Relax and Let Free Enterprise Work

March 1, 2006 10:15PM

By Drew Johnson Winston Churchill once said, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worse form of government, except all those other forms that have been tried from time to time.” Winston Churchill once said, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worse form of government, except all those other forms that have been tried from time to time.” Arguably, the worst thing about democracy is that elected leaders tend to believe they are responsible for a lot more than they really are. Like the little boy on his first plane trip “helping” the plane by flapping his arms as the Boeing 747 begins to ascend, legislators often seem to believe that somehow they run the economy and solve lots of problems. In reality, government tends to muck up everything it touches. If a legislator is busy, it should be because he or she is busy repealing current laws and getting the state out of the people’s business. When a freshman legislator arrives at Legislative Plaza in Nashville , there is nothing about the scene that encourages reticence or inertia. Extremely bright staffers wander the building looking for something to do, copiers are humming and ready to go, boxes of unused paper are just begging for statues to be scratched all over them and there are enough staplers and paper clips to keep an administrative assistant busy for generations. The entire building begs the inhabitants to do something. The recently elected legislator also just went through a gauntlet to win office. Having spent tens, even hundreds of thousands of dollars to win the office—money raised from friends, neighbors, community leaders and far-flung associations and businesses—the legislator has an incredible compulsion to justify his or her recent anointing. To strengthen the legislator’s compulsion, an entire subterranean network of people screech for the legislator’s help. While the regular Joe is happy that the traffic lights work as he drives into work in the morning, others are holding press conferences, writing emails, picketing, snarling on the local news and writing guest columns in the local newspaper demanding more state dollars, state programs and state laws. The pressure to spend, the pressure to alleviate problems and the pressure to skid towards good old-fashioned socialism is almost too much to bear. The problem is that all the legislator really brings to the Capitol is a parking card, a Rolodex, a briefcase and maybe some breath mints. The legislator does not load up a Ryder truck with billions of dollars and drive to Nashville . He or she must acquire other people’s money through taxes or fees in order to answer the endless demands for assistance. Once legislators really understand that they can tax people, get money, and then spend it—getting accolades from the local editorial board, heartfelt thank-you notes and little “Legislator of the Year” plaques—spending even more is almost too great a temptation to resist. The most perverse and beautiful part of the whole exchange is the immediacy of the transaction. A legislator can raise a tax, pull in the money and spin it back out the Capitol door within months, funding a community recreation center or subsidizing a local fishing hole to the satisfaction of thousands. It’s no surprise that the Appropriations Chairman always has the most plaques. This immediate, political buzz also destroys sound tax policy and has been the undoing of a dozen state budgets this fiscal year and whole national economies throughout the globe. The politics of instant gratification must be resisted. Instead of instant gratification, instead of the buzz, the Tennessee legislature must relax and allow free enterprise to do its thing. While “business cycles” can drive anyone batty, they are real and they must be allowed to wax and wane through the months and years. The problem with this Zen approach to tax policy is that there is a lag. The results are not immediate. Instead of raising tax dollars and riding to the rescue, the legislature must weed out bad taxes or simply stay the course, doing nothing but naming a new state pie or state lizard. The individual legislator must remember that the elixir for all that ills is economic growth. And low taxes, limited regulation, equitable justice and the ability to raise capital spur economic growth. Here’s a primer that even the boy flapping his arms on the Boeing could understand: DO A FEW THINGS. . . Keep all taxes low. According to an American Legislative Exchange Council study, the 10 lowest taxing states of the 1990s enjoyed the greatest economic growth, greatest state revenue growth, and are currently on better fiscal footing than the 10 highest taxing states. Save a little. Since business cycles are as predictable as summer thunderstorms, the Tennessee legislature should vow never again to spend everything it can during good times. That way, when times are not so good, instead of taxing the state into oblivion, legislators will have some revenue to get through. The Book of Proverbs has some things to say about the ant storing food for the winter. It’s good advice. Enact a hard spending cap. The fiscal crisis of the 2001-03 was not caused by a lack of tax revenue. It was a result of the frivolous spending of the late 1990’s. As the state economy returned to more standard levels of growth, the rate of government spending did not decrease to reflect the calming economy. Spendthrifts in the state capital point to the “Copeland Cap,” as a tool for budgetary restraint, but it easily sidestepped—as it has 12 of the past 20 years—by a simple majority vote. Instead, state government needs to control its spending through a constitutional spending cap—such as a Taxpayer Bill of Rights—to limit spending to previous year’s level plus population grown, plus the rate of inflation. Under this type of budget cap, legislators cannot bypass spending limits and put Tennesseans at risk of another government-induced budget fiasco. Reform TennCare. TennCare, Tennessee’s Medicaid program, is a disaster. The system needs to be reformed. According to the U.S. Government Accounting Office, by 2025 Medicaid will bankrupt every single state in America no substantive changes are made to its current administration. Worse, thanks to the cost of the administrative bureaucracy, the excessive number of enrollees and the high limits on services connected with TennCare, Tennessee stands to be the very first to drown in its Medicaid debt. Remember that Tennessee’s population growth is a good thing. Don’t be alarmed by statistics that 150 people a day arrive in the Volunteer State. News reports often act as if these new arrivals do nothing but drain public dollars. These new arrivals, in addition to demanding roads and water, also bring energy, labor, wealth, enterprise and tax revenue. Population growth generally brings wealth. It’s only in countries where private property is not secured or legally protected by the courts that population growth is a burden. . . . THEN DO NOTHING The sad truth is if the Tennessee legislature stays the course and resists the temptation to raid the taxpayers’ pocketbooks in order to subsidize other taxpayers who want things, few plaques will be placed on their office walls. Legislator must resist concerning themselves with awards from popular interest groups of the day. Instead, they should leave space on their wall for a plaque inscribed with the words of Adam Smith: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and a tolerable administration of justice; all the rest being brought about by the natural course of things.” Today, Mr. Smith would probably also advise the Tennessee legislature to install hammocks in their offices, to relax, and maybe enjoy a good dinner on a lobbyist’s credit card. The free enterprise system will do the rest. It’s happened before and it will happen again