Fixing the Budget: Reform the System

Something I’ve personally discussed for years but is apparently lost amidst the clamoring over the federal budget is a completely neglected aspect of our fiscal mess – the mechanisms of revenue collection and spending. The very means by which the government collects taxes is wasteful, abusive and avoided whenever possible. Meanwhile, the spending rules and accounting practices are likewise wasteful and, at times, so distorted and fraudulent they’d make Arthur Anderson and Enron blush. The need for reform has only grown.

For starters, the tax code is so complex, it’s legendary. No one likes the IRS. No one. Rife with loopholes for those who can afford the lawyers to exploit them, our tax code’s compliance costs are in the hundreds of billions. This tangled web also costs us in productivity, and creates an end result where the government is not getting all the revenue it is due. Usually this problem is worsened by more regulations and taxes, creating a self-feeding cycle. Therefore, tax reform must be a priority.

A national consumption tax would solve a number of these issues. For one, it would be an instant economic stimulus for individuals and businesses alike. There would be no more payroll taxes, which hurt the working poor more than anyone. It would cut employment costs, making it cheaper for business to start hiring, and it would reduce prices by removing all the hidden taxes that go into the cost of the products and services we purchase. This is because all costs (including taxes) are already paid by the consumer at the final point of purchase. Additionally, a consumption tax would be taxing wealth not income, because they are not the same thing. Best of all, there would be no more IRS. This happens to be legislation that has been proposed in Congress previously, and now would be an ideal time for Congress to pass it.

More importantly, however, is the need for spending reform. The budgeting and accounting practices promote waste and unsustainable spending. The government, on all levels, should immediately stop the practice of forcing agencies to spend the entirety of their budget or face cuts. Imagine spending $125 on groceries except you had budgeted $150 for that week, so next week you get $0 for groceries. No business or household in their right mind would spend their money in such a fashion! Government agencies should not be punished for coming in under budget. Rather, they should be given incentives to do so, sparking innovation and thriftiness in the public sector.

However, the government also has strict rules on how exactly the agencies can spend their money, with purchasing caps designed to prevent fraud. But instead of preventing fraud, these rules oftentimes keep the managers from running the various agency offices efficiently. For example, a government office may need to replace outdated or broken equipment but the cost is over their single purchase cap. If their request to go over their cap is denied, they go without, but they do still have to spend all of their budget. This forces managers into purchasing materials they don’t really need at the expense of those they do, otherwise they face budget cuts. Surely in this digital day and age there are better ways to guard against fraud while allowing agencies the flexibility they need to do their jobs effectively and affordably.

There is also the practice of baseline budgeting. This is when programs or agencies get a set percentage bump in funding, regardless of their true budgetary needs. This is the famous practice that allows a decrease in the rate of funding to be called a budget cut. It’s actually just a smaller increase. This is the sort of economic babble talk that generates more waste. Agencies will never say they need less if honesty will be viewed as an excuse to cut them off completely in the future – although the Supreme Court has actually asked for less money in their budget request, unlike any other branch of government. This act of fiscal rectitude should be applauded and imitated throughout government, not punished. Budget increases and decreases should be based on real, factually supported needs, not projected ones based on fearful self-preservation.

Reducing the cost of revenue collection as well as reducing wasteful budgetary practices are simple, common sense reforms that ought to find bipartisan support – were they to be discussed, that is. Would tax and spending reform cure all of our fiscal ills? No – but they would certainly go a long way towards moving government to more reasonable fiscal habits and, frankly, the need for this sort of fiscal responsibility is beyond dispute.

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