Government Savings

This is the final entry in the series exploring improvements to the federal tax system.

As noted in the previous entry, it is always important to consider the reason for taxes. Unless the goal is continue our movement towards a quasi-socialist European model (which would require rewriting the Constitution), the motive behind taxation must be reexamined.

Income tax is a relatively new concept. While it was implemented for a brief period during the civil war, the federal income tax did not become permanent until the 20th century. As America grew, so did the needs of her government, and the introduction of the tax to build a stout military and continue upgrading infrastructure was probably a good idea. But somewhere along the way, taxes became an excuse for government to overspend.

Each of the policies laid out in the previous entries on taxation include very specific goals. The flat income tax is earmarked primarily for military, education, and infrastructure needs. The charity tax puts money in the hands of difference-makers and encourages Americans to take care of one another. The incentive tax encourages responsible business practices. Cutting capital gains encourages saving and investing. And other policies, such as a charity tax on estates, would discourage inherited wealth and push each generation to make its mark.

What are the roots of our current system? How did over-taxation and overspending take hold in America?

During the Great Depression, FDR implemented a series of government-inflating policies called "The New Deal." Designed to save the U.S. economy from further disaster, a whole new batch of regulatory agencies were introduced. The goal of these new policies and bureaucracies was to provide relief, recovery, and reform.

This was a critical moment in our nation's history. FDR's presidency redefined the parties, turning the Democratic Party into a pro-government, neo-socialist reform party and transforming the Republican Party into a conservative watch-dog focused on a strong dollar, sturdy economy, and a balanced budget. Interestingly enough, these issues used to be the backbone of the democrats.

The proof of this change is found in an address FDR gave while he was the governor of New York. It demonstrates that FDR was not an idealist or a constitutionalist, but rather a pragmatist. Once in office, he changed his viewpoints entirely in a desperate attempt to save America from an economic wasteland. Here is the link to the address: http://www.lexrex.com/enlightened/writings/fdr_address.htm

The goal of the programs was to restore hope and prosperity to Americans, and FDR is widely credited with achieving this vision. I believe that he did, in some measure, boost the spirit of Americans enough to help them pick themselves up and start to rebuild our nation. Remember, the Great Depression saw unemployment as high as 25%--just a few years ago Bush was ripped for having a rate just above 6%.

The Supreme Court struck down several provisions of the New Deal, using judicial review to enforce the Constitution. The court believed that FDR's new agencies had gone well beyond the scope of the federal government's rights. The shear volume of programs, however, and their rising popularity, forced the court to abandon their strict judicial review by the time the second "New Deal" laws were enacted, and the federal government had begun its metamorphosis into the juggernaut it has become.

FDR was a great leader, and did help restore hope. But unemployment did not drop below 8% until 1942, when the U.S. had jumped into World War II. So the effectiveness of his policies--which were implemented in the early 1930's, must be questioned. While they had a great psychological effect on the American people, they failed to achieve their outright economic goals.

Unfortunately, the bureaucrats saw their opportunity to take hold of the government. Using FDR's popularity as a President (which had grown largely because of his success in WWII), politicians called for the continuance of many programs that seemed to contradict the grass roots principles FDR spoke about in 1930 when he was still the governor of New York. The result was and is a mass of self-perpetuating agencies that suck funding and produce little. LBJ took these ideas of mass bureaucracy and applied them to social issues, and by the end of his presidency we were doomed to our current situation: well over 60% of government spending is wrapped-up in inflexible, permanent programs and agencies. Sadly, no matter who takes office in 2008, things are likely to get worse, as these programs continue to grow despite their record of failure.

The irony in all this is that FDR knew, in 1930, that America would be headed for the quagmire we find ourselves in unless the federal government's growth was curbed.

The point is that spending begets spending, and taxing begets taxing, unless these policies has specific reform goals. FDR needed to give people hope, and the "New Deal" may have accomplished that, but most of its entangling laws should have been stricken down after World War II, when balance had been restored to the American economy. Instead, the unnecessary programs burgeoned, and LBJ tacked-on a litany of social policies that further bloated the government.

A key component in any tax plan must be to balance the budget and pay down the debt. Laws, and perhaps even an amendment to the Constitution, are required to achieve this goal. Extra dollars are not an excuse to start more programs. The government should have a surplus of funds available for emergencies--such as the Great Depression--to provide TEMPORARY relief. We must force our government to exercise fiscal restraint and repay the debt.

Let's turn that 60%-plus figure around. Let's come together and strike down the under-performing, over-spending programs, and allow the government to have control over 60-plus% of their funds instead just the the leftovers. Let's pay down the debt and build a surplus for emergencies. Taxes are not an excuse to spend. This is the honest change we need.