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by: Mr. Freda Friesen


Mr. Freda Friesen
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This 8 page Class Notes was uploaded by Mr. Freda Friesen on Wednesday September 30, 2015. The Class Notes belongs to ECON 420 at Western Kentucky University taught by Staff in Fall. Since its upload, it has received 31 views. For similar materials see /class/216759/econ-420-western-kentucky-university in Economcs at Western Kentucky University.




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Date Created: 09/30/15
Starving the Beast of Government Sizes In on Ongoing Tax Debate Here is a selection of reader comments on the Jan 23 column on the size of government Thanks to all who wrote Some comments have been edited You can contact me at capitalwsjcom We post reader comments at this site each Sunday gtxlt gtxlt gtxlt William O Roberts writes I recently moved to California where the question of how large a government you want is on the front burner and boiling over I have noticed that there is a disconnect for most people about how much government takes from their paycheck and how much they are entitled to in government services I am hopeful that there will be many more thoughtful commentaries such as yours in order to properly frame the question I do not see this happening in the rest of the media Trent Duffy writes I m curious why your timeline excluded the fairly sizable 1997 tax cut on a lot of things especially cap gains especially shortening the holding period which helped the stock market and revenue boom in part and cap gains on home sales didn39t that have something to do with the housing boom that the Republican Congress pried out of Mr Clinton Doesn39t that matter even a little Also the spending binge in the late 90s proved that government did eat everything on the plate Discretionary spending which had been held to an average 08 growth from 199098 took off in 1998 and chugged along at 67 until 2001 and 70 in 2002 No question Mr Bush and Dems have increased spending due to war and emergency but the Republican theory that if you leave it in Washington it will be spent was surely proven by the 1998 to 2001 surplus era David Wessel responds The timeline was not exhaustive Lots was left out The 1997 tax cut wasn39t as big as the Reagan cut of 1981 or the Bush tax cut of 2001 or as big as the Bush taX increase of 1990 and the Clinton taX increase of 1993 gtxlt gtxlt gtxlt Phil Sher writes You might have shown the additional burden of state and local government taxing and spending to show the total impact of government Perhaps you could do so soon And you should be clear about your de nitions of taxing and spending Government sometimes creates allegedly private monopolies that they fully regulate For example my local garbage and water are such monopolies My local government does not include those costs as taxing and spending Nevertheless I have no choice on suppliers price or outcomes In the debate on the size of government it seems to me that you should at least acknowledge the point recently made by Milton Friedman on The Wall Street Joumal s editorial page Jan 15 2002 that government regulations force substantial costs on society He estimated the impact at 10 of GDP Considering the above two points government may control 50 of GDP The public39s perception of that level of command and control may be different than the 18 to 23 values you showed in Thursday39s column David Wessel responds Yes state and local spending and taxes add to the picture and so does government regulation including mandates that require private actors to spend involuntarily The tendency of Congress to use taX breaks to substitute for spending which reduces taxes as a share of GDP as well as spending is also at play Even so government as a share of GDP in the US remains smaller than in many other industrialized countries Of course a fully complete accounting would have to include the bene ts of government regulation some of it is proconsumer or procompetition or pro nancial stability or proproperty rights as well as the likely bene ts from wellconceived government investment spending Reuven Brenner writes Would have just added to your column that the issue isn39t just quotgovernment sizequot either but on what the government spends the money if the consequence of the military spending will be to speed up regime change in Iraq and neighboring dictatorships that would bring plenty of bene ts for future generations too lowered future military spending insurance against terrorism name it Like President Reagan39s Star Wars speeded up Communism collapse In this case de cits debts government spending not an issue David Wessel responds Agree completely that a what the government spends on not just how much matters and b that some current spending not just defense has benefits that will accrue to future generations Mark Funkhouser writes I ve read and admired your columns for quite some time but Thursday39s is a disappointment It seems to me that you39ve simply presented conventional wisdom with little critical analysis Consider for example two points First there seems in the paragraph at the top of the column to be no correlation between receipts and spending Therefore the idea that holding down receipts works to control spending the starve the government to make it smaller idea is bogus And I m sure all those welleducated bright Republicans know this Second it looks as if both total spending and deficits are on average larger during Republican administrations Republicans do hold receipts down but not to starve the government David Wessel responds Sometimes there is value I hope in distilling the arguments that Democrats and Republicans make to their essence as an antidote to their rhetoric which often obscures the underlying argument That was my goal in this column Some Republicans would argue that the de cits Bill Clinton inherited were the biggest constraint on his ability to increase federal spending Some Democrats would argue that same thing Kevin Carey writes I39d be happier with the Republicans39 quotStarve the Beastquot logic if there was evidence that the private sector makes wise decisions with the resources that this strategy denies to the government While some might like to view householdspending decisions as above reproach it s clear that they are not doing much saving and therefore are collectively making little provision for the future Unless they are planning on living in all those SUVs during their retirement years The current fiscal mess looks like atugofwar between two not very rational beasts Without a referee David Wessel responds There was as Alan Greenspan told Congress good reason to quotsave the surplusesquot that is for the government to save because the private sector doesn39t save enough There was of course the issue about how to save them once the federal debt was paid down One option that seemed attractive to me would have been to use the surpluses to seed private accounts to supplement Social