The Obama Democrats' stealth strategy for increasing the size and scope of the federal government is well underway, despite huge voter backlash. Federal spending has been increased from a 30-year average of 21 percent of gross domestic product to 25 percent, and a bipartisan commission tasked with reducing the deficit may recommend tax increases.
Presidential economic adviser Paul Volcker has already called for a value-added tax, a form of national sales tax, and presidential press secretary Robert Gibbs has declined to rule it out.
The assumption in some quarters is that a tax increase is inevitable and that the public won't allow any significant decrease in public spending. But there's reason to question that assumption.
Spending cuts have proved politically sustainable in other advanced countries. Economist Tyler Cowen, writing in The New York Times, notes that in the last two decades Canada, Sweden and Finland all cut government spending 20 percent within a few years when faced with structural budget deficits. It may have been painful, but no one saw starving people in the streets of Ottawa, Stockholm or Helsinki.
We may also be seeing some examples in American states. The focus in Washington has been on the federal budget deficit, but state and local government spending amounts to more than 10 percent of gross domestic product and grew faster than the economy over the last decade.
When revenues crashed, congressional Democrats sent one-third of the money in their $862 billion February 2009 stimulus package to state and local governments. The stated reason was to prevent interruption of services.
The political motive was to maintain existing state and local payrolls -- while the private sector has shed 8 million jobs, the public sector has shed zero -- and to keep the dues money flowing to the public employee unions that were so generous to Democrats in the 2008 election cycle.
But that was onetime relief. As New York's Democratic Lt. Gov. Richard Ravitch notes, "The stimulus package just raised higher the cliff from which we all will have to jump off." Revenues continue to lag beneath the trajectory of spending. Improvident pension promises are coming due. Crunch time is arriving sooner in the states than in Washington.
Some states and localities have responded by raising taxes. But the two governors elected in November 2009 have not.
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