Taxing and spending for good

Jon Margolis

September 24, 1993|By Jon Margolis

BECAUSE both of them were childish, neither President Clinton nor the angry fellow who shouted a question at him in Florida the other day deserves any help.

But in the spirit of charity we will answer the question, however rudely it was put.

In case you missed it, the question was: "Can you name one country which has taxed and spent itself into prosperity?"

Sure. The United States of America. Also Germany, Britain, France and Japan. No country ever attained prosperity without public investment, or spending as it is sometimes known, paid for by taxes.

In the United States, that investment started right after the country did, with spending on what was then called "internal improvements" -- canals, highways, harbors and lighthouses.

Most of this money came from tariffs. A tariff is a tax, levied directly on importers and indirectly on whoever buys the imported goods or their domestic equivalents. In the early days of the republic, that might have excluded most frontiersmen, who disdained store-bought stuff. Everybody else paid. There were also some internal excise taxes and state and local property taxes.

By most measurements, American governments spent less than their counterparts in Europe and were less likely to go into debt. But spend they did, and American public parsimony often was more rhetorical than real. From Thomas Jefferson to Ronald Reagan, American presidents paid homage to the idea of thrift and then spent like lumberjacks just come to town after six months in the woods.

Jefferson proclaimed himself "for government rigorously frugal and simple." Then he bought Louisiana, which in those days extended from New Orleans to western Montana. More land owned by the government meant more land to be given away to homesteaders, and later to railroad companies. This may or may not have been equitable, but it was undoubtedly effective. The land got settled and the railroads got built.

Then, as now, the government spent most of its money paying off its debt and maintaining the military. In 1825, for instance, the War and Navy Departments spent $6.8 million of the $15.9 million total federal budget, and interest (a lot of it stemming from the War of 1812) was another $4.4 million.

That war had been a real threat to "national security," a term not then known. But nothing else was. Security did not require expansion. Prosperity may have. Except for the Civil War, 19th-century military spending was really economic development. The cavalry that protected the wagon train from ++ Indian arrows was doing what the Agriculture Department does now, subsidizing farmers. By the 1890s, when wealthy Americans were investing overseas, the United States began an expensive expansion of the navy, largely to protect those investments. The armed steamships of the fleet were doing what the Commerce Department does now, subsidizing foolish businessmen.

Speaking of steamships, shortly after they began to be used, in the 1830s, they began to explode, killing people. Not surprisingly, passengers were displeased, and the government reacted by establishing an inspection service, no doubt over complaints from the steamship operators that regulation would cost jobs.

Thus began government's role as a protector of public safety, which is just another version of public investment that promotes prosperity. Far fewer people would have ridden steamboats then, or would ride airplanes now, if they were considered unsafe. There is a theory that market forces alone can insure safety. There is the fact that they didn't.

Government spending, of course, grew mightily in this century, and some of that spending just barely qualifies as investment. Some of it qualifies as waste. But most of it, not surprisingly in a democracy, is spent because most people want what it provides -- clean food, college educations, cops on the beat, national parks, the Air Force.

Until now, the last big change in government fiscal behavior came in the 1980s, when the federal government spent just as much but taxed less. Instead, it borrowed, leaving the tax burden for another day. Mr. Clinton thinks that day has come because too much borrowing can hurt an economy.

It can. So can too much taxing. Mr. Clinton's opponents could argue that he and the Congress have now put into effect too much taxing, but it's a tough sell when the top marginal rate is still well under 50 percent. That's why they're reduced to shouting this silly question, the answer to which is all around them.

Jon Margolis is a columnist for the Chicago Tribune.

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