Posted on Sat, Jan. 27, 2007


Watch taxes, not just spending


Guest columnist

As states inaugurate their governors and legislatures, taxes and spending are again key issues across the country. This year, when state legislatures convene, the people should tune out the rhetoric of balanced budgets and look instead to the actual spending behavior of politicians in office — and what their actions might mean for the exponential growth in government.

To put it bluntly, any politician can say that he or she wants to balance the budget, and even make good on that promise. In surplus years as the economy has boomed, many state governors have “balanced the budget” by increasing spending to match any surplus revenues received, ignoring the need to save for a rainy day. Some governors have even tried to balance the budget by raising taxes on top of already-rising revenues to support even greater spending.

A better approach is to manage spending carefully in both lean and surplus years, with an eye toward refocusing government spending on core government functions, such as education and law enforcement, while keeping the overall burden of government as light as possible. As Thomas Jefferson declared as a matter of principle, the state should not take bread from the mouth of labor. A state should certainly not do so to pay for a pork-barrel project in one legislator’s district rather than for services and infrastructure that benefit all taxpayers.

Fortunately, a few politicians understand the principle of limiting spending and working for smaller government. Take, for example, newly reinaugurated Gov. Mark Sanford of South Carolina. In his first term, Gov. Sanford led a relentless charge against high taxes and excessive state spending. Faced with a $750 million shortfall at the beginning of his first term, including an unconstitutional $155 million deficit, he moved aggressively to limit the growth of government and restore depleted trust funds, all with the goal of ensuring South Carolina’s competitiveness in a fast-changing global economy.

Sanford operates from economic first principles: As he said in his 2006 State of the State address, before you begin new spending, “it makes sense to pay off money you borrowed.”

The governor is a master of the forceful and articulate veto message. (His Web site even has a separate “Veto Messages” area.) Perhaps his most notable moment, however, came in May 2005, when he issued a 36-page veto on the budget — 163 separate vetoes of special interest or unnecessary spending. All this attention to detail shows the critical point: To keep taxes low, a governor has to keep spending down, too.

Of $707 million in additional tax revenue, the 2005 General Assembly wanted to spend almost 83 percent on new spending. Instead, Sanford’s plan showed that by eliminating special interest spending, the state could prioritize core government functions. As Sanford wrote: “Families make these sorts of decisions every day in South Carolina.... Not purchasing a good or service doesn’t mean the shopper views it as bad. They just view it as something they can’t purchase at the moment.”

Sanford’s philosophy is also to trust the people to make the right decisions about government spending. He has proposed putting to the voters an amendment to limit government growth to the rate of population growth plus inflation. Unfortunately, the state’s General Assembly has not yet approved this idea. But it is a much more prudent course than simply spending money without regard to the future.

As the story of the amendment shows, a legislature’s impulse to spend on frivolous items rather than core government services may be even stronger than a governor’s desire to limit spending. If South Carolina were to spend all of its expected $804 million in new government revenues in 2007, then government will have grown by an astounding 38 percent. But the education, health care and law enforcement needs of South Carolina’s people can be met without that level of excessive spending.

And that’s why keeping watch over spending is so important. It helps to have a constitutional requirement to balance the budget, as South Carolina does, but that is not enough. To avoid damaging tax increases and to refocus government spending on needs rather than special-interest wants, political leaders need to keep the pruning shears handy and maintain constant vigilance against government growth. Nervous politicians also need some evidence that increasing spending isn’t necessary to win elections.

For four years, Gov. Sanford has taken risks, practicing politics not-as-usual. By re-electing him, South Carolina voters sent a strong message about fiscal restraint to the entire nation. Congress would do well to match Gov. Sanford’s commitment against needless government spending. Prudent families — and governments — pay for dinner before thinking about dessert.

Mr. Factor, of Charleston, is the chairman of the Free Enterprise Fund.





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