Why don’t governments cut spending during tough times?

Check out this article from USA Today.

Excerpt:

Many states and cities coping with hard times are asking residents to open their wallets for the latest fashion in taxation — the temporary tax.

Governments are raising taxes for a specific period of time and promising the hikes will go away when good times return.

Some big temporary taxes:

Arizona voters decide today whether to approve a three-year sales-tax hike. Republican Gov. Jan Brewer pushed to raise the sales tax from 5.6% to 6.6%, dedicating two-thirds of the new money for schools.

Kansas hikes its sales tax July 1 from 5.3% to 6.3% for three years. The tax is designed to prevent cuts in education and social programs.

• Mobile, Ala., boosts its sales tax by 1 cent for 16 months starting June 1. The combined state and local rate will be 10%. Goal: avoid laying off police and firefighters.

A half-dozen other states are eyeing temporary taxes. So are many cities and counties, including King County, Wash., which includes Seattle.

Temporary taxes are phenomena seen during recessions, says Curtis Dubay, a tax expert at the conservative Heritage Foundation. “You don’t hear about temporary taxes when money is flowing into the coffers.”

The problem is that these taxes rarely go away, he says. “Once politicians get their hands on revenue, they won’t give it up,” he adds.

I noticed that Stan, a resident of Arizona, wrote about an alternative to temporary tax hikes in this post.

Excerpt:

Let’s see what the official 2010 budget says. Hmm. Well, they’ll be paying back $50 million in Federal Stimulus money. Odd. There is a line item for an additional $40 million in “new private prison beds”. Right … so our criminals are more comfortable. Got it. Interesting. There is a “Department of Racing”. Apparently the Department of Racing regulates the Arizona parimutuel horse and greyhound racing industry. Oh, now this is funny. The Department of Economic Security has a budget of $546 million. Perhaps we ought to fire them, eh? While we’re at it, perhaps we ought to take a real hard look at the Governorʹs Office of Strategic Planning and Budgeting and their $2 million. I’m thinking they’re not doing their job. Oh, I suppose there is no way around the $2 million we’re spending on the Board of Cosmetology. I mean, what could be more important to Arizonans than beauty treatments. Oh, yeah, we have to regulate that carefully. There’s another $4 million on a “Telecom for the Deaf Fund”. I know … that’s a good thing … but is it more important than public safety? Is that really the job of the government? And the fact that we’re spending more than $13 million on a “Department of Gaming” (with another $74 million to the Arizona State Lottery Commission) is troubling to me all on its own.

Allegedly something around 60% of our budget is already spent on schools and public safety and health care. Fine. But is anyone looking at what that money is going toward and how to cut waste? Trust me. There is lots of waste.

Overspending governments always market tax hikes as ways to say essential services or “compassionate” social programs. Why can’t they just cut some wasteful spending, instead? Is that so hard?

16 thoughts on “Why don’t governments cut spending during tough times?”

  1. They have marketed Prop 100 to “Protect education, public safety and health care.” I wonder how they would fare with increasing taxes if it was to “Protect the Racing, Cosmetology, and Gaming”? “Don’t worry,” they could assure us, “2/3rds will go to gaming. Bet on it.”

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  2. We were involved in a car accident in Phoenix. The police and emergency services arrived within minutes and were absolutely professional. Could not have been kinder or more professional. I sure don’t mind some of my Phoenix tax dollars going to the Phoenix police and emergency services people. God bless them!

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  3. The theory is based on Keynesian economics. I think the diagnosis is correct. Some sort of a shock hits the economy, such as a bubble bursting. Wages, and prices for big ticket items like houses are “sticky”. This happens for a variety of psychological reasons like loss aversion. Since prices cannot adjust downwards you get the exact same dynamic as rent control and other price floors. The economy slows down as fruitful trade cannot happen.

    I think the Keynesian diagnosis so far is indisputable.

    One solution is government spending. This is called counter-cyclical spending. Since economic activity is not happening because of loss aversion, let the government step in and keep the aggregate demand high. Welfare programs are actually quite nice in that regard. Since the demand for those services automatically goes up when the economy tanks, it serves to boost both equity and efficiency. Moreover, it bypasses the political process. They are called automatic stabilizers.

