Real Clear Policy: Spending is Taxing

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ALEXANDRIA, VA – The following commentary by the Coalition to Reduce Spending’s Jonathan Bydlak and Corie Whalen appeared in Real Clear Policy. The piece highlights Milton Friedman’s warnings that increases in spending ultimately result in higher taxes.

The full text is provided below for your convenience:

Remember Milton Friedman: Spending Is Taxing

By Jonathan Bydlak & Corie Whalen

Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax … If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing. The thing you should keep your eye on is what government spends, and the real problem is to hold down government spending as a fraction of our income, and if you do that, you can stop worrying about the debt.
– Milton FriedmanAs the fiscal cliff approaches, many are asking whether Republicans should break their pledges and vote to raise taxes.These stories miss the point: Republicans have already voted many times to raise taxes.

As Friedman explained, the true burden of taxation is whatever government spends. Jerry Jordan, a former member of President Reagan’s Council of Economic Advisors, told us recently that Friedman would frequently remind Reagan and others during the early 1980s that reductions in marginal tax rates — which Friedman supported — were not real tax cuts if spending was not reduced.

It is time to remind Republicans that the same rules of economics still apply to today’s deficit spending. The debate over the “fiscal cliff” presents an opportunity to hammer home what is fundamentally flawed about Washington’s approach to funding government.

Let’s start by finally acknowledging that Republicans who have been complicit in deficit spending have repeatedly violated Grover Norquist’s “Taxpayer Protection Pledge.” While Norquist’s pledge has been effective politically, the policy goals of fiscal conservatives remain unfulfilled, because deficit spending is taxation.

The problem with focusing foremost on preventing new taxes is that borrowing and printing to finance government largesse causes even more pernicious economic distortions. While taxation is harmful in the here and now, manipulating interest rate markets alters incentives to invest and consume not only today, but in the future as well.

An opportunity exists to drive the public discussion toward a focus on the true cause of our nation’s fiscal problems: overspending. Only by putting our country on a sustainable fiscal path can we prevent the tax increases that adherents to Norquist’s pledge seek to avoid. This will require that elected officials commit to voting for budgets that are balanced, against new spending programs that are not offset, and against new borrowing that requires increasing the debt ceiling.

An unfortunate unintended consequence of Norquist’s pledge is that it has provided cover to those Republicans who wish to maintain the guise of fiscal responsibility while simultaneously raising the debt ceiling. Let’s be clear: voting not to raise taxes while also increasing deficit spending means we not only have to shoulder the high cost of government, we have to pay for it plus interest.

As Dustin Siggins and the Heritage Foundation’s William Beach recently noted, “[most people] forget about the impact of interest payments on future budgets.” According to their analysis, if interest rates rise to their historical average of 4 percent, interest payments “would jump by 90%” — or more — as the national debt increases.

Grover Norquist was right to focus on creating incentives to shrink government. As Friedman said in 1975, “I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing.”

Ultimately, however, the “Taxpayer Protection Pledge” only addresses one aspect of an increasingly complicated problem. Because many politicians who have signed it continuously vote for more deficit spending, they have in effect violated the pledge. Fear of deficits was supposed to encourage spending restraint. But now, that very fear has been turned around to make conservatives more willing to support tax increases. It’s almost like Milton Friedman saw it coming.

Jonathan M. Bydlak is the president and founder of the Coalition to Reduce Spending.
Corie C. Whalen is a Houston-based political consultant and serves on the board of directors of the Coalition to Reduce Spending.

Heritage: Friedman’s Legacy of Fighting for School Choice for All

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Originally posted at The Foundry by Amy Payne

On the late Milton Friedman’s 100th birthday today, his words are truer than ever: “There is no respect in which inhabitants of a low-income neighborhood are so disadvantaged as in the kind of schooling they can get for their children.”

And the news from many parts of the country is disheartening. Despite a new school choice option for students in Louisiana, a teachers union there has threatened to sue private schools that accept voucher students this fall. Unions have fought school choice initiatives because they see options for students eroding their power structure.

The Administration is also fighting students’ best interest. Instead of promoting what works—school choice, empowering parents and students—President Obama just issued an executive order last week creating a new federal bureaucracy to single out African-American students for more government meddling in their education. The order states that:

substantial obstacles to equal educational opportunity still remain in America’s educational system. African Americans lack equal access to highly effective teachers and principals, safe schools, and challenging college-preparatory classes, and they disproportionately experience school discipline and referrals to special education.

The new White House Initiative on Educational Excellence for African Americans is supposed to “help expand educational opportunities, improve educational outcomes, and deliver a complete and competitive education for all African Americans.”

This is to be done “in part by supporting efforts to improve the recruitment, preparation, development, and retention of successful African American teachers and school leaders and other effective teachers and school leaders responsible for the education of African American students.”

America’s students don’t need teachers hand-picked for them by the teachers unions or by the federal government. They need the power to pick their own teachers. Parents need the freedom to send their children to the school of their choice—to find the academic and social environment that works best for them.

The old way isn’t working. The District of Columbia is spending nearly $30,000 per student “in a district that has one of the lowest graduation rates in the nation and produces some of the country’s lowest achievement scores,” laments Heritage’s Rachel Sheffield. This spending hasn’t changed the fact that “the graduation rate for D.C. students hovers around 60 percent, well below the nationwide average of 74 percent. Math and reading scores are also among the lowest in the country.”

D.C. is even paying students “with poor academic and behavioral records” to attend summer school, according to The Washington Examiner.

