Congressman's Ryan's Misguided Faith in the Private Sector

On the face of it, the budget-cutting plan proposed by Wisconsin Congressman Paul Ryan makes perfect sense. The U.S. Government, the nation, is broke. Like a credit-card junkie out of control, it cannot possibly go on spending in excess of revenues taken in. Every government agency, every discretionary and, especially, the big ticket entitlement programs, can and must be pared back to bare essentials.

Problem is that the nation still needs a government to conduct its legitimate business, and, no matter how lean it is rendered, million, trillions in revenues will be required to keep it running. So where will the revenues come from? Surely not from more borrowing or printing worthless money. And surely not by raising taxes. If the economy is not growing—in fact, it’s shrinking—then it’s a no-brainer that taking more money out the economy would be counterproductive.

But on the tax-revenue side of the equation Congressman Ryan’s plan is not convincing. Banking on the old Reaganomics theory that by simply lowering taxes for businesses and the well-to-do, the Congressman assumes that the economy will automatically grow, and, despite the lower tax rate, the actual volume of taxes paid will increase, thereby providing the government with the necessary revenue to function without having to go into debt.
But did Reaganomics ever work? (See Post, “The Reagan Myth.”) What historical or empirical evidence does the Congressman have that entrusting the nation’s economy wholesale to the private sector would balance the budget and put the economy back on track to prosperity? What assurances can he give us that none of the tax savings bestowed on businesses and the well-to-do won’t be spent on foreign business ventures, stashed away in Caribbean banks, blown in quick-buck, job-destroying buy-outs and mergers, or gambled away in convoluted Wall Street schemes? Would government funding of the arts, say, be less productive employment-wise than lowering taxes for Wall Street speculators? Recall that it was the too-big-to-fail highr ollers of Lehman Brothers, Merrill Lynch, Countrywide, et. al., not government spending alone, that triggered the current economic meltdown. To turn over the solution of the problem to those who were largely responsible for creating the problem in the first place is sheer folly.

Wholesale lowering of taxes for small business could be even more counterproductive. According to most conservative estimate, 50 % of small business in American fail or close within five years, and the main reason they do is that many of the folks who start them have no entrepreneurial instincts or skills to speak of. Too many of them are driven to go into business for themselves out of desperation, having lost or fearing they will lose their well-paying jobs and never again being able to find a comparable one. Others are or moved by a self-fulfilling desire to sell a product dear to their hearts but not much in demand, like opening book stores and novelty shops in places where few people read and are short of cash.

So whether the bounty of Congressman Ryan’s proposed tax breaks goes to large or small business, there is always a good chance that much of it would be wasted. Every effort therefore must be made to assure that it gets into the right hands in the private sector. The political fallout of identifying and excluding non-productive enterprises would, of course, be huge, but it must be done if the tax cuts proposed are to have the intended effects. And, it would be unwise, not say downright stupid, to assume that the competition-driven private sector will self-regulate. Ethics is not a key word in a hyper competitive culture where good guys tend to finish last. Laws must be passed and impartial agencies empowered to assure that the fair-play necessary for the “invisible hand’ of free markets, as Adam Smith envisioned it, can work its magic--which brings us full circle back to the role government and the problem of keeping it well funded. Too many cuts in the wrong places and too indiscriminate lowering of taxes for business and the well-to-do would be as catastrophic as a spiraling budget deficit.

Then, too, there is the time-lag factor. Even if every tax-break and subsidy were employed by businesses with one-hundred percent efficiency, it would take many years, decades in some cases, to gear up and make enough profits to contribute significantly to tax revenues. Requiring the already overtaxed taxpayers to bear the cost of breaks and subsidies to such businesses is akin to asking investors to make an investment that could only pay off at an uncertain rate sometime in the distant future. By that time, older taxpayers making the sacrifice would be in the ranks of the destitute, or names in long-forgotten obituaries.

Congressman Ryan is an intelligent and honest man, not your run-of the mill Politician. Former Speaker Newt Gingrich was out of line calling the Congressman's budget plan "right wing social engineering." But before he presses on with his plan the Congressman should mull it over in greater depth.