Saturday, June 12, 2010

The Three Types of Government Spending

Any objection whatsoever to some new, tax-funded government program elicits a consistent response from liberals or progressives. “You just don’t want to pay your fair share,” or “I guess we won’t see you driving on any of those government roads or calling the government police or fire departments.” The underlying assumption is that taxation is an all or nothing proposition. Either there is nothing that the government can collect taxes for or there is nothing that the government cannot collect taxes for. There are no principles upon which to base an answer to the question, “Is this a legitimate function of government?”

While there are probably thousands of different services that governments spend money on, they can generally be divided into three broad categories: security, public services, and wealth redistribution. Libertarians[1] argue that the only legitimate government spending is on security. Conservatives generally approve of security and some public services with their rhetoric while engaging in all three types of spending when in public office. Liberals generally endorse all three types of spending with both their rhetoric and their actions while in public office.

“Security” includes all government functions which attempt to defend citizens from aggression against their rights by other human beings. These would include the military, various police forces, and the civil and criminal courts. These are the functions of government whose purpose is to secure the individual rights of life, liberty, property, etc.

It is important to remember that even if these are legitimate functions of government, it does not mean that they cannot be abused. For example, a small suburban village in a low-crime area may not need more than the county sheriff for a police force, but may instead bear a tax burden of village, town, county, state, and even federal police forces. However, these debates revolve around how efficiently the services are being provided, not whether they should be provided by the government at all.

“Public services” generally refers to services provided to all members of society. What makes a service a “public service” is that it can be reasonably assumed that every member of the society has an equal opportunity to utilize it. Examples include roads, bridges, public libraries, garbage collection services, and fire departments. Libertarians argue that these are goods and services that the private sector can provide. Their objection to providing them with tax dollars is that those who do not consent to purchase them are still forced to pay. While this is also true of security services, libertarians acquiesce to those on the assumption that it would be impossible to exercise property rights without a government in place to defend them.

Certainly, a bridge between a new suburb and the city may improve commerce for the entire city. However, it is not necessary to protect anyone’s rights. Therefore, libertarians argue that those who want to build the bridge should provide the capital for it themselves and are perfectly within their rights to charge a fee to those who wish to use the bridge. Conservatives have traditionally argued that these services can be funded by the government and provided by private corporations under government contracts. Liberals generally support public services as well, although they sometimes object to them being provided by private firms.

Like security services, public services are prone to abuse and corruption, even if one accepts that they are legitimate functions of government. Public funds are often wasted on services that are not needed or services that are poorly rendered because they are provided by politically-connected government employees or private firms, rather than by the most qualified. Consider the “bridges to nowhere,” the roadwork construction projects that never end, or the multitude of scandals where it was discovered that $500 was spent on a single nail or some other gross abuse of public funds occurred.

The third category of government spending is wealth redistribution. Wealth redistribution collects taxes from one group of people in order to provide services to another group. What makes this type of government spending different from public services is the fact that the goods or services provided do not benefit all members of society equally. For example, health benefits under Medicaid are paid for by all taxpayers but are only available to people whose income is under a defined eligibility level. Thus, those funds are literally taken from one group and redistributed to another. Both libertarians and conservatives argue that this is nothing more than legalized theft, although conservatives have often led or acquiesced to expansion of this type of spending once in office. President Bush’s expansion of Medicare is one of the most recent examples. Liberals and progressives generally support this type of spending, arguing that it is each person’s moral responsibility to “contribute.”

In order to have an informed debate about a new government program, one must identify which category the proposed program belongs in. Too often the distinctions between these categories are blurred by both critics and proponents. Most often, a program that would properly be categorized as wealth redistribution is represented as a public service in an effort to persuade those that must pay for it that it is their civic duty to do so.

For example, if the federal government issues a grant to build a commuter train in Florida, it is really redistributing the wealth of all of those outside of the service area of the train, especially those in other states who were taxed to underwrite the grant. It is certainly not reasonable to assume that citizens of Montana have an equal opportunity to utilize that train, yet they were taxed to fund it. Therefore, a commuter train to benefit Floridians does not fit the definition of a “public service” for the entire nation. Interestingly, it is exactly this type of government spending that the 2010 Census form cites as its primary reason for collecting data (so that your community receives its “fair share” of federal funding).

