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Lance T. Izumi - Contributor
[Courtesty of Pacific Research Institute]

Lance Izumi is Director of Education Studies for the Pacific Research Institute and
Senior Fellow in California Studies. He is a leading expert in education policy and the author of several major PRI studies. [go to Izumi index]

Listen to Friedman
Advice for Mr. Bush...
[Lance T. Izumi] 2/10/04

The fiscal news out of the White House continues to be appalling. Last week, the Bush administration admitted that the recently enacted $400-billion prescription-drug program would actually cost $534 billion. This week President Bush submits a record $2.4 trillion budget proposal to Congress. Federal spending is spinning out of control and a key reason is Mr. Bush's flawed fiscal philosophy.

The president has been right on target when it comes to taxes and their effect on the economy. Because of Mr. Bush's persistence, federal income taxes have been lowered, the marriage penalty has been reduced, the death tax is being phased out, and taxes on capital gains and stock dividends have been cut. The economy has responded with higher growth and increased productivity.

Yet Mr. Bush fails to tie his tax cutting to anything resembling spending discipline.

The president seems to believe that if something is a noble cause, then it is worth spending the people's money on it. Besides his costly prescription-drug program, Mr. Bush wants to spend billions of tax dollars on new government initiatives ranging from a manned moon mission to programs to strengthen marriages.

The president seems not to realize fully that taxation and spending policies are more than just fiscal tools to improve economic performance or address group demands, but rather determine the extent of individual liberty in our society. In this regard, Mr. Bush would do well to heed the advice of Milton Friedman, who has always supported tax cuts for more than just their effect on the economy. A few years ago, he wrote:

"I have long favored cutting taxes at any time, in any manner, by as much as possible as the only way of bringing effective pressure on Congress to cut spending. Like every teenager, Congress will spend whatever revenue it receives plus as much more as it collectively believes it can get away with. Reducing spending requires cutting its allowance."

Mr. Bush, however, has not used lower taxes as leverage to cut Congress's allowance, but has acted like the parent that gives his child everything she wants. Looking back on past federal budget agreements, Dr. Friedman pointed out that cuts in taxes were not financed by cuts in government spending but actually called for higher spending. He noted, "The hypothetical balance is to be brought about by higher tax revenue, not by lower spending." This supply-side effect, though, does not address the impact of increased government spending on individual liberty.

For Dr. Friedman, taxation and spending policies are not ends in themselves, but rather, "are means to the ultimate objective of increasing the freedom of the individual to use their resources in accordance with their own values - as President Reagan put it, to get government to get off our back."

To get government off our backs, spending, in addition to taxation, must be curtailed. Dr. Friedman's recommendation: "A real cut in direct and indirect government spending as a fraction of national income is required to achieve that basic objective."

Expansionist government, even if pursuing noble causes, reduces our freedom. That is why the current federal spending spree is not just a budget issue, but a freedom issue. Mr. Bush must rediscover the importance of limited government to the maintenance of a free people and the promotion of a free society.

copyright 2004 Pacific Research Institute



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