Days after 9/11, a friend of mine raged at the insolence of the terrorists. "We are the richest and most powerful country in the world," he boasted. "We will teach them a lesson."
In terms of per capita GNP, the United States can rightly claim to be the richest country on earth. It enjoys a superior standard of living and teems with millionaires.
The country's public finances, though, tell a different story. Rather than sumptuous excess, they are afflicted with sobering dearth. The annual federal budget deficit is $500 billion — and rising. The 50 states are facing shortfalls totaling at least $120 billion, an amount forecast to grow further amidst the nation's worst fiscal crunch since World War Two. The United States is awash in money, and yet its public coffers are bone dry—a startling and unseemly paradox for "the richest country in the world."
This state of affairs is a natural result of the people's loathing of taxes and concurrent love of government spending, two wholly contradictory impulses. Americans covet tax cuts and wholeheartedly embrace politicians who promise them. At the same time, despite the virtuous right-wing talk about "small government," they also want Medicare and government-subsidised prescription drug benefits, a strong military, farm subsidies, food safety inspections, highways, and the Federal Emergency Management Agency to provide handouts when hurricanes and tornadoes strike—even to those who profess disdain for "government programs." Simply put, we as a nation are self-indulgent, greedy, and cheap. We want government programs and services but are loath to pay for them.
California, which recently recalled its embattled Democratic governor, Gray Davis, bears stark testimony to this contradiction. Davis was widely vilified for presiding over a budget that evolved from a $3 billion surplus in 2000 into a $38 billion deficit in 2003. The fiscal meltdown, though, was not entirely his doing. Drawing revenues preponderantly from personal income and capital gains taxes, sources that are susceptible to economic swings, California reaped a bonanza during the dot-com boom but was predictably hurt when the dot-coms went bust and the economy soured. Due to the linking of state and federal tax codes, Davis, like other governors, also had George W. Bush's ten-year tax cuts to thank for reduced revenues.
California could also blame its fiscal woes on "direct democracy." Over the years, the state has been saddled with a gamut of voter initiatives which require compulsory spending on various programs on one hand, while stymieing the raising and allocation of public revenues on the other. As funding levels are mandated by these ballot initiatives, a large chunk of the annual budget is earmarked, leaving only about 30 per cent of state spending subject to discretionary tinkering. Proposition 98, passed in 1988, required a minimum 40 per cent of the general fund to be spent on K-14 education. Proposition 42, meanwhile, tied petrol sales tax receipts to transportation and transit projects only. Since 1978 California has been subject to Proposition 13, which placed limits on property tax rates (one per cent of sale value) and when property could be reassessed. It further required that any measure increasing state revenues be approved by a two-thirds "supermajority" of both houses of the legislature, a very difficult feat in the best of times.
Propositions 98 and 13 epitomise the irreconcilable conflict of feeding a voracious appetite for "big government" spending with a "me only" mentality of "small government" stinginess. Voter-mandated spending initiatives such as Proposition 98 should be, but are not, accompanied by corresponding measures to raise the required revenues to support the spending. Basically, voters want public programs but dodge considering how to pay for them and at whose expense.
In voting for Arnold Schwarzenegger to be their next governor, Californians appeared to endorse his promise of not raising taxes and his denunciation of Davis' "spending". In truth, Californians were happy to have public spending lavished on them, so long as the good times prevailed and they did not have to worry about paying for it.
Under Davis, education took up half the budget. And why not? With Proposition 98, the people saw to it that education became a top spending priority. Any shrewd politician would have played along. Near and dear to "soccer moms," education featured prominently in Bush's 2000 presidential campaign, resulting in his "No Child Left Behind" slogan. Republicans in the California legislature themselves were keen not to be labeled anti-education. Thus the Class Size Reduction Program, among others, was born—gobbling up its share of state expenditure. Thanks to the state's largesse, California's public university systems did not raise tuition fees between 1995 and 2003—and Californians were hardly complaining. Days before the recall election saw the Vehicle License Fee (VLF) tripled, drawing criticism from voters and Schwarzenegger alike. What many voters conveniently forgot, though, was that the VLF had in fact been reduced by 68 per cent between 1998 and 2003, the halcyonic period that now seems a distant past. Obviously, for Californians and most Americans, taxes and fees are to be cut but never raised—and the public finances be damned.
Schwarzenegger is certainly not alone in appreciating that being anti-tax makes one highly electable in this country. The gubernatorial candidates in Kentucky both Democratic and Republican are rejecting tax hikes like they were the plague. To advocate raising taxes in America is to be "radical," especially for Democrats. To cut them is to be "mainstream." At the same time, preserving cherished government programs spells electability as well. Unfortunately, the illogic of being simultaneously anti-tax and pro-programs (and thus, pro-spending) appears lost to many. The politically expedient and popular thing to do is to increase spending and boost programs, while cutting taxes and running huge deficits à la Bush. If the Democrats could be reviled for "tax and spend," the Republicans should be pilloried for "borrow and spend".
While the state governments struggle to stay afloat in ever-deepening red ink, personal and corporate greed continue to thrive as a multi-billion dollar business under the watch of an administration content to demonstrate benevolent benignity. As the same time that Bush hands out corporate tax breaks and dividend tax cuts, more Americans and corporations are finding tax shelters by legal, extralegal, and illegal means with seeming impunity—further depleting the public coffers. California alone lost an estimated $1.3 billion in corporate tax revenues in 2001 because of tax shelters. A great deal of U.S. wealth is being siphoned off overseas, far from the reach of the Treasury. Americans today ensconce up to $500 billion (about five per cent of GDP), if not more, in offshore accounts and assets, the Caymans and Bahamas representing popular sites. Companies' overseas shelters cost the country an estimated $70 billion a year in lost revenue. The Treasury's collection of corporate tax revenues is indeed down, from $207 billion in 2000 to $132 billion today. Compared to just a few years ago, corporate America is shielding a higher percentage of its profits from the despised taxman, no doubt to the delight of shareholders who today enjoy the additional blessing of reduced capital gains taxes.
Meanwhile, the Transportation Security Administration (TSA) recently shed some 7,000 jobs on account of the budget crunch. Apparently, this "richest country in the world" considers a nationwide TSA workforce of 55,000 too exorbitant a burden. Thanks to old-fashioned corporate lobbying, and the desire for profits trumping concern for security, commercial cargo on passenger flights today remains unscreened—more than two years after 9/11.
How qualified are we, then, to be the paragon of sanctimony? If anything, the terrorists are probably learning from our example that being the richest country in the world is pointless if priorities are not in order. There are limits to power as there are limits to wealth. The old adage says money cannot buy happiness. Apparently, money cannot buy much of anything when it is not spent on the right things, as when it is hoarded to enrich private coffers instead of expended to promote the greater good.
Before we deign to teach others any lessons, we should realise we have a great deal to learn ourselves.