This is a challenge of enormous proportions that would test whether any candidates for profiles in courage still exist in our political system. History shows that the status quo is not sustainable. Either we can act wisely or political forces will continue to build and perhaps lead to radical changes.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.