Taxpayers’ revolt: Are constitutional limits desirable? (1978) | ARCHIVES


Announcer: From the nation’s capital, the
American Enterprise Institute for Public Policy Research presents public policy forums, a
series of programs featuring the nation’s top authorities presenting their differing
views on the vital issues which confront us. Today’s topic, Taxpayers’ Revolt, are Constitutional
Limits Desirable? Peter Hackes: Hardly a day goes by that there isn’t
something new to report on what some are calling the story of the year, the taxpayers’ revolt. It began of course, when the people of California
approved Proposition 13, which cut back their property taxes. Since then, taxpayer groups in many other
states have developed similar programs to roll back taxes and to limit spending by state
and local governments. In Congress, one effect of Proposition 13
has been efforts to cut many of the money bills under consideration along with proposals
in both the house and in the Senate for a constitutional amendment to limit federal
taxation and federal spending. Some of those proposals would also limit taxing
and spending by state and local governments. The overall effect of such an approach is
still unclear. What kinds of public services, for example,
should be cut under the mandate of this taxpayer’s revolt? Who gets hurt most when spending is limited? How far will this tax revolt fever go? What effect will it have on the nation’s economic
performance, such things as inflation, gross national product, and the cost of living? Welcome to another public policy forum presented
by AEI, the American Enterprise Institute, a nonprofit nonpartisan research and education
organization. Our roundtable discussion will consider the
topic Taxpayers Revolt, are Constitutional Limits Desirable? Appearing on the panel are Lee Alexander,
Mayor of Syracuse, New York since 1970. Mayor Alexander is past president of the U.S.
Conference of Mayors. He is chairman of the Community Development
Committee of the National League of Cities. Mayor Alexander helped prepare President Carter’s
urban policy statement. Robert Bork, Chancellor Kent, professor of
law and legal history at Yale University. He is an adjunct scholar of the American Enterprise
Institute. Professor Bork served as Solicitor General
of the United States from 1973 to 1977. He is currently chairman of the Advisory Council
of AEI’s legal policy studies. Richard Headlee, chairman of the organization
called Taxpayers United for Tax Limitation. It’s a Michigan group promoting a state constitutional
freezing state and local taxes and limiting state spending. Mr. Headlee served on the advisory board of
the Small Business Administration in 1970. Carl Holman, president of the National Urban
Coalition. Mr. Holman has served as a member of the Council
on Human Relations in Atlanta and on the board of directors of the National Committee for
the Support of Public Schools. As head of the Urban Coalition, Mr. Holman
spearheaded a proposal to reform the federal budgetary process. John Charles Daly will moderate the roundtable
discussion. Mr. Daley is a former news corresponded, a
news commentator for CBS and ABC News. He served as vice president of the ABC network
and once headed the Voice of America. Now here is Mr. Daly. John Charles Daly: This public policy forum, part of a
series presented by the American Enterprise Institute is concerned with government spending
and taxation and a broad pattern of campaigns throughout the nation to limit that spending. Our subject, Taxpayers’ Revolt, are Constitutional
Limits Desirable? This is the year of a new rising by the people
of America against their government and the shot heard around the world this time is Proposition
13, the Jarvis-Gann amendment to the California constitution by which some 65% of the voters
of that state slashed property taxes by some 60%. The phrase makers are calling it the great
tax revolt of 1978. Now, clearly what had seemed a series of isolated
local actions, New Jersey and Tennessee had voted to limit annual increases in state spending. Voters in Ohio and the cities and towns of
Ohio rejected well over half the school financing measures on the ballots. In Massachusetts, Michigan, Idaho, Utah, Oregon
in 19 states altogether, campaigns to cut specific taxes or limit annual increases or
just limit government expenditures taken together with the overwhelming success of Proposition
13 sounded a clear warning of a nationwide tax revolt calling the citizenry to the barricades. In Washington, Kansas Senator Dole introduced
in the Senate a proposed constitutional amendment to mandate a balanced federal budget each
year. Twenty-three state legislatures have called
for a constitutional convention, need action by only 11 more states to achieve it. Taking another route, New York’s congressman,
Jack Kemp and Delaware’s Senator William Roth dropped in the congressional hoppers, a bill
to cut federal income taxes by 30% over three years and that would be regardless of the
impact on the budget. An Associated Press NBC poll at mid-year sampled
public opinion on a constitutional amendment to cut federal, state and local tax collections
and to limit future taxes. And 67% favored and amendment only 20% were
opposed. In recent days, Walter Heller, the chairman
of the Council of Economic Advisors from 1961 to 1964, issued a warning to the national
conference of state legislatures. “Don’t put your heads in the sand.” He said, “Something is going to happen.” Mr. Headlee you have led with substantial
success a campaign in Michigan to put limitations on state spending, and what is your program,
and why is it a good program? Richard Headlee: Well, John, let me start off with
why it’s a good program. In the last 10 years, spending in the state
of Michigan has gone up 235% of while the gross personal income in the state has gone
up 140%. The number of state employees has gone up
50.3% while the population has grown 6.7%. Government is out of control, spending’s out
of control, and we feel that we have most have a comprehensive approach to tax limitations,
so we have proposed a constitutional amendment which will control all forms of taxation and
spending in the state of Michigan limiting state spending to its current share of the
gross personal income and the economic pie. The second thing we’ve done is we’ve stabilized
