Whiting column: More ways to cut government spending
Last month we discussed the government’s ever-increasing need for more even while deficit spending. The negative economic impact of increased taxes necessitated we explore increasing the government’s real (effective) income by increasing current tax revenue and decreasing expenses. Additional areas bear consideration.
• Foreign aid: Forbes reported the 2016 budget contained $37.9 billion in direct cash transfers to more than 100 countries. The 2017 budget listed $42.3 billion. This includes $3 billion to Israel, $1.5 billion to Afghanistan, and hundreds of millions to Pakistan, Kenya, Iraq, Vietnam, Mexico, Philippines and others. Accountability for spending is nonexistent. This type of “benevolence” is not commonplace among other countries. Canada, for example, is last in the amount it spends on foreign aid and on national defense. They rely on us in both regards.
• Wasteful research: Sen. Jeff Flake of Arizona listed $35 million of this in the 2014 budget. These included: Do drunk birds slur when they sing?; What type of music to monkeys prefer?; Who has more hairs — a squirrel or bumble bee?; and my personal favorite: Where does it hurt most when stung by a bee? Any guy could have quickly answered that question. Coincidentally, funding for ebola research was reduced in 2014.
• Reduce outsourcing jobs: People employed here pay income, Social Security, sales, property taxes and spend their pay here, further promoting our economy, which increases revenue without raising tax rates.
Last week, an acquaintance asked, “Why do companies manufacture in foreign countries, given the cost of shipping resources to the country and shipping finished products back. The wage differential can’t be that much?”
A great question. The answer lies in putting ourselves in the shoes of the business. Besides wage savings, outsourcing avoids the cost, regulation and recordkeeping associated with workers compensation, unemployment, Medicare, Social Security, Obamacare or other health insurance, pensions, EEOC, OSHA and EPA. They also avoid interviewing, training and evaluating employees, lawsuits from candidates who weren’t hired and former employees.
We’re not debating the need for these items, but rather understanding their cost to business in both time and money. If we wish to increase employment here, we must know the underlying factors behind business outsourcing.
• Reduce corporate tax income tax rate to promote repatriation: The CBO and IRS estimate corporations have $2 trillion in profits in foreign bank accounts avoiding our 35 percent corporate tax rate (highest of developed countries). Not only is this money not being taxed, it isn’t being invested, spent and circulating in our economy. Proposals lowering the rate to 20 percent are being considered. Corporations would love to bring the money here. They would invest it in R&D and expansion without having to borrow the money and incurring interest cost.
Repatriation at 20 percent would immediately generate $400 billion in increased tax revenue. This could be used to lower the deficit or put into a fund at 5 percent ROI, returning $20 billion in increased tax revenue each year. The 20 percent rate would get future earnings here instead of a foreign bank account. Corporate executives like to show increased income because it can be returned as stockholder dividend increasing stock price. Money in a foreign account can’t be reinvested or returned as a dividend.
A 20 percent rate would attract foreign business desiring to avoid their higher taxes; more employment, more money circulating.
• Assure fines received by the government are spent wisely: Currently, there isn’t any definitive accountability or procedure assuring fines are spent on budget items as opposed to new spending. This is significant money. Wall Street fines from the mortgage crisis reached $110 billion. Volkswagen was fined $30 billion for gas mileage fraud.
British Petroleum was fined $20 billion for its oil spill in the Gulf, $9 billion of which was allocated to repair environmental damage. The remaining wasn’t specifically allocated and there hasn’t been any documentation the $9 billion was spent as intended or prudently. This type of windfall income is not allocated in the federal budget.
• New sources of resource severance taxes: The severance tax from timber, coal, oil, natural gas and other minerals has become an important source of income for the federal government and states including Colorado. An eye-opening example: Colorado severance tax revenue for fiscal 2015 was $271 million; 2016 saw a drop to $67 million; a $204 million decrease. This is just Colorado. The various jurisdictions whether federal, state or county are more likely to raise taxes to replace this lost income than decrease spending.
The rationale for severance taxes was to provide income from natural resources that were being utilized and hence not able to be used again. We may have to consider severance taxes on the resources replacing the traditional. Solar, wind and water, even though they are considered renewable, are still a resource being consumed. Consider what Colorado could get from water alone.
This is an out-of-the-box approach, and not likely to be widely supported, but there is precedent for severance taxes. We may not have a choice but to consider them as a tax source if we are to avoid income and property tax increases which have a more direct, negative economic impact.
It is our politicians’ personal responsibility to maximize revenue and decrease expenses. It is our responsibility to assure they do so and reduce our taxes as a result.
Bryan Whiting believes most of our issues are best solved by personal responsibility and an understanding of nonpartisan economics rather than by government intervention. He is retired after 40 years of teaching marketing, entrepreneurship and economics. Comments and column suggestions to: firstname.lastname@example.org