    I am less sure about the fiscal policy prescription. It depends on (1) the size of the multiplier effect, which is a messy empirical debate that cannot be easily solved, and (2) how serious of a problem one takes government debt to be.

    My final thought: I think Christian philosophers are generally bold and independent. They are not polluted by the world. On economic issues, I think many Christians have been somewhat captured by secular libertarian intellectuals, or worse, Ayn Rand.

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    1. I think a much worse problems is people who profess to be Christians who follow the doctrines of atheistic materialists like Karl Marx and lead their nations down the path to Cuba, North Korea and Zimbabwe. Or even Greece or Venezuela. That encompasses most of the Democrat party, really. Not only are they worthless on foreign policy and social policy, but their economics leads to the loss of freedom and prosperity as well.

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      1. while I’m not in favor of communism, communism is a market form, it doesn’t preclude religion. Vietnam is strongly buddhist and strongly communist. China has huge numbers converting to christianity and it’s communist (I understand they’re against religion, but in many cases, if you keep it private, they turn a blind eye). So you can still have a communist christian nation…

        As for the deaf, with practically every cell phone having texting capabilities, I don’t see a huge need for a lot of money spent on deaf telecom. Make the 911 centers support texting and you’re good to get rid of that funding along with the rest of the other garbage organizations you mentioned.

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          1. You’re referring to the communism implemented by authoritarian states. Pure Marxian “refers to a classless, stateless and oppression-free society where decisions on what to produce and what policies to pursue are made democratically, allowing every member of society to participate in the decision-making process in both the political and economic spheres of life”

            That is not against christianity. I would have to dig a little deeper, but my assumption always was the communal ownership was of real property (land) not personal property.

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        1. All three branches of Buddhism are not theistic – no Creator, no Designer. You need Judeo-Christian ethical monotheism to get a design for the universe, with an objective moral law and human rights, including the right to own property and the right to life. That’s what blocks communism.

          Please tell the Christians in home churches in China who are being persecuted, imprisoned, killed and having their organs sold on the black market that China is a Christian nation.

          Sorry to be mean, but I don’t like communism and they don’t like Christianity. The two have nothing in common. Communism is for the abolition of private property, but private property is assumed throughout the Bible as in the 10 commandments: thou shalt not steal, thou shalt not covet thy neighbor’s goods.

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      2. Hiya Wintery,

        I am a big fan of your blog, and particular your posting series on the resurrection, as well as N.T. Wright’s debate.

        I agree that following Marx is worse than following Ayn Rand. My point is that libertarian economics is both (1) empirically wrong, and (2) undercuts conservative arguments for the importance of internalized moral values and healthy social norms.

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        1. Yeah, I agree. I am not a libertarian. I’m a social conservative. I favor limited government and capitalism, though, and I think those are compatible with Christianity. You can read “Money, Greed and God” by Jay Richards or the new book “The Virtues of Capitalism” by Scott Rae. Capitalism is GOOD for the poor – much better than the alternative.

          Here:

          That’s capitalism.

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          1. Hiya Wintery,

            The issue is not capitalism vs. socialism. The issue is libertarian vs. progressive. (1) If you consistently side with libertarians then your social conservatism becomes vestigal. The same libertarian arguments that you employ against progressives can also be used against social conservatives. (see here)

            Secondly, although libertarians are well-equipped to argue against naive progressives, they do not do well against more sophisticated progressives. Loss aversion, hyperbolic discounting, and other “animal spirits” from behavioral economics, keynesian economics, experimental economics, and a better understanding of externalities and coordination problems leads to the conclusion that libertarian economics is actually rather naive.

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          2. Although I don’t like your extreme right-wing views when it comes to economics, WK, I do love that video of Thatcher. You gotta love those debates that the House of Commons allows for though,i doubt you’d get to see that kind of debate over in the States, eh?

            I also miss the ideological battle; the parties in Britain now simply squabble over relatively insignificant policy differences compared to the 80s.

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        2. What exactly is wrong with Ayn Rand? (I confess I don’t know anything about her)? And what is wrong with libertarian economics?

          Finally, if you can to choose between Keynesian economics and libertarian economics, which model would you choose and why?

          Thanks,

          wgbutler777

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