property taxes at their current level and indexed them to the consumer price index of
the U.S. Department of Labor. The third thing we’ve done was really grates
the legislature. We insist that all state-mandated costs be
paid for by the legislators, and that’s gonna stop a lot of meddling from the state to local
government. Hopefully we can do the same thing federally,
someday. John Charles Daly: Fine. Mr. Holman as the president of the National
Urban Coalition focusing on the survival and the success of the American city. Do you see the present actions as an angry
warning to governments to clean house and shape up, or do you see it as a long-term
movement which bodes ill for public services and cities and particularly threatened services
to the disadvantaged? M. Carl Holman: Oh, it certainly is a warning and it’s
being seen as such by politicians who were scuttling for cover all over. And I think that it does have a real possibility
of some long-term ramifications if only because it demonstrates that you can take what is
essentially a class interest move of the kind that’s involved in terms of what the homeowners. We’re trying to do them right. We’re trying to do…They’re in a state which
had enormous, enormously high taxes, an effective system of collecting those taxes. And they had very zealous and effective leadership. I think it’s going to, in other states, it
may not be quite the tidal wave that people had thought were going to get a lot of litigation
and we’re gonna get some people will begin to find that you can, for example, do some
of the things in the cities we’re talking about doing. If in the course of this reform move you find
yourself as we saw in California, a new class of police recruits who were sworn in and then
told they had no jobs. They were made up largely of women, of blacks,
and of Chicanos. And so, I expect to see this movement move
across the country, but I’m not so sure that it’s going to move with quite the ease that
it moves in a state where you’re had up a surplus of $5 billion. John Charles Daly: All right. Mr. Bork, as a former Solicitor General of
the United States, the federal government’s advocate before the United States Supreme
Court. What of the constitutionality of limitations
on spending and taxation? I believe five challenges against Proposition
13 in California have already been lodged in the California Supreme Court. Robert Bork: There may be a reason to question
the constitutionality of Proposition 13 in a variety of ways. There would be less reason to question the
constitutionality say at the federal level of a well-drafted constitutional amendment. I think from a constitutional lawyer’s point
of view, the interesting aspect of this movement to limit taxes by constitutional amendment
is that it necessarily rests on the idea which is quite widespread now that the processes
of representative democracy do not work adequately and that they do not work adequately in the
most basic areas of government that is taxing and spending. And that’s quite a statement about our basic
democratic idea in this country that it isn’t working adequately and it isn’t adequately
working in many areas besides taxing and spending hence the fundamental idea of a constitution
is to cure those areas where democracy does not work well. That is why this movement at this time. John Charles Daly: All right, Mayor Alexander, you are
a past president of the U.S. Conference of Mayors and as one who is potentially in the
middle of the current maelstrom as the elected mayor of Syracuse, New York right now, do
you agree with Walter Heller that something is going to happen, and if so, what? Lee Alexander: Yeah, something will happen. I don’t know what I don’t. I’m not sure anyone really does know or will
know until the dust settles in California because as my friend on my left, my extreme
left said that very well. There were unique circumstances in California,
some $5 or $6 billion in surplus and escalation in the property tax, property taxes soared
over the few years just before this and the legislature had the outrageous nerve to continue
collecting taxes with this enormous surplus. That’s the perception of the public. But I must disagree politely with Mr. Bork
when he says this means that they’re dissatisfied with representative democracy, because I think
the public was limited to just local government. If they could file a Proposition 13 against
the income tax, which they do not have the right to do, they probably wouldn’t do that. This was their only avenue, the only one that
they could address themselves to, but I think it means more. I think that Proposition 13 is a clarion call
for tax reform. In about eight hours of voting in California,
a new ice age descended on us and we’re seeing the dinosaurs go into the swamp. And I think those of us who do not heed that
message will probably wind up in the swamp with them. But until this country stops expecting cities
to act like nations, and that’s what cities do, and all the industrial nations of this
world, America ranks foremost at the top of the list of those nations who expect local
government to deliver health, education and welfare services. In most of the industrial nations of this
world, those functions are handled by the federal government. I think what the California taxpayers are
saying to me, and this is backed up by a Harris poll that was taken recently. It’s a call for tax reform, that the taxes
in this country should be collected from those who have the ability to pay. And that means the income tax, not the property
tax. That means taxes that expand when inflation
hits the economy, not the property tax, which afflicts everyone, regardless of their ability
to pay. Richard Headlee: First of all, the fact that the people
who had the ability to pay should pay. You know, 93% of the taxes now are paid by
50% of the people. The bottom 50% of the people only pay 7% of
the taxes. So that theory is really now why people are
upset, the people that have set with all forms of taxation, not just the income tax, it’s
just the deluge of the number of taxes that they lay off on people. They’re not getting ahead and now they’ve
got the 7% inflation tax generated by 20 or 30 years of excess is at the federal level
incorrect monetary policy. So you’ve got all the income taxes, property
