People have asked me many times whether a tax increase is necessary to deal with the federal budget deficit. With the new Washington budget deal, the question arises again: Is this tax increase of $140 billion over five years necessary? My answer was and is: No, no, no, a thousand times no.
In providing this answer I am always quick to add a qualification. I assume you are asking this question of me, a professional economist, expecting an answer based on economics. If you wanted an answer based on politics, you would not ask me but would instead ask a politician or a political scientist.President Reagan said we could balance the budget by attacking waste, fraud and abuse ("WF&A"). He was wrong. The federal budget does not contain $200 billion of WF&A. The problem is not that federal programs are run inefficiently, although many are, but that many of the programs themselves are inefficient.
Consider this example: Federal water projects provide irrigation water to grow crops that, at federal support prices, are in excess supply. We taxpayers pay for the water, pay for the surplus crops, and as consumers pay higher prices for food than we otherwise would. On the whole, the irrigation systems are built efficiently - we cannot save much by eliminating water WF&A. Federal payments for the irrigation projects and agricultural price support programs themselves ought to be eliminated.
Let's define waste not in the sense of WF&A but instead in terms of value received for the country as a whole relative to cost. More water projects to grow surplus crops have a zero score - perhaps a negative score. Many federal programs have positive scores, but ones that still fall below 100. A project with a score of 80, for example, yields $80 in benefits for every $100 spent. In my book, 99 is not a passing grade.
Of course, estimating benefits and costs is often difficult; there are honest differences of opinion concerning the value of various federal programs. An important principle in making these judgments ought to be whether individuals and local governments would spend their own funds on a project.
Would taxpayers in the Washington, D.C., area have built their subway system if they had to pay the full cost? The best test of whether a local project is worth its cost is to see whether those who will benefit will pay for it. Let those who benefit pay - indeed, insist that they do so.
I object to paying for a wide range of federal programs that have benefits that are almost purely local or focused on narrow constituencies with the political clout to dip into the federal treasury.
Some of my conservative friends argue that the pork barrel is the lubricant of democracy - the process of buying off constituencies to put together coalitions to pass legislation. I refuse to believe that buying votes with the taxpayers' money is a necessary or desirable way to conduct business in our democracy.
As an economist, I refuse say that it is necessary to raise taxes to continue to support programs that are worth pennies or dimes per dollar spent. I say "a thousand times no" until we have eliminated all the pork. If the government still runs a deficit after the pork is gone, then the politicians can come back to me to argue the case for higher taxes.