That isn’t the end of the story, however. Heritage’s Lindsey Burke reminds us that Friedman’s work on behalf of educational freedom goes on:

Today, we have a growing number of innovative school choice options—charters, vouchers, tax credits, online learning, and education savings accounts, to name a few. These options were conceived in the mind of Friedman and are being brought to life by reform-oriented governors and legislators across the country.

Funding for the D.C. Opportunity Scholarship Program, which allows children from low-income homes to escape the underperforming D.C. public schools and attend a private school of their choice, was saved for a year after President Obama threatened to end it altogether.

States are implementing school choice reforms because the results are astoundingly positive. According to federally mandated evaluations of the D.C. program, student achievement has increased, and graduation rates of voucher students have increased significantly. Graduation rates in D.C. public schools languish (hovering around 55 percent), and the public school system ranks last in the country in terms of academic achievement. Yet, students who used a voucher to attend private school had a 91 percent graduation rate.

Seeking success for their own students, Arizona enacted groundbreaking education savings accounts, and Indiana created the largest voucher program in the country.

As Friedman said, we will see improvements in education only “by privatizing a major segment of the educational system—i.e., by enabling a private, for-profit industry to develop that will provide a wide variety of learning opportunities and offer effective competition to public schools.”

Our students deserve the best, and they will choose it when given the opportunity.

How to Create a Job: Creating Value, Not Just Work

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With unemployment still above 9 percent, Americans are searching for answers that will lead to quality, lasting jobs. Past failures of jobs programs show that addressing the symptom instead of the disease has yet to lead to real job growth. Instead of talking about jobs programs, what needs to be discussed is how to provide the right environment for growth: economic freedom. Watch this video to learn more.

Transcript:

Milton Friedman was once traveling in Asia, and he observed a canal being built. And he didn’t see any heavy equipment making the canal. Instead, he saw workers with shovels — lots of them. And he asked the government official who was with him, “why don’t these people have heavy machinery?” And the official said, “you don’t understand. This is a jobs program.” Milton supposedly replied, “well, then you should take away their shovels and give them all spoons.”

There are a lot of jobs programs floating around DC, including a new proposal from the President. Of course we all want unemployment to go down, but the key is how we make it go down. It shouldn’t be forced down by simply creating jobs that don’t create any value for anyone in society. Jobs themselves, they’re not the end goal. The goal is the value that the job creates.

Now, I doubt any of the jobs proposals that come out of DC are going to propose putting workers to work using spoons, but they will have the economic equivalent: jobs that don’t create value. After all, the Government could create a job by paying someone to just dig a ditch and then fill it back in, but in the end, no value would be created for anybody. In fact, value would be destroyed, because the Government would have to tax other people, other places, in order to create those jobs, and those taxes would destroy other jobs that create value.

Where some jobs may create value, others would not, but all of it is ultimately not checked by the price system. That means instead of explicit jobs programs, what the Government should focus on is providing the right institutional environment for growth. That environment is economic freedom.

Economic freedom means, low taxes, small scope of government, lower inflation, strong protection of property rights, less regulation. Almost the opposite of what the federal government’s been doing the last two years. When you grant an environment of economic freedom, entrepreneurs make investments to provide value for people in the economy. In order to do it, they have to hire workers.

When entrepreneurs are working in the market, what they’re doing is looking at, where can I hire labor inputs and other inputs to create a good or service that a consumer’s going to value? If, in the end, the value that consumer places on it, measured by how much they’re willing to pay for it, is greater than the cost of the labor and other inputs, the entrepreneur creates a job.

The best jobs program really isn’t a jobs program at all: it’s a growth program.

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Milton & Rose Friedman’s Legacy of School Reform

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Why choice is winning – and helping poor kids learn.

“We have a simple problem in this country” when it comes to education, says Robert C. Enlow, president of the Friedman Foundation for Educational Choice. “And that’s a monopoly. It’s not the people in the system. It’s the system itself.”

How bad is the problem? Consider this: Since 1970, direct per-pupil spending on K-12 public schools has more than doubled in inflation-adjusted dollars while educational outcomes for graduation high school seniors have remained flat at best.

Nobel Prize-winning economist Milton Friedman (1912-2006) introduced the concept of school vouchers in a 1955 essay and, with his wife Rose (1910-2009), created the foundation that bears their name in 1996. Based in Indianapolis, the Friedman Foundation promotes “universal school choice as the most effective and equitable way to improve the quality of K-12 education in America.”

Despite resistance from teachers unions, legislators, parents at well-funded and high-performing schools, and other entrenched interests, school choice is booming in the United States, with the Wall Street Journal dubbing 2011,”the year of school choice.”

Last year, eight new programs were created and 11 existing ones were strengthened or expanded, meaning that students and parents in a total of 12 states plus the District of Columbia could participate in choice programs that have access to some $1 billion in funds. Charter schools – publicly funded schools of choice that receive a fraction of the per-pupil spending given to traditional schools in exchange for greater curricular freedom – didn’t exist until 1996. Now, over 2 million students are enrolled in charter schools, which claim more than 10 percent of school enrollments in over 100 cities. Nearly 2 million children are home schooled and innovative new choice programs including virtual schools, blended learning, and education savings accounts (which allow parents to spend education dollars on multiple providers) are becoming an everyday reality.

“Milton Friedman was right,” says Enlow, discussing who is using the new opportunities. “A universal [school choice] program would benefit the poor tremendously, the middle class somewhat, and the rich hardly at all.” But Enlow also stresses that while the revolution in K-12 education is growing, it’s far from a fait accompli: “We need to amp up the calls for reform across the country.”

Reason sat down with Enlow in January at the start of National School Choice Week in New Orleans.