taxes, gas taxes, booze taxes, cigarette taxes, local taxes, state taxes, federal taxes, and
the 7% inflation tax. 42% of the money now goes to the government
that we work until somewhere between… John Charles Daly: Which government? Richard Headlee: All forms of government, somewhere
between, depending on who you’re talking to, somewhere between May 9th and May 29th, we
worked for the government every year. People don’t understand that, and they don’t
feel like things are getting any better. And I think we have to recognize that it’s
not just a case of another reform was that people recognize is another tax increase shifting
it, for example, to business. Well, you know, business doesn’t pay any taxes,
John. Business collects taxes for the government. People pay all the taxes. You raise the tax on Ford Motor Company. Henry doesn’t pay a dime of it. It goes to the guy that buys the next Ford,
the next Lincoln. So don’t talk to me about tax reform. Talk to me about tax restraint and getting
a handle on government. It’s out of control, and the people want it
under control. Jarvis-Gann is not the way to get a government
under control. It’s a way to dislocate services. It’s a radical or rational approach to a very
serious problem. We need to control all forms of taxation. We don’t need to shift it from property to
income to something else. We need tax restraint and overall control
of government because… John Charles Daly: That’s good. You honor, you’re next. Lee Alexander: In defense of your position, you’re right
when you say that people are annoyed with taxation. But what they did in California was to use
a meat axe. What they should have used as a scalpel. As far as this country being so taxed so heavily,
let me give you some statistics. Of all the industrial nations, the United
States is one of the lowest in terms of taxes in relationship to the gross national product. United States pays 28% of the gross national
product collects and taxes. Other countries such as Austria, 37%, Belgium,
37%, 44%, Denmark, France, 37%. All of these countries have much heavier taxes
then does America. What we have wrong here is a tax structure
that’s inequitable. We have developed very sophisticated taxing
formulas. For example, at the federal level in the community
development area, we’ll count poverty, we’ll count population, we’ll count growth of housing,
we’ll count the average rate of increase of a property values in the past five years. We have developed sophisticated formulas,
but not in the property tax. We have one simple measure, what’s the market
value, and we take a percentage of that without regard to the fact that the people living
in that house, may not be able to pay that kind of tax. And I think what the people in California
did was to target right in on the property tax because it’s the most regressive and it’s
the most equitable. Now, look, we’ve had a property cap, a cap
on property taxes in New York State since the 19th century. And I live with it. My cap is 2% of the average five-year evaluation
of property at its full market value. I think a cap is in order. I think one percent is much too low. I think that sales tax is a good example. A person can consume only so much. So person earning $100,000 a year pays no
more tax possibly than a person earning 25% because he can only consume so much. So that’s an unfair tax. The property tax is regressive, and they’ve
struck that down. Now the Harris poll shows that the public
as far as, whether you believe the poll or not, the poll says that it’s a call for tax
reform and I think it’s just that. Other states have put caps on expenditures
rather than on rate of tax as New York has done on levies. They’re trying to control it from the expenditure
side. But look in my city, which is just a city
of 200,000, 15% of my budget goes to the police department, if I were to take a referendum,
they’d say, cut not one dime out of the police department. The other 15% goes for the fire department. Not one dime would be cut from the fire department. That’s 30%. The other 10% goes to picking up the garbage
and taking care of the roads, that’s 40%. Then 20% goes to employee benefits. Now you have 40%, 60% of my budget covered
there. I turn over 90% of my property tax, which
is about $35 million a year. I turned 90% of it over to the board of education. I keep a few million dollars for the operation
of the city. So I don’t think the property tax should be
expected to deliver education or health as it presently is our welfare. Richard Headlee: I don’t disagree with that. What I’m saying is that… Lee Alexander: Transfer that burden from us, but we
wouldn’t have to tax as much. We could cut our taxes. Richard Headlee: What I’m seeing is that reform doesn’t
come first. Overall limitation comes first. Only so much of the gross personal income
of the people can go to taxations of all forms. John Charles Daly: Mr. Bork. Robert Bork: So I think what we’re concerned about
is the overall amount of the wealth of this society, which is consumed by government often
without any particular indication that is consumed wisely or well or to our benefit. And that’s why I think this movement has to
move on to an idea about an amendment to the federal constitution, United States Constitution
to limit the amount of federal spending that can take place, which would have effects upon
inflation and so forth. I don’t think it’s a problem of tax reform. I take it from your remarks that you think
there is something to taxing the rich, those able to pay. It turns out that if you tax the really rich,
you could probably buy three Martinis for every man, woman, and child in this country
and would have dissipated all of that wealth. There isn’t that much wealth there. Lee Alexander: Disagree. Robert Bork: All right. Unless by the rich you mean people making
more than $25,000 a year? Richard Headlee: We’re taxing the poor to pay for
the rich when we impose a property tax on people. John Charles Daly: Mr. Headlee as I understand your petition
which is successfully gained to place in the bed. You want to limit. You want to freeze all taxes at present levels. Richard Headlee: That’s correct. John Charles Daly: And freeze taxes at 9.7% of the total
personal income of the state of Michigan. Richard Headlee: Actually, it works out to about 9.2. Let me just show you a couple of charts here