Similarly, Social Security and Medicare purport to be public services which provide a plan for wage earners to save for their retirement. However, everyone knows that since the beginning of both of those programs, the taxes collected to fund them have gone to pay current beneficiaries, not into some mythical trust fund. In fact, when Social Security did run surpluses in the past (when contributions exceeded the payouts to current beneficiaries), the government spent the excess money and replaced it with its own bonds, which are just promises to pay based upon future taxes! So, Social Security is and has always been a wealth redistribution program. The same is true for Medicare.

Wealth redistribution can even be disguised as security with the right amount of government propaganda. The military is a security function insofar as it defends its citizens against aggression by foreign nations. However, when the military grows beyond what is reasonably necessary for defense of U.S. citizens and into a worldwide institution, surrounded by multi-billion dollar corporations which exist solely to support it, and which both attacks nations that have not committed aggression against the United States and stations troops in over 130 nations, one must ask the question, “Who is benefitting from this tax-funded monstrosity?”

It is hard to make an argument that the security of the United States depends upon the tens of thousands of troops stationed in Germany, Korea, or Japan. U.S. troops arrived in those countries during a war that ended 65 years ago and remained there supposedly because of a Cold War that ended 20 years ago. At this point, the only Americans benefitting from the continuation of the U.S. troop presence around the world are the defense contractors who sell goods and services to the government to support the operations. Is this not wealth redistribution disguised as security?

Often, conservatives will argue that America is protecting her allies by stationing troops in Europe, Asia, and the rest of the world. However, even this argument does not hold up to scrutiny. If the money to support these operations is collected from Americans but really benefits German, Japanese, or other foreign citizens, is this not still wealth redistribution disguised as security? This is one of the main reasons that Washington, Adams, and Jefferson told us not to make those alliances in the first place and spent most of their presidencies trying to keep America out of foreign wars.

Liberals represent the latest government foray into the health care industry as a public service. They claim that this will provide coverage for the 45 million Americans who are not currently covered by some form of health insurance coverage. While this number is widely disputed by opponents as being grossly inflated, it still only represents 15% of the population, even if accurate. It then follows that 85% of the population already has some form of health care coverage. Therefore, how can it be argued that all U.S. citizens will benefit equally from this program?

The program will also provide subsidies to those who cannot afford to buy health insurance coverage on their own, which is mandated for everyone.[2] This aspect of the program is undisguised wealth redistribution, as taxes will be collected from all Americans and used to purchase services only for those who qualify due to their income. There is not even a scheme in place for this program to make it look as if the recipients are funding the benefits, as there is with Medicare or Social Security.

The history of federal government spending in America can be separated into three eras. The first was dominated by the ideas of Jefferson and classical liberals (now called “libertarians) and enshrined in the Declaration of Independence. “To secure these rights, governments are instituted among men.” That document unambiguously limited government’s role to security.

Thirteen years later, Alexander Hamilton and his conservatives succeeded in drastically expanding the role of government with the ratification of the U.S. Constitution. That document does not limit the government’s role to “securing rights,” but also to “promote the general welfare” and “form a more perfect union.” It grants the U.S. government the power to tax for the purposes of “promoting the general welfare.” This expansion of the role of government to include public services was then increasingly exploited by conservatives throughout the next century to institute wealth redistribution programs for the benefit of a wealthy elite, all disguised as public services or security. These included subsidies to corporations to build roads and canals, subsidies to railroads, and the establishment of a large, standing military force.[3]

Once the conservatives succeeded in establishing government as wealth redistributor to the wealthy, liberals abandoned the philosophy of government limited to security and instead began to advocate government as wealth redistributor to the poor and middle classes. This transformation can be traced roughly to the Woodrow Wilson administration, which combined elements of the conservative philosophy with modern liberal ideas of social justice. With the FDR administration, the transformation of liberal philosophy was complete. The liberals now sought to redistribute wealth to the poor and middle classes, while the conservatives continued to redistribute to the wealthy. These are the choices presented to Americans to this day.

There are large grassroots movements forming with one rallying point in common: they are all opposed to a federal government that spends $3.6 trillion dollars a year and shows no sign of slowing down. If the movements are to succeed, their constituents must clearly understand the three types of government spending and which one really costs the most. True security makes up so small a percentage of the federal budget that no income tax, national sales tax, or “value added tax” is necessary to fund it. Truly public services are also insignificant in terms of cost. Even the hapless postal service, for all of its inefficiency and waste, does not make up a significant portion of the federal budget.

