Yet whenever a subsidy is under consideration, members of Congress, pressure groups, and journalists stress the neediness of the beneficiaries. If the question is medical care, everyone will insist that it is "impossible" for workers to afford it out of their own resources. But these same workers are subject to taxation. If their budget is so tight they can't afford medical care, how are they expected to spare the thousands of dollars they are forced to pay in taxes? To be consistent, policy makers should agree that if people need money, then government shouldn't be taking it away from them.
A Way Out
A simple rule would save us from the waste and futility of the overloaded helping state: Never tax and subsidize the same thing. Before policy makers try to help some group, they need to make sure they are not first hurting them with their tax programs. Before they tax some interest or activity, they should check to see that they are not already subsidizing it.
This precept seems to have been missing from both popular and academic formulations of political economy. The state has been seen as a mystical something-for-nothing machine which could aid all human aspirations. It has been assumed that funds flow into government hands through some harmless process, and that in spending these tax monies, policy makers somehow multiply their value. In this optimistic view, even self-subsidy represents a kind of plus: The cupcake that government buys for you with your tax money somehow represents a better, fairer cupcake than the one you buy for yourself.
Overcoming this fallacy directly may not be easy in a culture still in the grip of the primitive cornucopia illusion. But indirectly, there is a route to sanity. It's the tax-credit approach: Instead of taxing a person and then trying to give the money back as a subsidy, don't collect the tax and let him use the money for the same purpose as the subsidy. A number of these have been enacted in recent years. The tax-sheltered Individual Retirement Account lets people save for their own old-age pensions, instead of running the funds through the tax-and-spend system for the same purpose. The investment tax credit is another example. More such ideas are on the way. Freshmen Reps. Rod Grams (R-Minn.) and Tim Hutchinson (R-Ark.) are now pushing for a $500 child tax credit, on the sensible grounds that letting parents spend their own money on their children is a more worthwhile child-care program than anything government could ever fund.
There are problems with tax credits, of course. They involve a certain amount of red tape, and if members of Congress refuse to rein in spending as they enact them, they widen the deficit. But even with flaws, they make more sense than digging ourselves deeper into the self-subsidy hole. The widespread practice of using people's own tax monies to buy things they would buy for themselves amounts to a national disaster. We urgently need to undo the intellectual and institutional framework that sustains this folly.
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Apart from state-by-state differences, total school spending in the United States is routinely underestimated because of other measurement problems. As Lieberman and other analysts have pointed out, official school spending statistics leave out an awful lot. A partial list of expenditures excluded from federal data includes business and foundation donations, donated time, pension contributions, the cost of negotiating contracts, the cost of training teachers, remedial education in colleges, judicial costs, out-of-pocket parental expenses, and federal educational programs in departments other than Education (such as Head Start). Since real per-pupil spending even as currently measured shot up 62 percent from 1973 to 1993 (according to the ALEC study), an accurate analysis of total spending would no doubt find an even bigger jump.
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