for the panel and maybe the people out back can look at it later. Here’s, what’s been happening. Here’s the economic pie. Here’s the federal-local government share
that you mayor in that group, the green, this is the state government share and this is
the individual share here, the economic pie. What we’re saying, we want to freeze all state
taxation and spending to their current share of the economic pie, give them a stake in
economic growth, put them on a commission, call it what you want. As the economy grows within the state, the
state will have more dollars to work with, but they won’t be able to encroach on the
individual share of the economic pie without a vote of the people. If they wanna improve their shareh of the
economic pie, they can, but with a vote of people. In a year when there’s an emergency, the legislature
with a two-thirds majority can exceed their share of the economic pie for that specific
emergency for that specific year. M. Carl Holman: One of the interesting things about
all this is that when people talk about limitations, they’re asking for limitations which bring
to referendum and to a vote of the people a larger number of, for example, in California,
it will take a larger percentage of the population to vote taxes again than even Mr. Jarvis and
Gann were able to collect for what they’re doing, and I’m sure that Mr. Bork is absolutely
right when he says that people are unhappy about government. It does bother me a little when we say we
are so bothered about representative government and what representative government can do
just about the time a few of us started getting into representative government that we are
ready to start talking about constitutional amendments. I don’t mind constitutional amendments. All of us have our favorites. We’re for ERA. We probably wouldn’t be opposed to this one. But the whole notion of a constitutional convention
scares me to death and it scares me to death because all of the readings that have been
taken so far suggest that if a constitutional convention were called tomorrow, the Bill
of Rights would be one of the first things to go. I’m very much worried about people piggybacking
on their natural concern about what’s happening to them and taxes and then moving to a constitutional
convention, which opens itself up to some things which I think we haven’t adequately
gauged. Robert Bork: The clever thing to do would be to
head the state’s off by having two-thirds of each house of the Congress present a constitutional
amendment to the states and that doesn’t open anything up. All that does is put the specified amendment
before the states and there’s no chance. John Charles Daly: But also historically is it not true
Mr. solicitor general, there never has been a successful amendment put into the constitution
by the constitutional convention procedure, I don’t recall… Robert Bork: It’s very lengthy, very difficult,
very tricky. Richard Headlee: I hope it continues that way and
I hope we’re representative of government continues for longer. M. Carl Holman: No, I think representative government
audit continue, but a lot of do those things. It does well and I don’t mean to say that
I think there are structural defects. If you look at the city level, for example,
and ask what has happened to expenditures and one of the problems is the enormous strength
in some cities of government employee unions which control really essential services. They’re very hard to bargain with because
if they go out police, fire, garbage collection, everyday things you badly need are gone. Much more power in that sense than a private
union. Now on the other side, there’s a mayor with
very little incentive to fight them very hard. And in some cities I’m sure not in Syracuse,
but I can think of one, I can think of one in the same state rather larger than Syracuse. One of the things that was done was to say
to the mayor to say I won’t be here 10 years from now. I’ll either be in the White House or doing
something else. And one thing I can do is pay these folks
off with pension promises which will come due at a time when I’m not here. And then in San Francisco, as I recall, we
have $18,000 a year street sweepers. Well, you know, in some sense at that point,
representative government isn’t working terribly well. In the national level and at the state level
you have the problem of intense interest groups coupled with bureaucracies, segments of the
bureaucracies who have interest in these programs, who pressed for one program at a time. Each interest group has its interest. The rest of us are kind of generally unhappy
about the growth of spending, but we can’t focus on any one particular program and so
we keep losing and the overall adds up to a total that none of us want. And in that sense, there are structural defects
in representative democracy that a constitutional amendment saying the pie for the government
is that big. Now, representatives sit down and whack it
up and make up your priorities. That is a cure for the structural defects
in what’s taking place now. John Charles Daly: Mr. Jarvis has given a thumbnail description
of why he launched what he himself admits is an imperfect vehicle 13. He says, “The only way to cut government spending
is not to give them the money in the first place.” Now that is a general structure that you’re
talking about when you restrict the amount. Richard Headlee: I think that’s right. You see, there’s been a lot of dialogue about
sunset laws and zero-based budgeting, but nobody can show us an example of where it’s
worked in the public sector. Why? Because you’d never defined their share of
the economic pie. Once you’ve defined it, then sunset laws and
zero-based budgeting, which this President we would like dearly to do, will then work,
but they won’t work when there’s an unlimited supply of money. It just won’t happen. Lee Alexander: Well, there’s not an unlimited supply
of money at the local level of government. And unfortunately, the property tax, meat-axe
approach that the Jarvis Amendment represents to me and to many of us here is the wrong
way to go about it. Richard Headlee: I agree with that, Mayor. Lee Alexander: We need police and fire protection. The federal government only pays about 8%
of the cost of educating our young people in this country. That’s outrageous. We in New York pay 50% of the cost of welfare,
