Daily Debunk: Government is not a business

Tying spending to economic growth is a terrible idea guaranteed to worsen downturns

The need for police protection doesn’t diminish with an economic downturn or a pandemic — quite the contrary. (Facebook/Chicago Police Department)

By Ted Cox

There’s no shortage of bogus arguments against the fair tax to debunk, but if we ever get desperate we know just where to turn.

The Illinois Policy Institute.

And we’re certainly not desperate today, but unfortunately we couldn't avoid running into the latest IPI screed, laying out just how abysmal Illinois state finances are, and placing much of the blame on — you guessed it — public pensions.

Hey, look, the state Supreme Court has already decided public pensions are a promise that must be fulfilled. We’ve also written before about how they’re the lifeblood of small, rural communities, which tend to have a higher percentage of government employees, making pensions for retirees one of the key economic sources of sustenance in those areas.

None of that’s worth additional debunking, however. Instead what caught our eye was this notion slipped in along the way: “State lawmakers can end 20 years of deficit budgets by linking spending to economic growth and by strengthening the requirement that the budget be truly balanced.”

Talk about a recipe for disaster — even more so when you’re already in a disaster.

This comes out of the persistent fallacy that government is just a big business and needs to be run like one — a familiar refrain of the Chicago Tribune Editorial Board. Nothing could be further from the truth.

True, businesses are susceptible to economic downturns, and they need to cut spending when that happens in order to survive. Nobody needs to remind any Illinois business owner of that right now. The difference, though, is government is in the business of providing essential services to citizens — police and fire protection and public education chief among them — and the demand for those services doesn’t diminish when the economy enters a recession. In fact, if the double whammy of a pandemic and social unrest stemming from entrenched systemic racism has taught us anything this year, it should be that the need for police and fire protection — as well as public education — is redoubled in an economic downturn.

Cutting costs in a recession might make sense for a business, but a counterintuitive approach is necessary when it comes to government. As we’ve argued before, countercyclical aid is what’s called for: the government spending money and increasing services in a collapse, to keep the economy going and spur a recovery, and then trimming spending to save for the next collapse in boom times.

All the evidence we have to cite for that is the Great Depression and the New Deal.

But let’s follow the IPI’s thinking where it leads in the current environment. The state and city governments are facing the need to spend more on police and fire protection and health services this year, with diminished tax revenue from the economic collapse. What’s the requirement if the state budget is going to remain “truly balanced?” What’s the consequence? Cut everywhere else in government, throw more people out of work, reduce tax revenues even more, and — here’s the rub, IPI — raise taxes to make up whatever the deficit is at that point.

Where does the fair tax come in? We’re just getting there. As Ralph Martire, executive director of the Center for Tax and Budget Accountability, has pointed out, a graduated income tax is all about targeting where the money is growing — no matter the health of the overall economy — while providing relief to citizens and segments of the economy that are struggling. In a flat tax, to raise revenue, the government has to raise taxes on everyone. In a progressive income tax, you’re targeting the top earners.

We’ve said it before and we’ll say it again. Anyone fortunate enough to be clearing more than $250,000 a year as the economy emerges from the pandemic ought to pay a little bit more in income taxes than those who continue to struggle.

That’s our conception of common sense. Admittedly, it’s not as pithy and punchy as “government is a business and needs to be run like one,” but it seems more attuned to reality — especially the current reality.

You know the rest. Vote accordingly.