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Grandpa's Money Lesson
by Michael Nevin, Jr.
19 July 2003

The recent fiscal crisis in California illustrates how it is always easier for government to spend than to save.  In the future state governments should follow the advice of my Grandpa Jack.

California



My Grandpa Jack was raised during the Great Depression.  He learned valuable lessons about money because he didn't have a lot of it when he was growing up.  He worked hard, saved his money, and paid in cash. Although he would give you the shirt off his back if you needed it, money was hard earned and harder spent.  
 
Years ago, while golfing together, I asked Grandpa if he would buy me a soda, but he refused.  We were heading home soon and he knew my mom had plenty of sodas in stock.  He quipped, "Do you know how much that soda costs in that machine?  Just sink that putt."
 
Budget cuts will always bring about tough decisions and headlines. However, it is unrestrained budget spending during economic booms that creates the crisis.  According to a Cato Institute study, "if state governments, in aggregate, had limited annual spending growth to a benchmark of inflation plus population growth beginning in FY90, they would have generated savings of $93 billion by FY01."  The tax windfall for every California household would have been $1,899 saved per year by 2001 if budgets had been limited to the above benchmark growth rates during the decade. According to the National Association of State Budget Officers data, "California's general fund expenditures jumped 15 percent in 2000 and then another 17 percent in 2001."  Unfortunately, the Golden State now has a deficit of $38 billion dollars and Sacramento is proposing "revenue enhancements," or what is better known as taxes.
 
The "1,000 Kid March" in San Francisco back in April featured teachers, students, and child care workers descending on City Hall to prevent budget cuts to youth services.  One of the many demands presented to elected officials was to cut $40 million in the police and fire departments to fund kids programs.  The San Francisco police department has no academy classes in session and is faced with an exodus via retirements.  All city departments are already cutting services, including police and fire, but these advocates adamantly oppose any cuts to their programs.  Adult activists do a great job showing kids the best techniques for receiving media and government attention.  It would be refreshing if they taught students how to take personal responsibility for themselves and their future without relying on government for their every need because, quite frankly, government can't afford it.   
 
Congress passed and President Bush signed a $330 billion dollar tax cut bill spread out over the next ten years.  According to the Congressional Budget Office, this tax cut represents just over 1% of forecasted federal revenue collection over the same period.  Critics used archaic class warfare rhetoric, claiming the cuts only benefited the rich.  Any tax cut will benefit all taxpayers, rich or poor.  A new bill has been introduced to expand the "refundable" child tax credit to those who don't pay any income tax.  It's called a refund when you actually pay for something and welfare when you don't.  
 
According to the IRS, the top 5% of incomes paid 56.47% of federal income taxes in 2002, while the top 50% paid 96.09%.  An adjusted gross income of merely $27,682 puts you in that 50% bracket.  A new definition of "rich" may be in order.  The same critics who support "refundable" child tax credits maintain the tax cut will expand the deficit.  Prior tax cuts have led to more revenue and economic growth with both Kennedy in the 1960s and Reagan in the 1980s.  If you're worried about deficits, it may be time you start demanding spending cuts to rein in government.

Elected officials face a difficult but mandatory task in making unpopular decisions to cut some services and programs.  These choices should require that all departments and services face a review while priorities are set.  Should we keep open that fire station or fund the needle exchange program?  When facing deficits all local, state, and federal government departments must share the pain as they do more with less.  However, we should be more worried about future economic booms than current budget deficits because history has proved it is easier for government to spend than to save.  Taxpayers have a right to demand fiscal responsibility and legislators have a duty to question budgets and set priorities.  We'd be well served to look toward heaven and ask my Grandpa Jack, but don't expect easy answers or cold soda.


Michael Nevin is a California law enforcement officer.


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