by Ari Armstrong, April 28, 2004
Woe of woes, Colorado's Taxpayer's Bill of Rights, Douglas Bruce's 1992 popularly passed tax limitation law, did exactly what it was intended to do and cut state spending during an economic crunch. Of course, that allows Colorado residents to keep more of their earnings and help grow the economy.
But if you're a typical politician or one of their cheerleaders in the popular media, nothing could be worse than expanding economic liberty. In the April 25 Denver Post, TABOR is depicted graphically as a hairy, horned, purple monster. Monstrous freedom, scourge of the political class!
That issue of the Post fortunately contains some useful facts about TABOR in two editorial pieces by Jon Caldara and Bob Ewegen, who take opposite sides. Caldara points out state spending has still increased 64% since 1992 despite TABOR, and anyway the provision allows for specific tax increases if approved by the voters. Ewegen points out that the general fund (which is about 40% of the total state budget) fell $236.2 million, or 4.2 percent, from 2001-2 to 2002-3. This year, the general fund is around $5.8 billion. Ewegen further notes, "In the 1993-4 fiscal year, the first affected by TABOR, state government spending equaled 7.35 percent of aggregate personal income in Colorado. In the current fiscal year, state government spending equals just 5.2 percent of the state economy..."
The proposal Ewegen advocates, one promoted by RINO Brad Young, is to limit tax levels to 6% of aggregate personal income. That's a great idea if you think politicians are smarter with other people's money than those people are as well as morally entitled to that money. It's a horrible idea if you cherish properly limited government and economic liberty.
There is simply no reasonable case for increasing state spending at the rate of economic growth (or faster) -- unless of course one sees an expanding state as an end in itself. Two broad reasons explain why. First, as in industry, government actions face economies of scale. Once the infrastructure is set up, adding additional units of service usually costs marginally less. Second, as the economy expands, fewer people need charity and/or welfare, and wage earners have more to contribute to market charities.
Henry Hazlitt expands upon this second point in his 1973 book, The Conquest of Poverty. The Paradox of Relief he describes as follows: "The richer the community, the less the need for relief, but the more it is able to provide; the poorer the community, the greater the need for relief, but the less it is able to provide." And what is the key to richer communities? In a word, it is capitalism: the continued expansion of capital that is the foundation of rising wages and increasing standards of living. (Also of relevance to state spending, higher standards of living are often associated with less crime.)
However, profligate state spending necessarily curtails the expansion of capital. The state doesn't get its money out of thin air -- it takes it out of the productive economy. The more the state escapes its proper limits, the slower the rate of economic growth. Or, as Hazlitt adds, "The irony is that the very miracles brought about in our age by the capitalist system have given rise to expectations that keep running ahead even of the accelerated progress, and so have led to an incredibly shortsighted impatience that threatens to destroy the very system that has made the expectations possible."
For advocates of the free market, the main problem with TABOR is that it allows too rapid an expansion of state spending.
Senator Mark Hillman explains in his April 26 "Capitol Review," "[M]y preference is to take a two-year 'timeout' from both TABOR and Amendment 23 [which automatically expands K-12 spending] -- allowing the budget to recalibrate as the economy recovers." Hillman challenges, "Those who argue that TABOR shouldn't be altered one bit should explain how the state could cut another $480 million from this year's budget."
Okay, Senator, here you go. The March 30 Rocky Mountain News provides an overview of the budget. Out of the $5.8 billion general fund comes spending for K-12 education ($2.5 billion), health care ($1.25 billion), higher education ($592 million), corrections ($497 million), human services ($465 million), and judicial ($220 million). Given the government has no legitimate role meddling in K-12 education, health care, higher education, or human services, that amounts to about $5 billion in appropriate spending cuts from the general fund, or ten times what Hillman is looking for.
De-Brucers should feel free to take their own "timeout" if they need to dig out the paper bags. But let's get back to the basics, even though liberty is something most people -- even Republicans who profess to advocate free markets -- seem to be able to barely conceive. Socialism doesn't work. Partial socialism doesn't work, either, and to the extent that it does work, it's only because of the part that's not socialism. Free markets do work. Free markets are just, they are fair, and they provide the only means of raising the average standard of living as well as the standards of living for most individual members. (As Dinesh D'Souza points out, the political class is rich in every society.) There simply is no justification, economic or moral, for the socialization of education or health care. The economic case for the socialization of charity is weak and met with powerful counters. (In brief, the free-rider problem associated with charitable giving can be solved through the market, while the problems of perverse incentives and rent seeking associated with state-funded welfare are much more dangerous.)
The libertarian, or classical liberal, or free market, perspective is that the proper sphere of government is protecting people's rights through the courts, police, and military.
Obviously, TABOR allows the expansion of state spending into areas properly left to the free market and voluntary society. So here, in order from best to worst from a free-market perspective, are the scenarios facing us.
1. Require the absolute reduction of state spending from year to year until the state is funding only legitimate governmental functions.
2. Set an absolute cap on state spending, so that the economy slowly outgrows the chains of state interference. (George Reisman makes this suggestion in his book Capitalism.)
3. Keep current TABOR caps, which allow the expansion of the state, but at a slower rate than the expansion of the economy. During times of economic decline, state spending would decrease.
4. Keep TABOR, only don't decrease state spending during times of economic decline.
5. As RINO Young advocates, set spending limits equal to a percent of aggregate income. This is actually a step backwards from a free-market perspective. Because of economies of scale, allowing the state to expand at the rate of the economy would actually allow the state to branch out into new, illegitimate functions. Of course, the politicians would be able to spend less than the maximum allowed, but somehow I doubt that's a realistic hope.
6. Allow state spending to expand even faster than the economy. Where this would eventually lead is obvious.
The first three options are good, from a free-market perspective. The last three are a step backwards, though option (4) isn't too worrisome, simply because the economy generally improves from year to year. The popular debate, unfortunately, seems to be concerned with selecting between options (4) and (5). Republicans with a backbone are sticking with (3). Meanwhile, too many politicians, popular journalists, and voters seem to be stuck with the infantile notion that, if the state doesn't do something, it won't get done. In reality, if something's worth doing, people will coordinate voluntary to accomplish it. The advocates of economic liberty will know they've made some progress when the popular debate is instead between options (1) and (2).