25% from the state, 25% for local units of government, but this business of caps is not
new. In 1974, the ACIR made a study of various
states and they found that… John Charles Daly: ACIR being? Lee Alexander: The Committee on Intergovernmental Relations
studied the situation and found that all the 12 states in the union have caps in one form
or another, restraints. I would say probably most of them are on the
rate or the levy as opposed to the expenditure. I need so much to run my city. There is a set limit. Now my city is the only city in New York State
that’s been run the black each and every year. But I’ve done it by being a fierce advocate
of federal and state sources of revenue. But when you cut state budgets, let me remind
you that every dollar of revenues received from outside the local unit of government. Eighty cents of it comes from the state and
only 20% comes from the national…twenty cents comes from the national government. We collect four times as much for the state
as we do from the federal government. I give 45% of the Board of Education and chief
fiscal officer for the Board of Education, 45% of my total available funds, and as I
said before, and another way, 90% of all the property taxes I collect goes to the Board
of Education. Now there isn’t one person that would say
they wanna reduce their demands. Let’s back into it from the other way. Is Proposition 13 main that the California
residents are saying that they want less services? I don’t think that’s necessarily true. Not when there is a $6 or $5 or $7 billion
surplus overhanging the issue, not when they’re angered by the soaring property tax increases. Property taxes increased from 1973 to 1976
in Californiam from $6 billion to $12 billion an outrageous, astronomical amount of money. You know, when they have that kind of a surplus. Now I’m not beating up the California legislators,
the public that that in California, not me, but it isn’t fair to take that information
and translate it into what anyone wants it to mean and say it means very simply people
want restraint on spending. Let me ask the question this way. Are they prepared to restrain their demands
for police and fire protection or education? Richard Headlee: Can I just answer since…can I answer
this question just a minute? Robert Bork: Do I get my chance on it? John Charles Daly: You’ll come right after. Robert Bork: Well, first of all, Mayor, understand
our proposal is to stabilize property taxes are where they are today and allow them to
grow as a consumer price index and the U.S. Department of Labor grows, which means you
can pay salary increases t schoolteachers, firemen and policemen. We don’t believe that local services were
really people wanna pay the price. We don’t think that’s where their real gripe
is. Even though the lightening rod may be property
taxes because it comes in one bite twice a year or twice a year in bites you see. So understand our proposal has nothing to
do with this Jarvis-Gann approach. It stabilizes property taxes where they are
now, allows them to grow with the consumer price index. Secondly, we are not cutting state spending. We’re saying, “Here’s your share of the economic
pie. Now you define within that economic pie what’s
your priorities are.” And through zero-based budgeting, sunset laws,
fund new programs, expand current programs. Now we’re $800 billion dollars in debt, fast
on our way to a trillion dollars in debt. The deficit interest each year is $50 billion. That was all generated and now it’s kicking
back to us a 7% tax. That was all generated by a generation of
people, including me and the people who preceded me who wouldn’t live within their income and
wanted to put their groceries, Their year-to-year expenditures on Bank Americard, fly now pay
later. We’ve been electing people to public office
who have been spending outside of our income year after year after year, until now our
children are saddled with almost a trillion dollars in debt. Interest rates are 10%, inflation is 7%. And we sit back like like business as usual
and wanna continue going on this way. I think we’ve got some deep moral questions
in controlling the size of government and what we’ve allowed to go on over the past
30 years when people have said to us that we could spend, spend, spend, it wouldn’t
hurt anybody. John Charles Daly: Mister Solicitor General. Robert Bork: Well, let me stop talking about Jarvis
and ask you about the concept. I think what’s at stake is the question of
incentives in this society and the question of the vitality and the strength of our economy. And therefore let me ask you what you would
think about caps on expenditures or spending at the federal, state and local levels, at
all levels. Caps which would say free spending at its
current level with adjustment upward for population growth adjustment, upward for inflation, but
no adjustment upward for real economic growth which would mean as a real economic growth
occurred, we would still have the same level of government service per person, but the
government’s share of the total economic pie would shrink as real economic growth occurred. What about that concept? Or you were for or against that concept? M. Carl Holman: I have pretty good notion of how all
the caps are likely to work because we are in a society in which things are going to
happen in the small as they are happening in the large in California, it’ll just be
different. If you say to legislators that you have only
so much money to spend, I know pretty much where they will spend it. The president said, do not spend money for
these naval vessels that we really do not need. And the same people who argue for caps and
all that make it pretty clear it’s all right for this money to go for defense. So many people who will agree to the caps
will find themselves facing a situation which as decisions are made, the decisions will
be made in such a way that in any state capital that I know of cities are not going to do
very, very well under the kinds of change that you’re talking about. And the change is coming. There are going to be restrictions. I do not believe in for example, I don’t believe
in these pensions that have been voted, which for which there is no money now and probably
won’t be any later. But I would have wanted to ask you this, Mr.
