Government Spending Must be Cut; H. Sennholz

3. Inflation, the favorite technique of deficit financing, is accelerating again, reducing the real earnings and savings of millions of people. It is potentially more dangerous to the deficit spenders who are resorting to currency and· credit expansion in order to finance their favorite pro grams. But the spenders continue to hide behind the wall of public ignor ance that permits them to put the blame for rising prices on merchants 721 722 THE FREEMAN December and industrialists, on physicians and dentists, on anyone and anything making the news. The Burden The public is aware, however, that the tax burden continues to grow. Some taxpayers are saddled with levies that are greater than ever be fore. They are pleading for tax relief and, in many cases, are organizing for tax protest and rebellion. Many victims have reached the limit of their endurance. Others are sub merging in the Hsubterranean econ omy," where economic transactions are financed by cash and earnings remain unreported. According to some estimates, more than $175 bil lion of annual income, or $3,000 per family, are ,escaping the IRS bite.

And this amount is expected to grow as inflation lifts everyone's income into progressively higher income tax brackets. Moral Strength Surely, we feel with the countless victims of government spending that consumes more than one-third of national income. We understand their anguish and sense the endur ing morality of the cause of self defense and man's right to the fruits of his labor. But we doubt that their cause embodies the moral strength for-overcoming the spending aspira tions of contemporary society. It is haunted by self-interest and projects self as the central figure on the cause of tax rebellion, while gov ernment spending continues to draw its political strength from a loud concern for the poor and under privileged. Progressive income taxation in it selfis an objective of policy in search of social and economic equality. But it is also an inevitable consequence of a social order that bestows expen sive benefits on millions of benefi ciaries. After all, government has no sources of income and wealth of its own. It depends entirely on its abil ity to extract the means from its subjects. It must find victims in order to satisfy the clamor for social benefits and programs, government functions and services.

The tax rebellion is a viable polit ical force, but it can become a moral force only with a simultaneous re nunciation of the claims to benefits. The public agitation for lower taxes found powerful expression in the overwhelming acceptance of Propo sition 13 by California voters-a ref erendum slashing real property taxes. The California voters gave new life to many other campaigns to secure reduction in federal and state tax rates. But such campaigns skirt the real issue if they focus exclu sively on tax reductions. An essen tial ingredient of genuine relief and a truly successful tax rebellion is a reduction in the size of government. Without it, a tax rebellion could 1978 GOVERNMENT SPENDING MUST BE CUT 723 merely result in changes in form that in the end lack substance. It merely would shift the burden of government from some taxpayers to other victims. Tax Cuts or Spending Cuts?

Some campaigns focus on the po tential for increasing government revenue as a result of tax cuts. The Kemp-Roth proposal seems to sug gest that no spending reduction is needed as a companion to tax cuts. Its advocates hold out the hope that their particular tax cuts will revive the economy, cause it to expand, compensate for the. loss of revenue with new revenue, and simultane ously reduce the relative size of gov ernment. They are promising relief for taxpayers, more jobs to workers, higher profits to businessmen, and more revenue to social spenders. It may well be true that cuts in certain tax rates would spur economic activity and generate in creases in revenue despite the tax cuts. A reduction in the capital gains tax, corporate income taxes, and other levies on capital and busi ness undoubtedly would stimulate economic production. But it is un likely that the relative burden of government would be permitted to shrink. The temporary loss in tax revenue would immediately be offset by revenue from the capital market, causing interest rates to rise and business activity to contract, or from currency expansion, that is, inflation, causing prices to rise. If, nevertheless, the net effect should be expansionary, govern ment, too, will expand. It may even grow faster than the private sector if the deficit is financed by inflation.

Would the political forces pushing for economic redistribution and more government acquiesce in a smaller share of national income? They managed to extract their pres ent share of benefits from a stag nant economy. Is it not likely they would want an even larger share from an expanding economy? There is no easy escape from the consequences of an ideology of economic transfer· and social con flict. A tax cut as a stimulant ad ministered by government surely does not weaken the position of gov ernment. It does not even question the transfer function, but instead adds the role of economic stimulator. A tax cut that is accompanied by a spending cut does effectively reduce the burden and size of government. Therefore, explicit limits on gov ernment spending are needed to lend substance to a proposal for tax reduction. The Root of the Evil It takes great political courage to confront the root of the evil: the appetite for government services and benefits. Most Americans still believe that government owes them 724 THE FREEMAN certain favors, such as income secu rity, public housing and urban re newal, free education and medical care, and so forth. Their call for benefits is an implicit demand that financial means be seized from others. They would not be asking for social programs if they were expect ing to cover the costs in proportion to benefits.

Few Americans seek no govern ment favors, and even fewer openly reject them on moral grounds. It is much more popular to seek and ac cept the benefits of redistribution while objecting to the taxation that covers their costs. Most people freely partake in the economic redistribu tion, but loudly oppose the necessary allocation of costs. Most professors, for instance, live comfortably on government funds from state col leges and universities, seek federal grants and scholarships, send their children to public schools and col leges, while all along bemoaning their income taxes. They consider the things government does for them as social progress, but decry their tax burdens as oppression and abuse. Similarly, most physicians applaud their own benefits as social justice, but lament their tax burdens as social injustice. They accept the principle of redistribution and en deavor to get ((their share" of bene fits, but bitterly oppose their allo cated share of costs.

Social Conflict A political society that engages in economic redistribution is torn by social conflict. The beneficiaries seek to impose even more levies and restrictions on the victims, who in turn clamor for their share of bene fits and lament their obligations and charges. The bitter struggle is waged in the political arena with ever shifting forces and alliances. Victories or reverses are merely temporary, to be followed by n~w offensives and counter-offensives in a perpetual war for social benefits. To restore social peace and effect a rebirth of freedom, we must cease from preying on each other through government. @ IDEAS ON L1BEHTY The Power of the People THE PRESCRIPTIONS in favor of liberty ought to be leveled against that quarter where the greatest danger lies, namely, that which possesses the highest prerogative of power. But this is not found in either the Executive or Legislative Department of the Government, but in the body of the people, operating by the majority against the minority.

JAMES MADISON Clarence B. Carson 24. The Cold War: The Spread of Communism THE IDEA that has the world in its grip is not as it is billed or the way it is made to appear by those who favor it. It is not fundamentally an economic idea or theory, though that is the guise that it often assumed from the outset. It is not basically a political theory, although it often appears to be, and there is consider able temptation for those who op pose it to treat it in that way. In stead, it is in essence a power theory or idea, a mode for attaining and In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several major countries and the spread of the ideas and practices around the world. exercising power. All its claims and promises are, in the final analysis, but justifications for holding and exercising power. That is not to say that the attainment or exercise of power is the motive of those who subscribe to or advance the idea. It mayor may not be, but that is irrel evant. Rather, the attainment and exercise of power are the unavoida ble consequences of the triumph of the idea. Power unlimited is the destination of the victorious idea.