The pan-partisan "debt, debt, and more debt" plan

Posted: Jul 16, 2006 12:00 AM

In a small county in a far corner of this great land of ours, a local politician is doing something not unheard of. He's running as an Independent. In classic American style, he held his required petition convention in the parking lot of a local store on the main highway, and gave away hot dogs and soda pop. He got on the ballot, and is running unopposed.

But why run as an Independent? Why not a Democrat or Republican?

He gets that question a lot. He has a simple answer: "At the county level, what's the difference between a Republican and a Democrat?"

He has a point. He has a point even without that "county level" proviso. But at the local level, he's doubly right. What's the difference? Not much.

Politicians of both parties like to spend. Both like to increase taxes. Both want to "do more things." It's gone out of style to just keep the old services going; the general consensus seems to be: progress. By which they mean: debt.

Yes. Debt. I said it. The four-letter word of politics. And according to a new study by Cato Institute tax scholar Chris Edwards, local government debt has been increasing right along with federal debt. It had been stable in the '90s. It isn't now. Edwards has a nice little graph. I needn't duplicate it, though, because the shape is so familiar: it just slopes upwards and to the right.

The report is short and to the point, worth looking up on the Cato website. Entitled "State and Local Government Debt Is Soaring," it explains — with brevity worth a bravo or two — how and why local debt has increased so much. And Edwards is quite helpful. If you've been wondering what the differences are between the main forms of public bonds, Edwards pithily expounds those for you in just a few paragraphs.

But I bet most of us can guess (without reading any report) some of the whys of local government debt growth.

First off, of course, there's the federal government. Our magnificent partisans in Congress, and putative non-partisans in the vast bureaucracies, work hard to make it easier for local governments to go further into debt. Our general tax policies, for instance, encourage government ownership of big projects over private ownership. How? By taxing the latter but not the former. This was once considered something of a problem, but Edwards has noticed a shift:

The tax advantage for municipal bonds also creates an incentive for private groups to lobby government officials to issue debt on their behalf. In 1986, Congress tried to clamp down on this problem by imposing limits on the issuance of tax-exempt "private activity bonds." But in a series of tax bills since then, Congress has reversed course and embraced economic micromanagement by creating additional types of tax-favored private purpose debt.

Nearly a quarter of all public debt, the Bureau of the Census tells us, is "public debt for private purposes."

And then there are the helpful moneylenders, whose industry journal The Bond Buyer is, as Edwards puts it, "full of stories on the latest Wall Street methods to help officials put their jurisdictions into debt." Why? They collect the interest. Taxpayers pay it.

There are many reasons to oppose accumulating debt. Reason Numero Uno? It's usually just another way of imposing taxation . . . just shifting the burden of payment into the future. As Edwards puts it, it only seems to "make sense for governments to finance capital projects with debt, as private businesses often do. But in practice, when politicians are given the power to issue debt, they have an incentive to issue far too much because it allows spending without the political constraint of having to tax current voters."

Further, as anyone struggling to pay off three or four credit cards knows, just keeping up with payments makes budgeting more painful than usual, as huge chunks of one's income (revenue) get soaked up in debt maintenance. Why anyone would encourage local and state governments to increase their debt is beyond me. And yet, debt has gone up in most states, in most localities.

But not all. As Edward points out, "[g]overnments in a few states, such as Idaho and Wyoming, issue very little debt and seem to do just fine."

So it is possible to restrain the politicians. It has been done, and done successfully.

Indeed, to do just that — and more — citizens in a number of states with the initiative process are this season advancing Stop OverSpending measures designed to control government growth, including the growth of debt.

The key to success is, first, not to accept at face value promises made by politicians. Of any party. Or none. (After all, the candidate I mentioned at top, he's not running as an Independent to oppose bi-partisan betrayals; he's just figured out that he doesn't have to belong to a party to do what they do!) Politicians will betray us whenever they can get away with it.

We need teeth to bite back when they do.

And those teeth must bite at politicians of both major parties as well as those who proudly proclaim independence . . . and then go about increasing our dependence on government.

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