This article was featured in The Bulletin (Philadelphia-area newspaper) on 8/19/09. You can read the online newspaper edition here, or check out the print column each week.

I serve on my township’s finance committee, and recently had the chance to review the tax revenue projections for the upcoming years. The projection for our township, which has not been hit nearly as hard as most of the country, is a revenue decline of approximately 10% over the next year and a half. Since tax proceeds typically trail the economy, we expect that rate to increase through 2010.

This got me thinking. If we expect a decline of over 10% in revenues, shouldn’t we be cutting spending at the same rate?

In business, decreased earnings mean decreased spending and investment. Budgetary control is the core of financially sound organizations. In personal finance, decreased wages mean decreased consumption. Families across the nation are facing the harsh reality of a prolonged recession, and wise families are reducing spending, scaling back lifestyle, and investing for the future. The most prudent saved enough during times of prosperity to sustain during the downturn. If principles of financial prudence are clear for business and personal finance, why don’t we expect the same from government?

In reality, quite the opposite has occurred. Across the country, local and state governments are scrambling to raise emergency taxes to prevent bankruptcy. They failed to plan and save, and locked themselves into unsustainable spend heavy budgets. The federal government, similarly, has a projected year-end deficit of $1.84 trillion, in spite of which the current administration forwarded the largest non-wartime budget in U.S. history. That $3 trillion budget does not yet include the President’s proposed $1.6 trillion health overhaul. Tax-and-spend policies have always been controversial, but massive spending without regard to mounting debt is more than controversial, it’s foolish.

Why does fiscal irresponsibility persist with such severity in government? Though varied and complex, there are two primary causes. The first is best summed up by a classic political science axiom: Government spends money for political purposes; citizens spend money for economic purposes. That is, a politician is incentivized by the political outcomes of his spending, while an individual is incentivized by the personal outcomes of his spending.

In a democracy, the desired political outcome is often reelection or increased power. Politicians face a near constant cycle of elections, and often make promises to secure voter loyalty. Political action, not stagnation, draws attention and votes, and politicians feel they must spend to demonstrate that action. As a result, the local politician who promises $150,000 to improve local parks will spend that $150,000 even in a downturn. He dare not slash it from the budget, or he breaks his promise and faces voter backlash. So, rather than constrain spending like a wise family or business, he will simply raise taxes. I see it firsthand in local government all the time.

On a national level, the examples are too numerous to recount. An obvious and egregious example, however, occurred recently in the passage of the so-called stimulus package. Only 35% of stimulus money was allocated toward growth producing spending (tax cuts plus infrastructure investment), while the remainder was simply earmarked for political agenda items ($4 billion for ACORN; $400 million for global warming research; $150 million for the Smithsonian, to name a few). Not to mention the projected $2.5 million being spent on new temporary road signs with the red, blue, and green stimulus logo, touting construction projects funded by the bill. Why do you think the Obama Administration wants to use taxpayer money to advertise its construction projects? For political purposes, or for economic purposes?

The second issue is in part a cause of governmental structure. Politicians are in the unique position of spending someone else’s money without significant accountability. Because of the nature of funding through taxation, politicians draw from an extremely large pool of payers. So, when the stimulus authorizes $2.5 million for propaganda road signs, it averages out to approximately 20 cents per taxpayer—hardly enough to stage a protest over.

The taxation process also separates taxpayers from feeling the direct impact of government spending. The money comes from you (often automatically deducted), goes to the IRS, is sent to thousands of government agencies, and is then sent back out the door. Imagine what it would be like if instead you were directly and proportionately billed for each government spending initiative. You would feel the impact directly—that would certainly be cause for protest.

In the end, most politicians will spend money out of personal political interest, the affects of which will not be directly felt by taxpayers. They have little incentive to adhere to fundamental budgetary principles, and extraordinary incentive not to. The resulting action is an intellectually dishonest process of political finance. When revenue increases, government claims it can afford to increase spending. But when revenue decreases, rather than decrease spending at the same rate, government claims it must raise taxes.

Simply because this process exists, however, does not mean that it should. Government officials have a responsibility to act in the interests of their constituents. No voter ever casted a vote to serve the self-interests of a candidate. Elected officials have a fiduciary duty to serve those they represent, and that duty ought to compel fiscal responsibility and budgetary prudence.

We need leaders committed to constrain spending, who treat each dollar as if it is their own. We need leaders that realize every dollar they spend is a dollar taken from their constituents. We need leaders that save, rather than spend, during times of prosperity in order to prepare for times of scarcity. It is time we demand fiscal responsibility.  

-Matt Benchener from TruPolitics.net