Headlee, we’re trying in many cities to try to bring business back into the cities. In order to do that, many cities have been
providing certain kinds of tax incentives. How would that operate in the city of Detroit
under your proposed amendment or law? Richard Headlee: We had a statutory provision that’s
Provision 198 in Michigan, which allows for tax abatement in frankly, is to encourage
business to refurbish, to build new plants, to generate jobs. M. Carl Holman: Would that have to be voted on? Richard Headlee: No Sir. No, that is not a new tax. It’s the application of an old tax. John Charles Daly: Now I would ask, your honor if you would respond to Mr. Bork’s question with respect to caps. Lee Alexander: I think there’s a lot of merit to caps,
I have no objection. I live with one. As I said, I have a 2% cap my operating expenses
are limited to 2% of the full market value. The federal level we’ve done the same thing
through tax cuts. The federal revenues grow naturally during
periods of inflation, but I was just looking at this chart shows that state and local tax
receipts compared to federal receipts. At the local level, 81% of the receipts come
from the property tax or some $50 billion. At the national level, less than 3%. So you see property tax hits local government. What I’m saying is that it’s unfortunate. Sure the public is angry, and I sympathize
with them at the taxes that the heavy taxes that they’re paying. But it’s unfortunate that it took it out on
local government in California. Robert Bork: We’re on your side. Lee Alexander: I just wanna emphasize that point. I think that if there’s to be a restraint
that the restraint should not be on local government, which is solely press to meet
the demands that are made upon. Look, it’d be very fine if you and I could
walk into a hotel, order a nice dinner and you and I would sign a petition that this
dinner should only cost two dollars, but the hotel could not deliver it. Now, it’s very nice to demand the services
that you do from your local levels of government and say practice restraint. I want you to tighten your belt and bite down
on the bullet. We all do that. We all admire those things, but still the
public demands certain services. Robert Bork: And then Mr. Mayor, may we sign you
up now as part of a movement to place a limitation upon federal, state, and local spending where
it now stands with adjustment upward only for population growth and inflation? Lee Alexander: I can’t answer yes or no to that until
I know fully what you intend to accomplish by that. Robert Bork: I intend to stop any increase in spending. Lee Alexander: Well, I would say some increases are
necessary at the federal level with a comparison deduction and reduction at the local level. Robert Bork: Okay as long as total. Lee Alexander: For example, I would like to see the
welfare load picked up at the federal level. Now, that’s why I disagree respectfully with
the President who said he wants to limit spending the 21% of the gross national product. But at the same time the President is in the
forefront in the fight for a federal takeover of welfare, for national health, and the president
has said that he believes these are very important to have goals, but he can’t achieve those
goals if he insists that federal spending should be limited to 21% of GNP because when
a federal government eventually takes the cost of those programs over, not all at once,
but on a phased-in basis, the cost will be billions of dollars that will increase federal
spending. John Charles Daly: Let’s go to a different aspect of that
though. So far in terms of action, the tax revolt
is strongest at the state and the local level. Now, do you gentlemen see or your case, your
honor, do you hope that spending responsibilities will simply be pushed up to the federal level
to clean the areas of services to the disadvantaged, to the ill and so forth? And that the decision-making process then
becomes even more centralized, which I would think you would find defeating and whatever
your principles or philosophy. Lee Alexander: That is a contradiction. We say that those officials who are elected
at the local level are the most efficient because they are closest to the people that
they serve and the city halls of this nation have really, in fact, become early warning
stations for America. We hear those sentiments much more quickly
than do our representatives at the state or national level because people walk into city
hall, they see me on the street, and believe me, sometimes I wish I could listen to every
one of them, but their complaint is loud and clear, but there’s very little relief that
a mayor can give. John Charles Daly: Mr. Holman. M. Carl Holman: We do have an effect cap which is operating
now at the federal level. We have two budget committees and those two
budget committees have been successful when they tried to limit one kind of spending and
not successful when they tried to limit the other. If they had a pie of a certain size, we can
tell you what they would spend that money for and where they would not spend it. They would not spend it in and for the cities. And if any mayor believes that he has only
to look at what has happened to urban legislation, what has happened to legislation that related
to the poor and the number of people pushing these caps all around the country who say
one of the things we’re gonna do is get rid of welfare and what we’re gonna do in many
cases and what’s gonna happen in many cases is that we’re gonna move people from one side
of the ledger to the other. Because hidden behind everything else that
I think everyone over here saying is the notion that there is this fettered, shackled, chained
private enterprise system that is just waiting to bound into action and take care of all
of our problems. I talked with three major businessman in California
and they said to me that they had no notion at all that any of the kinds of growth that
were being suggested by some of the proponents was likely to occur. Some businessman who said to me, “If you wanna
deal with welfare problems, that’s something for the government.” Everybody knows that we can hire in the private
sector. People who have certain kinds of backgrounds
in certain kinds of abilities, structural unemployment you will have and have in larger
measure once you start capping all of these coveres. John Charles Daly: We have little time left in this area and I know we are concerned with whether constitutional limitation is desirable. So Mr. Bork, Mr. Heller, who as I noted earlier,
said it’s now inevitable that something is going to happen, thinks that statutory limits
