Anyone who thinks that raising taxes is going to help reduce our massive government deficit needs to read this article in today's Wall Street Journal. It reports research that shows that increases in tax revenue were ALWAYS accompanied by slightly larger increases in spending.
The top line summary:
Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.
All of those inside-the-beltway types who are addicted to funding from the government purse (i.e. the taxpayers) and who are arguing that we need to raise government revenue to unprecendented levels relative to GDP are lying. Plain and simple. The lack of natural market disciplines on government spending, the types of discipline that eventually force unprofitable companies to either rethink and restructure (think everything from the Lou Gerstner rethink at IBM to the belt-tightening that millions of small businesses have done over the past 2 or 3 years), means that government will endlessly expand if left to its own devices. It may temporarily discipline itself, but as soon as the electorate looks elsewhere it will revert to expansion and spending.
We need to devise policy mechanisms that effect the same types of continuous review and evaluation on government programs as are inflicted on businesses by the "creative destruction" of markets. There is a reason only a handful of Fortune 500 companies from 1950 or 1960 are still on the list. Yet government programs, once established, never seem to shrink or disappear even when the original reasons for the program are gone. We need to start blowing up entire government agencies that were established to meet the problems of the 1920s and 1930s and 1960s and see if anyone other than the civil servants who work in those agencies miss them. If they do we can figure out what needs to be put in place to meet the needs of today's world. We need to rethink our government safety nets and entitlement programs to put them on long-term sound financial foundations. And we need to realize that anyone we elect to office in Washington D.C. will eventually "go native" once they spend a few years inside the beltway unless we hold them accountable and not let them bribe us with our own money:
The grand bargain so many in Washington yearn for—tax increases coupled with spending cuts—is a fool's errand. Our research confirms what the late economist Milton Friedman said of Congress many years ago: "Politicians will always spend every penny of tax raised and whatever else they can get away with."