The Problem With Spending Caps

The supposed purpose of a spending cap is to prevent the government from increasing spending (or, presumably, cutting taxes) during times of high tax revenue, on the assumption that such actions will lead to larger deficits and tax increases (or, presumably spending cuts) during bad times. This is, perhaps, a sensible goal. However, there are better methods to dampen the effect of economic downturns on the state budget (notably, by shifting toward property taxes and away from income and sales taxes).

The real effect of a spending cap is to remove flexibility from policy making. Even if the cap accounts for inflation and population growth, it only really allows the legislature to fund existing programs. Any new program or an expansion of any existing program would need to come at the cost of another existing program. New taxes could not be levied to fund an immediately new program, although since the cap is based on some calculation from the previous decade’s tax revenues, the higher taxes may, over time, allow for more spending. But even then, that adds a decade’s lag for the adoption of new policy, an unacceptably long wait.

More importantly, the cap will ignore significant other constraints on the budget. It will ignore the aging population and the corresponding strain on state health services. Additionally, health care costs have been rising significantly faster than inflation and income, again increasing the demand for and cost of state services. I don’t think it is much of a reach to suggest that even if no new programs were adopted, and the prison population remained the same, that the cost of running existing programs would still increase faster than inflation and population growth over the next 20 years. Ergo, a spending cap doesn’t prevent new spending, but locks us into future spending cuts as program costs rise in unpredictable ways.

Furthermore, spending caps are anti-democratic (small ‘d’), in that they prevent new spending desired by a majority of the public. However much Republicans may like to pretend, spending generally isn’t forced on an unwilling population by out of control legislators. Spending is something the public generally wants, and if it doesn’t, then it can replace the legislators and end the programs. Spending caps don’t have brains. They do not think or reason. They do not recognize that there was a natural disaster or that the public wants expanded arts education for their children or that massive water infrastructure spending is necessary to prevent the Central Valley from turning into a dust bowl. If we want a government by algorithm, let us replace the legislature with a computer and be done with it. Of course, the result will be that the computer says “no”.


Strange Bedfellows

The Los Angeles Times on Wednesday had an article remarking on the ‘slow’ response of unions to Proposition 1A, the spending cap placed on the ballot as part of the budget compromise passed last week.

The official ballot arguments have been submitted, and in what administration officials hope is an encouraging sign, the best-funded labor groups opted not to weigh in against the measure. At least not yet.

Frankly, it doesn’t seem that their response has been ‘slow’, but rather that the deadline to submit ballot arguments passed oddly quickly. The real issue, though, isn’t going to be the ballot arguments, but rather whether money is ponied up to run ads against the propositions. I certainly hope that they will.

This, however, is a new opinion for me, as of today. I am firmly opposed to spending caps of any kind, especially spending caps that are put in place after massive, unpopular, and extortion-driven cuts are made to the budget. Even spending caps that account for population growth and inflation ignore costs, like health care, that rise faster than the rate of inflation. However, I’ve had to spend the last week thinking about whether the desire to avoid a repeat budget crisis outweighed the intense belief that a spending cap would be dangerous in the long term. I am no longer conflicted. I am, however, willing to accept that the unions may need time to come to the same conclusion.

A far more interesting part of the article was on the division among anti-tax groups.

In addition, the state’s major antitax groups have split over the measure, with at least two supporting it even though it would prolong the tax increase that the Legislature passed last week. The California Taxpayers’ Assn. signed the ballot measure backing the spending cap, and Lew Uhler of the National Tax-Limitation Committee said he also favors the measure, called Proposition 1A.

“At this point, it seems to be a reasonable restraint device,” Uhler said in an interview Tuesday.

Jon Coupal, president of the Howard Jarvis Taxpayers Assn., said he was surprised at Uhler’s stance and said his own group would fight to defeat the measure.

“I’m not sure we’ll be able to match the proponents dollar for dollar, but we’ll certainly get the message out,” he said.

I never really expected to be on the same side of any issue as the Howard Jarvis Taxpayers’ Association, even for completely different reasons. Still, the more opposition the better. I do wonder, however, how the public will response to differing arguments against Proposition 1A, one because of the tax increases, and the other despite them.

Addendum: See the discussion over at Calitics.