The state legislature’s second special session to decide between spending cuts or tax increases to balance the General Fund budget reflects what I think is a widespread problem today. Too many state politicians across the nation subscribe to what I think can best be described as a “Spend But Don’t Tax” philosophy, which works to our nation’s detriment.
I will first elaborate on the “Spend But Don’t Tax” depiction and then discuss the harm. Alabama’s General Fund and Education Fund budgets each spent over $14 billion last year, even though the state only collected about $9 billion in taxes. Charges to users of services, like entrance fees at state parks and tuition at state universities, and Federal grants, like for Alabama Medicaid, fund the remaining spending. The state government directs $20 billion more in spending than it collects in taxes, allowing politicians to claim credit for this spending.
We might dismiss politicians’ attempts to take undeserved credit as predictable and harmless. If state politicians tried to take credit for the Sun rise each morning, we could just get a good laugh. But the attempt to claim credit for an extra $20 billion in spending entails significant costs.
Spending in excess of taxes collected implicitly offers something for nothing. Whenever we face hard choices in politics, the lure of an easy option will attract considerable attention. Our political dialogue occurs through sound bites, tweets, short news stories, and carefully crafted speeches because the public’s attention span is limited. Consequently political discussions often proceed at a snail’s pace. So even when the something for nothing option eventually gets exposed, costly delay results.
The desire to take credit for spending can also prevent sensible downsizing of government. Any government service funded primarily through user fees, like Alabama’s state parks, could potentially be privatized. Yet privatized parks would deny state officials credit for providing outdoor recreation.
Attempting to deliver benefits without paying the freight can result in harmful funding cuts on less visible margins. Consider Alabama Medicaid. Politicians can take credit with providing the over 800,000 enrollees with health insurance. But the level of reimbursement for covered services is set so low that many doctors will not take on new Medicaid patients. Enrollees have coverage but can’t schedule doctor appointments, and politicians can take credit because the connection is indirect.
Finally, “Spend But Don’t Tax” undermines the proper functioning of federalism. We can assign different functions to levels of our federal government based on the geographic reach of the relevant policy. Defense and foreign policy affect us all and are therefore tasks for our national government. State and local governments handle matters like parks and schools better. Americans differ in our attitudes toward government, as the Red versus Blue state divide illustrates. States can tailor service levels based on residents’ attitudes. This reduces political conflict. Blue states can establish expensive schools or expansive Medicaid programs without taking on Red state conservatives. People can also decide where to live based in part on city or state government services.
Successful federalism requires that state and local officials make spending and tax choices reflecting citizen preferences. “Spend But Don’t Tax” politicians will too readily turn to grants, as the adoption of the Common Core education standards illustrates. The Obama Administration made Race to the Top initiative dollars available to states which adopted the Core. More than forty states, including Alabama, did so. Yet some states started backpedaling so quickly that their legislators must not have even bothered to learn exactly what they were promising for the money.
“Spend But Don’t Tax” politicians ultimately seek office on the same platform as Tax and Spenders, namely government provision of numerous services. Fortunately “Spend But Don’t Tax” thinking does not always prevail, as Alabama and other states rejected Medicaid expansion under the Affordable Care Act despite full Federal funding for three years. Leaders who truly embrace small government will not want claim to have delivered all of the services of big government while passing the cost off to others.
Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.