This week’s “Daily Journal” guest columnist is Joseph Coletti, Fiscal Policy Analyst for the John Locke Foundation.
The average North Carolinian who works 2,000 hours spends 210 of them, more than five weeks, to pay state and local taxes. She works another 397 hours, 10 more weeks, to pay federal taxes. In all, 30 percent of her work pays for some government entity.
Why should she work longer to pay for government than for food and shelter? Consider this parable by Milton Friedman.
If you spend your own money on yourself, you are very concerned about how much is spent and how it is spent.
If you spend your own money on someone else, you are still very much concerned about how much is spent, but somewhat less concerned about how it is spent.
If you spend someone else’s money on yourself, you are not too concerned about how much is spent, but you are very concerned about how it is spent.
However, if you spend someone else’s money on someone else, you are not very concerned about how much is spent, or how it is spent.
Our worker spends her own money on herself when she buys food and pays her rent or mortgage. Governments spend someone else’s money on someone else. (As an aside, the problem with health care is that patients spend someone else’s money on themselves.)
Taxpayers are to lawmakers as parents are to the rich kids you remember from high school or college – a never-ending supply of money.
Lawmakers won the tax revenue lottery last year, with $1.1 billion in unexpected tax collections. They decided to use $252 million to fund new programs. That this continues a 22-year pattern does not excuse it. Strong economic growth yields higher tax revenues, and lawmakers take the higher revenues as a license to make new commitments. When the economy slows and revenues fall, lawmakers respond by raising taxes.
As with the spoiled rich kid, however, the real problem is not the availability of money but how the money is used. Paris Hilton could have started a charity like Warren Buffett’s children, but then she would not get $1 million to say nice things about Austria. If the General Assembly cut back on spending, they might lose the chance to see teapots and Tall Ships.
Unfortunately, there are no real limits on what state government can spend and not enough auditors to track how the money is spent. The Department of Public Instruction is a $7.7 billion operation with only one internal auditor. The Division of Medical Assistance oversees a $9 billion Medicaid program with two internal auditors. This does not inspire confidence when as much as 30 percent of Medicaid spending has no positive value.
Even if Medicaid did not spend its money wastefully, its very existence means fewer people purchase insurance. Some employees and employers decide insurance is not worth the price. Others decide that their children need health coverage more than they need coverage themselves, and that coverage is available through another government program. For one reason or another, 32 percent of North Carolinians under the age of 65 in 2004 either had their health care funded by the government (20 percent) or lived without insurance (12 percent).
Medicaid pays for 75 percent of nursing home beds but only 50 percent of nursing home costs. Medicaid promises better benefits than the state employee health plan and most private insurance plans, including dental and eye care. Federal law limits Medicaid co-pays to $3.
When Michigan tried to enforce prescription co-pays, the state lost in court. Medicaid sounds like an ideal program, but lawmakers do face budget constraints. They meet them by freezing the amount they pay doctors, so fewer doctors are willing to treat Medicaid patients, and by limiting the number of prescriptions a patient can receive. All of these problems lead advocates to argue that the government needs to spend even more money on Medicaid and to market it more to those who are not enrolled.
This is the basic pattern for government programs. Government spending pre-empts private spending. This leads people to make different decisions than they would on their own and, in some cases, to accept worse quality than they could otherwise receive. Low quality leads to calls for more government spending, which lawmakers are glad to provide, because they are spending “someone else’s money on someone else.” All of this spending leaves each person in the state with less of her own money to spend for herself.