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December 14, 2017

Unhinged Spending — DC’s Canary in the Coal Mine

Despite record revenue, the federal government is still running a deficit. North Carolina provides a solution.

This week Republicans in the House and Senate announced that each chamber’s tax reform bills had been reconciled. This means that a final vote will happen very shortly. From the get-go, Democrats have opposed any Republican-led tax reform for a myriad of reasons, not the least of which is because it doesn’t siphon enough money from wealthy businessmen and women to satiate the government’s revenue gravy train. According to federal revenue data, however, there is most certainly not a lack of funds entering government coffers.

We are now about two and a half months into Fiscal Year 2018, which began on Oct. 1. In the months spanning October and November, the Treasury hauled in $443.7 billion from taxes — the highest windfall during that two-month period on record. In a realistic world, that should be more than enough to fund the government. In this one, it’s not nearly enough. CNS News’ Terence Jeffrey reports that during the same time period, the federal government had a staggering $645.5 billion in expenditures — which translates into a $201.8 billion deficit.

Most lawmakers view tax revenue in terms of the amount of money the government “needs” to both sustain normal operations and expand them. This thinking is entirely backwards, but it explains why Democrats are so strongly opposed to tax reform unless it bolsters revenue at the expense of America’s wealthy. What’s never allowed into the discussion is the need to curb the government’s out-of-control spending. But states like North Carolina provide solutions.

In National Review, the North Carolina state director of Americans for Prosperity, Donald Bryson, discusses his state’s remarkable economic turnaround. At the forefront of the revival? Tax cuts and spending restraints. According to Bryson, “Just five short years ago, our economy was floundering and unemployment hovered around 10 percent. Since then, we’ve added 245,000 people to our labor force and the unemployment rate has been slashed almost in half.” Thanks to a rollback in corporate income and personal income tax rates combined with significantly higher standard deductions, Bryson says, “our state made the ‘most dramatic improvement’ in the history of the Tax Foundation’s Business Tax Climate Index, jumping from No. 41 to No. 11 in just one year.”

But here’s another key: “The broad tax cuts were coupled with rollbacks in corporate-welfare giveaways and measures designed to restrain the growth of spending. Overall, spending will increase just 3 percent this fiscal year, which is below the 3.8 percent combined growth of inflation and population.” The effect of these changes has resulted in persistent revenue and budget surpluses and a $1.8 billion rainy-day fund. Bryson correctly references Kansas as an example of how things can go wrong when spending isn’t addressed. Major tax cuts were enacted in Kansas, but, unfortunately, there were absolutely no efforts to rein in spending. In fact, Bryson writes, “After the passage of dramatic tax cuts in 2012, total state spending increased almost every year. Between the budget years of 2010 and 2018, Kansas lawmakers increased expenditures by almost 25 percent, from $5.3 billion to $6.6 billion.”

There’s a lesson here — revenue problems, whether at the state or national level, are almost always the result of careless spending. If done correctly, tax cuts can supplement economic improvement in an unparalleled way, but fixing negligent spending has to be part of the equation. We’ve seen success at the state and local level. The question remains how to make it happen at the national level. Despite record revenue, lawmakers in DC are asking how to harvest even more. Reduce spending, and the results will speak for themselves.

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