on spending rather than a constitutional limit would be preferable and more efficient. Would you comment on that? Robert Bork: Well, if the problem is that there
are structural defects in the resistance to total spending being much weaker than the
individual interest groups getting each have their own programs in that statutory limit
will be breached. And indeed this new budget procedure that
the Congress has set up has been breached more often than it’s been honored. So that if we’re serious about it, I am not
one who likes to amend the constitution and I have resisted it in a number of areas where
I agreed with the objective, but I don’t think we should play with the constitution. But it does seem to me that the tax burden
upon the American people as and upon the American economy has become so serious and shows no
sign of abating. That maybe the time has come to consider a
constitutional amendment to say, “Okay, present levels of spending, but no more.” John Charles Daly: But I think we’ve put down a very broad base gentleman and it’s time to open the question and answer session. All right. May I have the first question, please? Eugene: Sure. The name is Eugene Austin and I am Deputy
Chief Council of the committee on the Budget U.S. House of Representatives. I have a question directed to a Dr. Bork. I believe you indicated that the Congressional
Budget Resolution has been violated or breached more often than honored. Is that an accurate restatement of your statement? Robert Bork: I read an article recently, I think
that said that the Congress had a rejected the recommendation of its budget committee
11 times out of 13 or something of that sort. Eugene: In terms of adopting the resolution
or breaching it by enacting laws that would exceed the ceiling? Robert Bork: Exceeding it, I understand that since
of the budget committee was formed. The budget is increased 15%, which was thought
not to be the object. Eugene: Indicate very quick two-step process. The first revolution with sets targets. The second resolution sets the ceiling. The ceiling has not been broken to date with
respect for the three budget resolutions that we had since new congressional budget process
began. Just wanted to correct that. John Charles Daly: Okay. Next question, please. Yes, sir. Ken: I have a question Mr. Bork, my name is
Ken Barnes, I think that your point that if you don’t limit the size of government, you
will have a bunch of vested interests who will push their various programs through without
any consideration of the total cost of the entire budget. However, I think when you recommend as a remedy
putting a cap on government, you just haven’t dealt with the question of who is going to
get their share of the pie? The most powerful groups as Mr. Holman said,
we’ll still get their share of the pie and the poor or the weak disadvantage will not. How do you deal with that point? Second and the second point raised by Mr.
Alexander is that the services which are provided by the public sector, by governments are the
kinds of services which are not traditionally provided by free enterprise, the private sector
because they are not profitable. How do you deal with providing desirable services
which are unprofitable when you limit the size of government? Robert Bork: Well, you know, we’re talking about
limiting the size of government, size of government expenditures to what it is now. And it should be said that right now one-third
of the people in this nation or dependent upon government for their income, which means
that two-thirds of us are supporting one third. That one-third consists of government employees,
people on welfare, people on social security and so forth. That seems to me an adequate proportion of
the population taking care of, you can call them weak and powerless, however they seem
to do much better in the budge then does the Defense Department, for example. As far as services, and if we set a limit
to the total government expenditure, it is true that priorities will have to be set and
we will have to decide what priorities each of those kinds of expenditures have. I suppose that’s the ordinary process of democracy. In terms of services provided by the government,
if we freeze government spending where it is now with adjustment for inflation and so
forth, those services aren’t going to go away. We’re not talking about Jarvis, we’re not
talking about cutting 60% from the expenditure. We’re talking about freezing at where it is
now with adjustment for inflation and for population growth, services will be there. They’re not gonna disappear. Lee Alexander: Perhaps I can come at it a different
way, you eliminate with that simple statement, the goals that the majority of our representatives
in Congress and in our Senate have said are laudable goals for this country and that’s
the assumption of a health and welfare by the federal government. And the cost of that cannot be contained within
your prescription or proscription. I’m concerned when we talk about freezes because
it seems to me if I walked into your company, Richard and I said to you, “Now I want you
to run your company within this many dollars and don’t tell me about how much it costs
to run because I don’t wanna know about the cost. This is the limit.” I think you’d say to me, “That’s absurd. Sit down with me and let me show you how much
it costs to run the country.” Richard Headlee: Exactly how it is. That’s exactly how it is, I have to run it
within the budget. Lee Alexander: All right. But when people say there should be a freeze
or they should be arbitrary limits, and then in the same breath speak about zero budgeting,
I think there’s a contradiction there. Zero budgeting says you take the cost of the
operation from zero and you start computing the cost until you arrive at the bottom line. You don’t take on last year’s figures and
just tack on more figures. So what I would like you to do is come to
my city or any city in this country and say, “How much are you spending for this service?” Rather than say to me now, “Here’s your limit. You spend it any way you want, but don’t go
over it.” And then in that way, we can reach a reasonable
conclusion and an equitable judgment, not an arbitrary capricious one, but one based
on an examination of what the public is demanding. As I said, I have faith that the American
public will pay for what they want and I think… Richard Headlee: But that is some distortion, it doesn’t
bear that out. Lee Alexander: But there’s yes. What they’re saying is… Richard Headlee: We are a billion dollars in debt. Lee Alexander: They are saying is that we will not pay
for certain services by putting it on our property taxes. That’s what they’re saying. I think. Richard Headlee: Well, I’d just like to. A couple of comments. First of all, one of your friends here in
