Dependency Creates Apathy, the Beginning of the Downward Spiral

by Lowell L. Kalapa, Tax Foundation of Hawaii

Some readers may wonder what does dependency have to do with taxes and financing government or is this just another one of those social good commentaries.

Although it may be difficult for the members of generation “X” and “Y” to recall, perhaps their parents and grandparents will remember the hard economic times of the Great Depression and the struggle of surviving martial law in Hawaii during World War II. From the hardships of the Great Depression to the sparse days of World War II, our parents’ and grandparents’ generations learned that they had to do for themselves and that the government, like their families, was strapped for resources, providing the barest of essential public services that insured the health and safety of the community.

In the postwar prosperity, governments at all levels exploded in response to demands made by a growing vocal electorate. As a nation we entered a “New Frontier” and took on the “War on Poverty.” With those initiatives came a plethora of new programs that salved our social conscience at whatever price. We also saw ourselves as the world’s “peace keeper,” fighting off the communists in Southeast Asia and in North Korea as well as in the Middle East.

But all of these “fronts” took money and by the middle 1980’s the White House and Congress needed to raise the revenues necessary to keep all of these programs funded. So by the mid-1980’s Congress and the White House pushed forward on “tax reform” by adopting the far reaching 1986 Federal Tax Reform Act that basically broadened the federal income tax base by eliminating a lot of goodies in the tax law such as the deduction of credit card interest and state sales taxes, and allowing the reduction of federal income tax rates. Looking back, the base broadening of the federal income tax law was far more generous than the reduction in tax rates to the point that revenues began to overtake federal expenditures.

This phenomenon continued through the next decade as the dot com bubble began to expand producing a windfall of revenues that just begged to be spent. Again, federal programs expanded as the voting public demanded more programs and services. With the illusion that there was more and more money to be spent, by the turn of the century some believed that taxes should be reduced, finding an advocate in President Bush the Second. These are the tax cuts that are currently being so roundly criticized and which will be at the heart of this year’s presidential contest.

Unfortunately, as a slew of tax cuts were adopted, federal lawmakers continued to pile on the programs and services, pandering to every vocal constituent group and creating the financial mess that now faces the taxpaying public. And though those Bush-era tax cuts were scheduled to expire at the end of 2010, Congress did not have the nerve to be labeled with a tax increase and merely extended the tax cuts on a temporary basis. And now faced with a reelection, candidates are calling for yet another temporary extension. Of course, you don’t hear any of the candidates calling for a reduction in spending.

And that is the problem both at the federal level and the state level. Here in Hawaii elected officials have shied away from raising taxes and instead resorted to charging fees and user charges for certain public services that were formerly paid out of taxes as more and more of those tax dollars go for new and expanded programs. Elected officials have added program on top of program and service on top of service to the point where there aren’t enough resources to provide basic government services.

What is frightening is the fact that more and more resources are being sucked out of the economy to fund these public services at the expense of supporting the economic growth that Hawaii needs to maintain a vibrant and growing economy. It is taking resources from taxpayers that should be allocated to the creation of new employment opportunities and using them just to pay for public services that probably should not even be undertaken by government.

Unless this misallocation of resources from private sector to public sector is reversed, we will all become dependent on these government services. Becoming dependent on government for our well-being insures that we have surrendered our independence and right to choose. This is only the beginning of the downward spiral of our community.

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