No, it is not spending on security or public services that has bankrupted the federal government and destroyed the U.S. economy. The true cause of the problem has been the massive redistribution of wealth, perpetrated by conservatives for the benefit of the wealthy and by liberals for the benefit of everyone else. It is this type of government spending that must be recognized in all of its disguises and eliminated if the United States is to be saved.

[1] I use the term “libertarians” to describe those who advocate limited government. There are also many libertarians who advocate a completely stateless society, with even security functions provided by private firms in a free market.
[2] This is a gross violation of liberty and property rights as well.
[3] See Tom Dilorenzo’s excellent body of work on this, including Hamilton’s Curse, How Capitalism Saved America, and The Real Lincoln.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!


© Thomas Mullen 2010


rdevans said...

Wonderful article that touches on issues that are largely ignored. I would like to add another critical factor justifying the original thinking. In the Federalist Papers it is discussed how every prior attempt at democracy had devolved into faction. Their defense of that weakness was equal, individual right. If such right is held supreme, then no faction could overwhelm.

The "necessary and proper" clause of the COnstitution would suggest that their was a strong attempt to limit government to your first two catagories. Chief Justice Marshall emasculated that clause in Maubry v. Madison. In an extraordinary piece of specious reasoning, he asserted that if the founders really meant the clause to limit government authority, they would have instead used the phrase "absolutely necessary and proper".

The second comment I have relates to corporation. Congress attempted to resist recognizing the corporate entity, perhaps understanding that it undermined the authority of equal, individual right. The advent of the railroads caused them to reconsider. US citizens were having trouble raising sufficient capital to participate in the construction, and by default foreign, especially the English, were getting the majority of the business. Alarmed, COngress caved. The evolution of the corporation provides a strong illustration of the evolution of faction. Corporations quickly amassed great powers, which became abusive towards labor. In response unions were formed to balance the inequities. The resulting factions seem to be the root of many of todays' problems.

Lastly, I would like to point out the deliberate use of the Term "the people". This term emphasizes the importance of the individual as the unit of our government. In contrast the term "the Public" represents a faction - the majority as opposed to the individual. I believe that such a notion has greatly contributed to the undermining of our original understanding.

THank you for your article.

Bob Evans

Harald Hardrada said...

This article mirrors how the Federal Reserve wants Americans to see their monetary system.

Bud Wood said...

Good essay. Putting the three types of taxes in their respective boxes makes sense and clarifies taxation justifications. My compliments.

Mark Are said...

"This article mirrors how the Federal Reserve wants Americans to see their monetary system."

ABSOLUTELY! The Founding Fathers gave us money that fit the definition of money. Some THING that was DURABLE, DIVISIBLE and had a STORE OF VALUE. When "they" stole the Constitutional system away from the people beginning at the time of Lincoln, they had to cover up the facts. And the main fact being that if THEY control our money, THEY control US. They don't give a damn about what we think or want because they have the control through the FED RESERVE SYSTEM. We are forced, for all intents to participate or not have electric, phone, gasoline etc.
If WE started using some THING for money again so that WE THE PEOPLE were to control the money supply then THEY WOULD need our money to survive. We could as the 1st amendment guaranteed, petition for redress and if they refused to answer, remove our support and THEY couldn't eat. As it stands, we are SCREWED as long as THEY control the money through their printing press system and many will continue to "believe" that their "taxes" are actually paying for something when in reality they are their for the purpose of HIDING the fact of the FRAUDULENT system that enslaves us all. I can go along with Tom on a lot of what he says, but he can't possibly know it all and this article reeks of the ignorance he has on the subject of "money" and "taxes".
Is suggest for Tom, the reading of A Caveat Against Injustice by Judge Roger Sherman,
and A Plea for the Constitution wounded in the House of It's Guardians by George Bancroft.

Until WE THE PEOPLE regain control of the money system, we are screwed. They will continue their robing, raping and pillaging of this country as well as the planet.

Tom Mullen said...

@ Mark,

I agree completely about the insidiousness of the central bank and fractional reserve banking. I've written many articles and a whole chapter of my book about it. Here are just a few:

However, this article was focused on taxation, rather than the "silent tax" of inflation.

fred said...

excellent article. on a related note, I saw that Allan Meltzer, the well known Carnegie Mellon professor of economics, had this to say about the misguided aspects of "Obamanomics" and potential consequences for the economy -