John Edward teaches economics at Bentley and UMass Lowell. He’s a frequent contributor of columns on economic issues. Here is his latest:
In this present crisis, government is not the solution to our problem; government is the problem.
Former President Ronald Reagan in his first inaugural address
I disagree. Bad government is the problem. Good government is the solution.
Therefore, less government is not what we need. Except, when it is what we need.
This column is about government trying to do too much. Good government can help improve the economy. An overreaching government will most likely make things worse.
Governments must intervene in the economy when there is a compelling state interest or a basic human need. There should also be a rational basis for action (more on that concept next month). Otherwise, governments run the risk of overreaching.
Here are instances of government overreach at the federal, state, and local levels.
Internal Revenue Service tax form 1040 is a great example of an overreaching federal government. There are thirteen lines with adjustments to gross income. Many require filing a separate form. There are seven lines for tax credits. Each line requires attaching another form. Schedule A has thirty lines for itemizing deductions. Extra forms may be required. Schedule D adds complexity so the government can give out a tax break for capital gains.
In 1913, when the Federal government introduced a tax on income, the tax code was about 400 pages long. Now it is about 75,000 pages.
The government makes the filing process complex for a simple reason. They are trying to use taxes as an incentive to manipulate our behavior. Every Incentive is a Disincentive and many tax incentives are government overreach. They are most effective in helping the wealthy avoid taxes and accountants and lawyers make money.
The Supreme Court of the United States gave states power to overreach by striking down provisions of the Voting Rights Act. Under the premise of preventing voter fraud, without substantial evidence of fraud, some states are making it more difficult for low-income earners and minorities to vote.
The state of Massachusetts is overreaching by legalizing casino gambling. If you live in Greater Lowell, and your state legislator supported casinos, you should ask them the following question: why did you support a bill that will destroy jobs in your district?
A dollar spent at a casino is a dollar not spent somewhere else. At least one casino will be close enough to reduce spending at Lowell area convenience stores, entertainment venues, restaurants, and other retail employers.
The Commonwealth of Massachusetts is overreaching because casino gambling imposes an extremely regressive tax. Do not let anyone fool you – lottery and casino revenue is taxation. Participation may be voluntary (albeit addictive), but so are many purchases for which sales and excise taxes apply.
In the case of Kelo v. City of New London, the Supreme Court showed a lack of judicial restraint by giving local government power to overreach.
The court ruled that local officials could earmark private property for “economic development” under eminent domain. Prior to this decision, eminent domain was restricted to cases where there was a “public use.” Now public use may include private development projects that a city deems preferable to the current use of the property. A town might force the owner of a boarding house to sell out to a developer putting in a “lifestyle” shopping center because the jobs and tax revenue constitute a public use.
Cities and towns in Massachusetts overreach by enforcing exclusionary zoning rules that restrict how private property owners can use their land. For example, Chelmsford has zoned only two percent of land area for multi-family housing. It is understandable that municipalities want to control growth. In Massachusetts, cities and towns can set almost whatever rules they want to prevent whatever they do not want.
A Boston Business Journal article referred to such rules as “Economic death by restrictive zoning.” A recent Harvard University study found exclusionary zoning had a negative impact on minorities. A prior Harvard study concluded: “zoning and other land use controls play the dominant role in making housing expensive.”
Critics say Chapter 40B, the state’s affordable housing law, is overreach because it allows developers to skirt local control. Chapter 40B was created and is still necessary because of local governments overreaching with exclusionary zoning and a “not in my back yard” attitude to affordable housing.
These and many other examples of government overreach have something in common — they make an excessively unequal society even more unequal.
The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.
– President Barack Obama in a recent speech on economic mobility
In cases of government overreach, we need less government. However, to address the fundamental threat of inequality, we need better government.
If a free society cannot help the many who are poor, it cannot save the few who are rich.
– Former President John F. Kennedy in his inaugural address
Government can help the poor and save the rich without overreaching. Indeed, that is the present crisis, and contrary to former President Reagan, we need good government to resolve it.
I will discuss how we can achieve that goal in an upcoming column. Leading up to that, my next column will examine the rational basis for government action in times and instances of economic need.