How tax cuts led to higher spending

As a libertarian, I'm a firm believer in smaller government. I'm not sure we need our military spread out across the world; I'm not even certain we need a standing army at all. I definitely think that the federal government takes on too many financial responsibilities that would best be run at the local level, like welfare and education. (Is there any evidence that the federal war on poverty launched in the sixties has decreased the number of poor people? Have all the mandates and incentives and college loans thrown into education actually produced a more educated public?) And, of course, I think the government interferes far too much in the free market. Why do we subsidize corn and milk production? Why do we keep throwing money into amtrack trains that run half empty everywhere but large northeastern cities? Why put even a dime into public radio and television in an era of 900 TV channels and the near infinite diversity of internet radio? Why do we subsidize drug cartels by driving up the price of their products?

But, I'm also a realist. Libertarians have been making a case against big government for many decades and the public has soundly rejected us at the ballot box. PBS is a trivial government expense, representing about .0001* percent of the amount we'd need to cut to balance the budget. Yet, even that trivial proposed cut resulted in a public outcry, and the candidate who championed it went down in flames.

One reason that the public is so supportive of federal spending is that, for the most part, they don't pay a lot of taxes for it. Romney was right that nearly half of Americans don't pay income tax, though, I will note, he wasn't proposing to raise taxes on this half of the public. The republican insistence to never raise taxes has, perversely, likely led to a far higher level of public spending than we would have had if they'd insisted from the age of Reagan that every budget be balanced. The case against PBS and Amtrack and farm bills and foreign occupations would be easier to make if more of the public actually saw a relationship between these political choices and decreasing paychecks.

By insisting on low tax rates while allowing spending to rise, we've been engaged in a Keynesian stimlulus that's now creeping into its fourth decade. The economy has grown thanks to these low tax rates and debt driven spending, but growth has failed to lift us out of the budget hole. Even the brief budget surplusses of the late 90s were a result of structural overtaxation for Social Security. The real budget if social security taxes and spending had been excluded would still have been in deficit.

There was an argument for many years that budget deficits would "starve the beast," and keep the growth of the federal government under check. Instead, the beast is fatter than ever, downright obese. The looming "fiscal cliff" is scary to me not because the tax hikes are so harsh and the budget cuts so draconian, but because they are so inadequate to the task of putting our nation back onto a responsible path.

Yes, raising taxes enough to balance the budget today would be a serious blow to the economy. But, it seems pretty obvious to me that continuing our policy of low taxes is only going to allow the government to grow ever more bloated. If conservatives and libertarians truly want to usher in an era of smaller government, then it's time for taxes to rise to a level where voters feel some discomfort. We index Social Security benefits to rise each year with inflation? Fine. Index the payroll tax each year to rise by the same level. Worried that people would just find ways to hide income in order to avoid income taxes? No problem. Shift more taxes to consumption. Let the tax on gasoline rise to a couple of bucks and put a pie chart on every gas pump showing what percentage is going to roads, to defense, to schools, etc.

Would this work? I honestly have no idea. As far as I can tell, the states with the highest levels of taxation, like California and New York, seem to be the states with populations most supportive of government spending. So, perhaps there would be a surge of support for more government spending, on the theory that we deserve it since we pay our taxes. (This is why Social Security is impossible to cut; all working people see the tax coming out of their check each week and aren't going to let the government screw them out of their money by cutting benefits.) But, I'd rather have taxes and spending in balance, with the current generation paying for what it spends, than our current policy of spending without constraint and shifting the bill to future generations. That's not only unwise, it's downright immoral.

This is our spending. We own it. It's time to pay for it.

*A completely made up number. If you want the actual percent, google it, but the point is, it's tiny.