Hard to believe, but Congress left something crucial out of the debate on the countrys $1.35 trillion tax cut this spring. It wasnt another tax break, credit or incentive. Rather, it was the role of public spending. Instead of debating what the federal government could have done with all that money, as opposed to giving it back to taxpayers, Congress argued tax percentages, brackets and reductions. As one policy analyst put it, "They debated arithmetic instead of political economy."
The result will be a massive disinvestment in federal sector policies and programs over the next 10 years. Already, the first signs of underfunding are showing up in agencies scrambling to find new sources of revenue. The Immigration and Naturalization Service recently announced that foreign residents can move to the front of the line for temporary work visas by paying a $1,000 fee. The Smithsonian Institution has agreed to accept a $38 million donation from a wealthy benefactor, with some strings attached that have many questioning its independence.
Nor are states immune from the massive tax cut. An article by Stateline.org points out that the Bush administrations new tax law will drain billions of dollars from state budgets as their share of the estate tax is phased out and income taxes are lowered. The National Governors Association estimates the estate tax elimination will cost states $69 billion over the next 10 years.
The anti-tax argument in recent years has grown so loud that it has all but drowned out any mention of the merits of public spending. And yet there are certain areas of the market economy where public spending delivers what Louis Uchitelle of The New York Times calls, "A higher level of payoff" than what the private sector can deliver.
Some of these areas are well known: education, highways, public transportation, sanitation, Medicare, social security, childcare, elder care and environmental protection. And evidence is mounting that greater public spending to reduce class size can improve our lackluster educational system.
We should add public investment in information technology to the list. For several years, the stunning growth in electronic commerce led us to believe that the private sector would provide the kind of investments in infrastructure and applications not possible with public sector policy and spending. But as the Progressive Policy Institute (PPI) recently pointed out, market failures have raised the importance of having "an intelligent, proactive government role in spurring the use of technology by American businesses and consumers." And this isnt just a think tank proposal. Nearly 70 percent of Americans say investing tax dollars in public-sector technology projects should be a high priority, according to the Council for Excellence in Government.
According to PPI, some of the areas where public spending can help boost the role of technology include:
But all of this will be hard to achieve as long as we view the phrase "government spending" as dirty or evil. Its time to put the merits of public investment back into the debate before we shrink government beyond the point of no return.