Big budget battles are under way now.
In Maine, the Legislature struggles toward a bipartisan compromise, essential for adopting a state budget, with the central issues being tax cuts for the wealthy and education spending.
In Washington, President Trump’s new budget proposal focuses on tax cuts for the wealthy and reduced spending for the most vulnerable Americans. It foresees funding core budget items without boosting national debt by using new tax revenues resulting from a highly optimistic forecast of economic growth.
Republicans argue that government takes too much “hard earned” money away from individuals to fuel a bloated government. In Maine, Gov. LePage opposes voter-approved taxation, which he says will stifle the economy, while the Trump budget would use tax cuts as an economic stimulus and would save money by slashing safety net programs.
In both cases, the GOP plays to its constituency, those who believe taxes are too high, while Democrats support people who need and expect help from government programs like Medicaid, food stamps and student loans.
The only sure way to cut taxes without boosting debt is to reduce spending. The only way to reduce spending is to stop or reduce programs some taxpayers like. Most who seek to reduce the size of government would eliminate services they don’t use.
With so many diverse interests, it’s almost impossible to cut back. Besides, many activities are too small to produce big savings. Safety net programs are defended by some of the most conservative Republicans.
Cutting back on somebody else’s programs probably produces few savings unless the reductions are in major income support or military spending. Trump would not touch Social Security or Medicare and would increase defense outlays. That leaves Medicaid and support for low-income people.
Individuals and employers pay the bills. Individual income taxes and payroll taxes are four-fifths of federal revenue, but don’t cover all spending. Taxes must be supplemented by borrowing.
The GOP “deficit hawks” have derided Democrats for “tax and spend” policies. But, once in control, they look much like the Democrats. For example, to pick up votes for their effort to replace the Affordable Care Act, the House GOP readily added $8 billion in spending without matching revenues.
They once claimed that Congress would not add any spending without paying for it. Now, the GOP asserts that added costs will be covered by tax revenues resulting from almost impossible growth. If such forecasts don’t come true, the deficit will increase.
Trump and congressional Republicans also want to use cuts from health care reform to pay for tax reduction for upper income taxpayers, who would supposedly invest their tax savings, creating jobs and boosting economic growth.
With the prospect of few cuts acceptable to a congressional majority and public resistance to taxes, the federal government is in trouble.
If high economic growth doesn’t materialize and won’t pay for added government spending and tax cuts, the national debt will continue to grow. The bill for higher debt will eventually have to be paid by today’s kids. Eventually, Congress will be faced with the need to raise taxes not cut them.
In the meantime, tax reform would help. Unfortunately, tax reform seems always to be linked with tax reductions. True reform would leave revenues alone, while making the system more simple and fair.
Maine, like other states, must balance its budget, so the debt issue is less important. Like the federal government, the state spends most of its money in a few areas – health, education and transportation. All are difficult to cut, though health care spending mostly reflects national spending priorities.
For revenues, Maine depends mostly on sales taxes, excise taxes, and the individual income tax. But a large part of the budget comes from the federal government.
Last year, the voters dealt with taxes directly. Seeking to boost education funding, voters passed a bill adding a 3 percent tax on income above $200,000. This kind of broad-brush tax policy took the place of serious budget making.
LePage wants to eliminate that tax. Democrats want to keep it and the promise of more state aid for basic education.
The solution probably won’t be an increase in the income tax, already too high, or in pushing costs onto the property tax, also too high. At some point, the list of goods and services subject to the sales tax must be expanded.
The moral of this story is that budget reality will one day force itself on the federal and state governments. Voters don’t really want to cut government. Current tax policy must change.