Monday, January 30, 2012

It’s Your Money, And You Can Cry If You Want To

“Here's the deal: What I win, I keep. What you win, I keep.” 
—Dan Shor as Billy the Kid in Bill and Ted’s Excellent Adventure

During Tuesday’s class warfare campaign speech—er, State of the Union—President Obama complained about what the government was going to “spend” on a tax cut for the wealthy:

“Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans.

Let’s leave aside for this discussion the relative merits of tax cuts and whether the wealthy are or aren’t paying their “fair share,” whatever that is.  I want to look at the mentality of the statement itself.  The President says that cutting taxes equals spending, as though by cutting taxes the government is giving people the government’s money.  This kind of thinking was sadly illustrated by a widely circulated clip of a 2009 Interview conducted by WJR Detroit’s Ken Rogulski with people waiting in line to get “Obama money.”  Unfortunately, a large number of Americans, including this President, believe that the U.S. federal government is like the stone Moses struck at Rephidim, providing an endless flow of cash from no source other than itself. 

Well, let’s expose the dirty little secret: 

The United States federal government doesn’t own any money.

It’s true.  The United States as an entity does not have, and never has had, any money of its own.  The U.S. Treasury isn’t a giant piggy bank.  There is no stash of “Obama money.”  And it doesn’t really matter anymore whether you believe the gold is really still there at Fort Knox.  The pot at the end of the federal rainbow is, and always has been, empty.

The basic fact is the only money the United States government has is what it collects in the form of taxes.  In other words, what it has is what it has taken from its own citizens, literally at the point of a gun. When the government spends, it isn’t spending its money from some magic and bottomless treasure chest.  It’s spending your money, at least as to the 53% of us who actually have tax liability.    

This is the great lie about tax credits, rebates, and complaints that tax cuts cost the government money.  It’s not the government’s money to begin with.  So when it cuts taxes, or gives rebates or refunds, it isn’t giving you the government’s money; it’s giving you back money that was already yours and it took from you in the first place.  Worse, of your money the government isn’t giving back to you, chances are it’s giving it to someone else, somewhere else.  Let me give you an example.

Last week, the First Lady and Agriculture Secretary Tom Vilsack announced changes to the rules associated with the federally-funded school lunch program.  This story originally got my attention (yes, I know federally-funded school lunches have been around for a long timebecause of the federalism implications of the USDA dictating what schools can/cannot/must serve, which I’ll discuss another time.  But in digging into this issue, I learned that the regulations are tied to federal funding measures under the Healthy Hunger-Free Kids Act of 2010.  A January 19, 2011 memorandum from “Associate Administrator”—the title alone makes the hair stand up on the back of my neck—Jessica Shahin summarized how the USDA planned to implement it, and attached a state-by-state breakdown of how the federal funding for the program would be distributed. 

I was, to say the least, shocked when I got into the details.

The four states receiving the largest allocations—California, Michigan, Pennsylvania, and New York—accounted for $203,831,310, over half of the $375,000,000 total tab.  California alone accounted for $137,764,856, or just under 37%.

Well, those are big states with huge tax bases, and we’d expect to see more being spent there than in, say, Alaska and Montana.

Perhaps, but this is way out of proportion. Comparing to 2010 IRS data (the most recent available), of these four states, only New York received a school lunch allocation less than or equal to its contribution to total federal revenues (that’s all sources, including income, payroll, estate, and gift taxes).  The other three were nowhere close, with California and Michigan pulling in at a rate over 300% of their relative contribution to total revenues, and Pennsylvania at over 150%.  Collectively, the four states received 54.36% of the program, while contributing only 26.83% of total federal revenue.

Compare that with states like Texas, Florida, Ohio, and Virginia.  Combined, these four states contributed 19.83% of total federal revenue, while receiving 2011 school lunch allocations amounting to just 4.68% of total federal spending.

How’s that taste?

What this means is we are necessarily taking money from people in one state, and using it to fund state-administered programs—schools, and the lunches they provide, are still run by states—in other states.  I don’t want kids going hungry any more than anyone else.  And if the State of California wants to provide free lunches to huge numbers of children of illegal aliens, or if Detroit wants to provide free lunches to all children regardless of their parents’ income status, I suppose that’s their business.  But why should they get to take money from people in Texas, laundered through the federal government, to do it?

This is but one example of the massive redistribution racket the federal government has become.  It’s easy to sell people on feel-good platitudes like making sure we feed hungry babies—and to demonize opponents of such a program—and it’s easy to buy votes by taking money from one group and giving it to another.  But the federal government wasn’t designed to do these things.  It was intended to provide a discrete set of services that worked to the collective good of everybody—defense, foreign relations, etc.  It was never intended to provide services for some states at the expense of others, or for some individual people at the expense of others. 

Hamilton discussed state-to-state redistribution in Federalist Paper No. 22:

“The suffering States would not long consent to remain associated upon a principle which distributed public burdens with so unequal a hand, and which was calculated to impoverish and oppress the citizens of some States, while those of others would scarcely be conscious of the small proportion of the weight they bear.”
Ayne Rand covered person-to-person redistribution at length in Atlas Shrugged.  Both reached the same conclusion:  there is a limit to the burden the contributor will tolerate from the recipient.

We’re quickly replacing the work ethic that built this country with an entitlement ethic; an ethic that carries with it an embedded assumption that by not taking the entitlements, one is somehow leaving federal money on the table.  Commentators in California lament that the fact children don't participate in free school breakfast programs at the same rate they participate in lunch programs is costing the State millions of dollars in additional federal largesse.  Somehow we should be wanting more and more kids to be on free school meals, because that means we get more federal money taken from someone else.  We have to sign up for as many federal freebies as possible, just to keep from getting ripped off by everyone else.  And the spiral never ends. 

This entitlement ethic breeds dependency, and weaning off a teat with diminishing capacity gets harder and harder as time goes on; look at the difficulties Europe is facing with rioting dependents as the last sane few try to pull back on the joystick before the whole thing crashes.  But the programs upon which more and more depend are not sustainable.  Eventually Old Napoleon collapses, Hank Rearden and Dagny Taggart drop out, and States revolt.  What then? 

We must reverse this trend now, get government out of the business of feeding people and into the business of getting out of the way of them feeding themselves.  If we don’t, it’s going to get really, really ugly.

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