Higgins: Revenue enhancements are tax increases!Written by Tim Higgins | | email@example.com
I have recently written a couple of pieces about the continuing (some would say mind-numbing, endless, and boring) debate going on in Congress over raising the debt ceiling. I have attempted to use humor and popular culture references, logic and reason, and even simplification of the subject to a single question to make it easier to understand. Perhaps however, it’s time to make this a class in basic Economics.
So let’s start with a simple premise. If an individual or family spends more than they take in, they go deeper into debt. If this process continues, they reach a point where it’s not only no longer possible to pay back the money they owe, it’s impossible to even pay back the interest on the money that they are forced to borrow in order to meet their obligations. This result is what’s actually meant by the default on a debt, something often better known as bankruptcy.
If a government follows the same path, they call it something far different (and seemingly more acceptable), deficit spending. As it goes for the individual or family however, so too does it follow for a nation. Continuing to spend beyond its means is a recipe for disaster that eventually reaches a point of no return.
Beyond this point, a government has two options to bail itself out. The first is to oppressively tax its citizens, in the misguided hope that they can beat the law of diminishing returns that will set in when they confiscate the capital that could otherwise be used to expand the economy (and the tax base) in order to pay their day-to-day bills. Inevitably, such practices increase the speed of the death spiral of that monetary system (often accompanied by a loud flushing sound).
The second method of irresponsible evasion is to run the government printing presses non-stop in order to create an inflationary spiral. If the value of the currency decreases, so too does the value of the debt incurred. While this works for a while; eventually the chickens come home to roost, usually about the time that a piece of paper currency with far too many zeros on it is required to purchase a loaf of bread.
In his book, “Applied Economics”, Thomas Sowell calls this ‘Stage One Thinking’, a practice of not thinking beyond the immediate consequence to the longer term effects of an action. While Congressional budgets are often rife with this behavior, this is not the only concept that seems to be misunderstood however. So since those in the government and media insist on misdirection or code words in their discussions of the subject, let’s clear up a few of the most important.
Revenue enhancements are tax increases! The only money that government has is what it gathers through taxation and tariff. The only way that government can enhance revenue is through taking more of it from its citizens. A spending cut is reduction in the amount of spending done. It’s not a reduction in the budgetary growth of a program or a reduction of a previously inflated budgetary number. Fair … Sorry. This word can simply no longer be allowed when talking about economics by either the government or the media. Neither should it be used in judgment of taxes or spending (and never with the word ‘share’). Its current definition has become more a product of emotion and ideology than one of objective fact. Somebody is just going to have to come up with a different measure of these subjects and a better descriptive term, since this one is damaged beyond repair.
Its past time for Congress in fact to stop using misapplied terminology and accounting tricks to hide their lack of backbone and economic acumen. It’s obvious that they don’t understand basic economics or we wouldn’t be in this jam in the first place. A little more plain language and bit less double bookkeeping (that would be illegal in the private sector) might be just what’s in order.
While we’re at it, can we please stop having them talk about 10-year budget reductions where no reducing happens for the first 3-5 years. Legislators need to show at least enough honesty to cut spending immediately when necessary, and while they’re still in office; and not (like the deficit) leave it to those who come after. It’s time to quit substituting ‘Wimpy Economics” for real budget debate, “I will gladly give you spending cuts Tuesday, for a tax increase today.” Such nonsense simply won’t cut any longer.
That’s Economics 101… class dismissed.