Anger Over Big Government, High Taxes Is Reshaping Politics

August 28, 2009|By Ron Smith

Editorialists at major American newspapers have a history of magical thinking when it comes to taxing us. How many times have we read editorials urging higher taxes as the preferred solution for any perceived governmental budget problems? Liberals have a catechistic response to most any demand for greater social spending: Raise taxes and get on with it. They seem ignorant of one of the basic laws of economics, which is that taxes discourage production. The more a thing is taxed, the less you get of it. This is why the huge expenditure of money by the federal government in the name of "stimulus" cannot possibly make up for the wealth destroyed by the taxes extracted from the productive economy to pay for it.

As we know, the current economic crisis has provoked the levying of some new taxes and fees by governments all across the nation, but these are insufficient to address the growing gap between what's needed to keep our swollen governments solvent and the continuing shrinkage of tax revenues they collect. This is a major political problem, and one that doesn't lend itself to any solution that benefits the status quo. Here's the situation in a nutshell, as articulated by Henry Hazlett in his masterful book, "Economics in One Lesson": "When the total tax burden grows beyond a reasonable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble."

When Peter is robbed to pay Paul - the perfect analogy for the imposition of any tax - Peter can be OK with it as long as he still feels prosperous after being forced to give some of his money to Paul. In the current time of economic anxiety, Peter, who no longer feels confident about his prospects, tends to get his back up and object loudly, which, as we've seen in the fuss kicked up at "town hall meetings" over Obamacare, starts to reshape political realities.

This was, I believe, the subtext to an editorial in this newspaper Wednesday headlined "More budget blues." In pondering the just-announced $454 million in state budget cuts and acknowledging that the rocky economy means there may be worse to come, there was no explicit call for further tax increases on Marylanders. The editorial did praise Gov. Martin O'Malley, saying he wasn't the cause of his budget problems and that "His willingness to raise taxes, chiefly the state's sales tax, is one of the factors that has kept the situation from being far worse than it already is." But it warned that lots of hard decisions remain to be made and made quickly, and that the governor has chosen to defer some of the hard choices, perhaps because 2010 is an election year and more painful budget cuts or raising taxes could well set the stage for "voter unrest and a return face-off with former Gov. Robert L. Ehrlich Jr. next fall."

Speaking of new political realities, consider that a recent study by the Nelson A. Rockefeller Institute of Government shows that state and local governments have been adding jobs during this historic recession. While the private sector - the productive one - has been shedding nearly 7 million jobs since the recession began in December 2007, state and local governments added a net 110, 000 workers.

There are several likely explanations for this disparity. One is the glacial pace of governmental decision-making. Another is that federal stimulus dollars were used in great amounts to enable the governments to keep the jobs of politically influential unions funded in full. The expansion of government jobs is also made possible by the raising of state and local taxes. As the planned furloughs of Maryland workers indicate, though, the realities are catching up with the public sector. Crunch time is here, even for government workers. Look for all sorts of fireworks in the coming election year. We live in those much-warned-about interesting times.

Ron Smith can be heard weekdays, 3 p.m. to 6 p.m., on 1090 WBAL-AM and WBAL.com. His column appears Fridays in The Baltimore Sun. His e-mail is rsmith@wbal.com.

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