Critics of the 1990 federal budget agreement predicted the new taxes Congress passed would lead to additional spending and even higher deficits. The naysayers were right: The deficit is approaching $400 billion.
This shouldn't have surprised anyone. For more than a century, the federal government has piled on extra spending each time it has raised taxes. Last fall, a study by Ohio University economists Richard Vedder and Lowell Gallaway and congressional researcher Christopher Frenze found that since World War II, $1.59 of new federal spending has accompanied each extra dollar of tax revenues. Even the Gramm-Rudman-Hollings deficit-reduction law didn't stanch the flow of red ink.
The study, prepared for congressional Republicans on the Joint Economic Committee, showed that higher taxes once reduced deficits: Until 1825, spending fell by 3 cents for each dollar of new taxes. From 1825 to 1860, when taxes went up by one dollar, spending rose by 20 cents; and from 1867 to 1913, spending rose by 72 cents for every new tax dollar. But since 1947, higher deficits have consistently followed tax increases.
Since 1947, however, state spending has increased by only 93 cents for each new dollar in taxes. The authors suggest that state balanced-budget amendments, along with other constitutional limits on state taxes and spending such as California's Proposition 13, tend to keep spending under control when taxes go up.
The authors conclude that the cause of the federal deficit is not inadequate taxation, "but the political gains from spending," particularly spending on programs that redistribute income. "Institutional constraints, such as balanced budget amendments, spending limitation amendments, [and] line-item vetoes," they say, may lower the "political benefits of new spending to political decision-makers."
This article originally appeared in print under the headline "Spending Spree".