Government Waste or Smart Investment: You Decide

(The following is written and submitted for publication on LeftWingCapitalist by Guy Heston.)

My friends on the right often argue that liberals such as myself are hopelessly misguided taxers and spenders who will brazenly throw around public money like a drunken sailor. For examples of this argument, please see the Howard Jarvis TaxpayersAssociation website (http://hjta.org/) on which so many postings seem to rant and rave apoplectically about needless expenses from the public purse and overall government waste.

I suggest that in our eagerness to get all lathered up about waste we often don’t recognize the difference between an expense and an investment, and here are a couple of examples.

Let’s start with the Internal Revenue Service (IRS),
the mere mention of which can raise hackles, especially for folks like former New York Republican Congressman Michael Grimm, who resigned effective January 5, 2015, (http://www.cnn.com/2014/12/29/politics/michael-grimm-to-resign-soon/) after pleading guilty to one count of aiding in the filing of a false tax return, a decision House Speaker John Boehner promptly called “honorable.” I suppose that’s one way of looking at it. 

According to the New York Times (http://www.nytimes.com/2015/01/15/business/irs-taxpayer-advocate-service-report.html?ref=business), Nina E. Olson of the Taxpayer Advocate Service, an independent office within the IRS, warned that during the current tax season the agency may answer no more than 43% of the 100 million phone calls expected from taxpayers who have questions about what they owe. As a courtesy, the IRS is said to have said, its phone system will automatically hang up on taxpayers if there are too many people on hold, I guess so you can go have a glass of wine or something, calm down and try again later. If you don’t get hung up upon, Ms. Olson reportedly said, you can expect a 30-minute wait on hold. Hopefully there will be nice music on hold while you wait, maybe some Willie Nelson, who famously had assets seized by the IRS in 1990.

Is the IRS hangup on taxpayers saga (I think we should call it IRShangupgate) another example of ridiculous government inefficiency? Not really. According to the Times, the IRS budget has been cut by 17% in the last four years and its workforce reduced by 12,000. I would call the IRS to verify this information but I don’t want to tie up one of its phone lines. Seventeen percent of budget and 12,000 staff is certainly an expense and workforce reduction conservatives and some annoyed taxpayers can get excited about, but here is the problem:  It is estimated that each $1 spent on IRS enforcement results in $6 of additional tax revenue (http://www.cbpp.org/cms/?fa=view&id=4156). Another way of putting this is at least to a certain point for each dollar cut from IRS enforcement the public purse loses $6 in revenue. I mean if no one answers the IRS phone or the IRS courteously hangs up there will no doubt be certain taxpayers who will figure who’s minding the mint and under-report their taxes a-la former Representative Grimm. I prefer to think of adequate IRS staffing as an investment not an expense.

Now let’s turn to higher education, a second area that can be viewed as an expense or an investment. President Obama has proposed free community college to students who maintain a 2.5 grade point average and make steady progress toward degree completion. Not surprisingly, many conservatives have balked at the idea because it would supposedly cost about $60 billion over the next ten years. Here (http://thefederalist.com/2015/01/14/ten-quick-reasons-free-community-college-is-a-rotten-idea/) is a hilarious example of the viral hissy fit that has followed the President’s idea. OK, $60 billion can certainly be looked at as an expense. But my question is if we instead look at it as an investment, then what is the return on that investment? Study after study has shown (http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/) that college graduates will earn significantly more and, yes, pay significantly more taxes, the total of which significantly exceeds the cost of their higher education. More importantly, college graduation rates have a great deal to do with keeping the United States competitive in the world economy and are the tickets to a better economic life for millions of Americans. 

In my home state, the people of California have invested billions upon billions of taxpayer dollars into higher education and we have a lot to show for our investment. Five percent of all university graduates in the U.S. graduated from one of the 23 campuses of The California State University (CSU). In California, more than half of the bachelors degrees in agriculture, business,dietetics/nutrition, hospitality, digital communications, criminal justice and social work are from the CSU (http://www.calstate.edu/impact/workforce/education.html).   There are reasons why Google, Apple, etc. are headquartered in California, not the least of which is the availability of a highly educated work force. (Full disclosure: I am the past president of the CSU Alumni Council [a volunteer, non-paid gig] but writing this as a private citizen.)

We can certainly undertake efforts to make the IRS and our universities and colleges more efficient, but the real question is what is the return on investment in these institutions?  If you just want to cut expenses, well go ahead and lay off tax agents, trim the university faculty, deny admission to qualified students and so on. The short term expense reduction results may look promising, but be careful about the long term. When the heavy rain begins to fall, you are always glad you invested in the new roof over your house.