Security an option Mr Clinton s aides considered Mr Greenspan also expressed the fear one shared by Mr Bush s advisers that quotsaving the surplusesquot was a political impossibility and they would have been spent gtlltgtllt Mike Kemer writes Yes the Republicans talk about limiting the size of government all the time They do not walk their talk No matter which of the two older parties are running things government grows It is only a matter of which programs grow but either way government gains power and resources at the expense of the people The Libertarians on the other hand openly advocate for restoration of the constitutional limits on government If the limits of the Tenth Amendment were honored the federal budget would be roughly a third of what it is The military budget without growing would be 90 of the total federal budget This would permit the total elimination of the income taX since the government could then meet its needs with excises and various smaller revenue sources I recognize that there would have to be some higher taxes for a while to pay off the debt I guess that you would say I favor starving the beast but I really mean it I propose eliminating twothirds of the revenue stream permanently not the inconsequential cuts being fought over in Washington as if they mattered David Wessel responds I doubt the American people would line up behind a candidate who offered such a proposal John Leidy writes I was disappointed to read your characterization of the current debate on taxes as simply an issue of how big should government be Raising the bugaboo of quotbig governmentquot with its connotations of Communist regimes and totalitarian states provides a screen which enables the debater to ignore the important questions of how that government regardless of its size will be paid for A good example of that is the issue of taxes on dividends President Bush has proposed to eliminate the payment obligation for many citizens who receive stock dividends thereby increasing the reliance on taxes for salaries This is an inequity If Mr Bush would like to eliminate the double taxation of dividends perhaps it would be more appropriate to eliminate the tax at the corporate level and retain the tax at the individual level In essence taxation for corporations would become similar to taxation for partnerships thereby eliminating double taxation However several points should be considered before any change in dividend taxation is made First the doubletaxation problem has been an inherent part of the American tax structure for many years and it has not prevented this country and its citizens from achieving an unmatched level of economic prosperity in world history Second elimination of the individual tax on dividends is unlikely to substantially change market prices The market already includes signi cant participants who are taxexempt The price they are willing to pay for a stock already assumes a taxfree dividend Third many other market participants reduce the tax impact of dividends and investment income with IRAs and similar retirement devices Frankly I don t think your article added much to the discussion on Mr Bush s tax proposal except to illustrate that from your perspective the tax cut has less to do with helping the overall economy than it does with achieving certain conservative objectives for further reducing the taxes paid by the top 3 to 5 of Americans David Wessel responds The current debate over taxes is not only about how big government should be but that is a signi cant element of the debate and one that isn39t getting enough attention Other issues which I have addressed in other columns and my Wall Street Journal colleagues have addressed include Will this tax cut lead to big de cits because spending won t be cut commensurately and if so will that harm the economy And will the dividend tax break as proposed have a signi cant economic bene t that is will it increase the growth rate of the economy over time Jim Griffin writes I think you didn t get the fat part of the bat on this one The differing arguments would be easier to distinguish if the gross category of quotgovernment spendingquot were broken down into components of government operations and entitlements I believe government has become quite a bit smaller over the postwar period as a share of GDP if by that we mean the operations component such as national defense and national parks etc It has become larger if the redistribution of income from one segment of the citizenry to another is what is meant by government There are differences in views on specific programs of government operations between the two parties but not much of a gulf on the general category The big difference between them is on the degree of redistribution that is appropriate or necessary or just One of the reasons I m a Democrat is that I believe the changes in the economy over time the changes in productivity and the underlying quotproduction functionquot mean that more and more can be produced by fewer and fewer workers Over time the role of the market system labor and capital markets to act as the primary distributive mechanism for income needs to be supplemented by other means specifically govemmental mandated and regulated programs or the govemmentlike businesses of insurance companies health retirement casualty etc In brief the changing nature of production implies that the role of government like redistribution will grow over time Programmatic details such as the use of HMOs within Medicare would be easier to debate effectively if the fog of the quotbig governmentquot label could be dispersed We might get more quickly past the debate on whether to do something and be able to spend time more effectively on how to do it most cost effectively David Wessel responds The quotoperationsquot part of government is on the rise again partly but only because ofthe increases in defense spending and spending on homeland security post Sept 11 The role ofthe tax system in redistribution is an important one and was the subject of my Jan 2 column And you raise a good point Other government programs are redistributive as well gtxlt gtxlt gtxlt Bert Haas writes I have a question about the following sentence quotRonald Reagan39s resolve did help arrest the expansion of governmentquot On what data are you basing this statement I was under the impression that the federal deficit reached its highest level during Reagan39s administration the executive branch ended his terms with its greatest number of employees and any cuts in federal departments were simply the result of shifting responsibilities to state and local government David Wessel responds There were few expansions of federal benefit programs under Ronald Reagan and Ronald Reagan39s deficit restrained Bill Clinton39s ability to expand government spending I didn39t say that Reagan shrank the government I said he helped arrest its expansion the trend that was established in the 1970s Updated January 26 2003 339 pm EST


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