Opinion: Daily Journal

On Spending Other People’s Money

RALEIGH – The phrase “Other People’s Money” has given us the title of a pretty funny Danny DeVito film and a slew of late-night television “specials” urging viewers to learn how to buy real estate with no money down. Its most pernicious use, however, is in the public policy debate as a way to obscure what’s really going on with government finances.

I used to think it was strictly the fiscal-conservative version of an urban myth, but then I actually heard people say that “we” shouldn’t have to pay for a certain program, the “government” should. There really are millions of voters who believe that if a politician promises them a “free” good, it won’t cost them anything. Their misapprehension is helped along by such devices as income-tax withholding, which makes some welcome as good news the prospect of a tax refund (it’s really evidence that you have made an interest-free loan to the tax collector), and retail sales taxes, which keep taxpayers from realizing how much government costs them over the course of a year.

Other iterations of the OPM myth pervade state political debates. For example, there is a major move afoot in Raleigh right now to convince state lawmakers to put some costly bond issues on the November ballot. Water and sewer needs will cost North Carolina localities $7 billion in just the next half-decade, the argument goes, and “they” can’t afford it all. “State government” should pick up at least $1 billion of the cost in a new statewide bond.

Of course, North Carolinians liable for state taxes are also liable for county and usually for municipal taxes, too. They aren’t different groups of people. If what water-bond supporters really mean is that Charlotteans and Ashevillians and Wilmingtonians ought to pay for their own water as well as the water used by people in Kinston and Murfreesboro, they should just say so. And it might be wise not to mention what has happened to previous statewide bond issues predicated on similar assumptions.

Along the same lines, for some of its advocates the Leandro litigation was about making “the state” pay for educational offerings that local communities – be they rural counties in the East or West or urban counties beset by high costs and inner-city troubles – could not and should not have to afford on their own. I’ve always wondered what this was supposed to mean in practice. Is there a category of North Carolina suburban counties whose residents can obviously afford to pay for their own schools as well as the schools of city and countryside? Does that category include suburbanizing counties such as Union, Cabarrus, Davidson, and Johnston? If not, which ones?

The OPM problem isn’t limited to issues of on-budget expenditure. Millions of people believe that their employers “give” them health care coverage, so if current changes in tax and regulatory policy result in more individual ownership of health plans and savings accounts, they won’t be “given” their health coverage anymore. This is poppycock. Take it from an employer who knows: the dollars paid to workers in the form of health benefits are simply part of the total cost of compensating those workers. Perhaps workers rationally prefer to receive non-wage benefits rather than cash – either because of the tax advantages or the presumed comparative advantage of employers as bulk purchasers of insurance products – but that doesn’t change the fact that benefits and cash are substitutes.

That is, employers do not buy health insurance and “give” it to workers. They resell the insurance to the workers in exchange for the workers’ productive output.

Beware of those who promise you can gain some benefit or advantage by the costless expropriation of “Other People’s Money.” The “others” to whom they refer include, well, you.

Hood is president of the John Locke Foundation.