town made the statement a few weeks ago that there’s a $7 billion slop rate in HEW. Now $7 bilion is peanuts to most of the folks
here, but $7 billion, that’s a ton of money. That’s the whole budget for a whole year for
the all the services. We’re talking about it for the whole state
of Michigan. Now there’s plenty of places that we can pare
back if we manage it properly. It’s just that when you have an unlimited
supply of money, you don’t manage things very well. And to assume that just because we’re gonna
restrain government, that the people who need help aren’t gonna get help, I think as a faulty
assumption to say that we’re gonna spend it on B-1 bombers rather than helping people
who need help. I think it’s a faulty assumption. I frankly have the American people are better
than that, sounder than that, and they are a finer people than that, but there are people
in our society that ought to be helped in a different way, they ought to be helped the
different tax program. Instead of saying we need more money, we got
a question the leadership, the creativity, the approach, the intent and the results. And I frankly think that more money is not
the answer although that’s always the public sector’s answer. They’re never questioned, and frankly I do
run my company just on that basis. If we don’t sell some more product and generate
more profit, I don’t have more money to work on. I don’t have an unlimited supply of money. M. Carl Holman: Well, you know, some people have to
get laid off then. Richard Headlee: Pardon? M. Carl Holman: Some people have to get laid off then. Richard Headlee: That’s precisely right. M. Carl Holman: And then what happens to them? Richard Headlee: That get paid unemployment. M. Carl Holman: Yes. Precisely. Where does that money come from? Richard Headlee: What I’m saying is when they’re on
unemployment, I’d like to have them doing something productive. There’s absolutely no reason they can’t do
something productive while they’re on unemployment. John Charles Daly: Let me comment on something earlier. Senator… M. Carl Holman: I will say this. I’m glad Richard to hear you say one thing. I had always thought before that certain people
felt that Franklin Roosevelt was the villain because he was the original creator of big
government. And I’m very glad to see that he now… Richard Headlee: He made the statement Carl that only
in the last 10 or 20 years that we help people. Only in the last 10 or 20 years have we helped
people in an improper way. Franklin Roosevelt knew how to help people
and that was a Keaton Productive, Keaton involved in society. Don’t make it feel like they’re on the dole. Make them feel that they’re constructive members
of society. We have lost that. M. Carl Holman: He was accused of leaf raking kind of
enterprises. Richard Headlee: Not by me. Robert Bork: Well it’s not necessary to agree with
all of this to go along with the movement, is it? Richard Headlee: No. M. Carl Holman: When you speak of his… Richard: Let me ask another question. There’s an economist at UCLA that did a recent
study once again on all the programs we’ve done to lift people out of poverty. I think he estimated there were 240 some-odd
billion dollars going each year to help these people, food stamps, a ton of programs. He also did a profile, an economic model at
UCLA and in that they pointed out that with something like $89 billion in cash to all
the people below the poverty level, they could bring them above the poverty level. So we’re doing something wrong. M. Carl Holman: You’d like to see that. I’d like to see that get voted. Do you have any idea how impossible that would
be? Robert Bork: Yeah, but then it would be given to
all [crosstalk 00:48:28] M. Carl Holman: Yeah. We receive them, for example, but I just like
to just talk. You talk about the $7 billion from HEW? Let’s see if we can honestly, if we can agree
on some things here. So first of all, I don’t think anybody believes
that it is helpful to have a situation in which…that you have a health situation. If you have a situation in which people are
being wasteful of anybody’s money, including money that they get publicly. I saw that $7 billion figure and I’d like
to see whether or not what [inaudible 00:49:02] suggests would cure it. All the headlines that went around the country
was at $7 billion in fraud, and of course, everybody had that mental picture of some
welfare mother who had a 19,000 different checks that she was receiving all that. Turns out only $1 billion of it had anything
at all to do with fraud. And that’s a large amount of money. The other $6 billion would not be taken care
of unless you address some problems quite different from setting the cap. So I think that as we talk about these solutions,
we’ve got to look what the solution will get us, but we ought not, I think that we’ve had
enough about liberals over promising. I don’t think conservatives ought to over
promise either. One of the things that these alternatives
seem to be pointing toward is that more and more of these decisions are going to be made
not at the local level, but they’re gonna be made at the state level and finally at
the federal level, because right now what is happening in the only place we have seen
it is that the state made the decisions as to what was going to happen in those localities
and the furthest of all the way from your taxpayers. Robert Bork: I would think Mr. Holman, that’s precisely
the reason to be better if the constitutional controls started at the largest level, the
federal level, and moved downwardm so that you didn’t just federalize all of these problems. John Charles Daly: May I leave this one where it is at the moment? Becuase we would like to get to as many questions
as we can. All right, next question, please. Male: My name is [inaudible 00:50:35] a financial
consultant in Washington. I’ll try to keep my question in 45 seconds
and I’ll address it to any member of the panel who can answer it in 45 seconds. Tale’s first with a German legend of assault
merchant who came in possession of a magic mill which would turn out salt. He set it to work while at sea. The salt began to fill the vessel. The vessel sank. The mill sets at the bottom of the sea, and
that is why the sea is salt. Today we are washed in a sea of inflation
by a marble mill out on Constitution Avenue which Mr. Roosevelt set up in 1932. He did so by getting Congress to pass a law
authorizing the Treasury to sell to the Federal Reserve that obligation just bonds and receive
therefore paper, irredeemable paper money which passes as money, as legal tender. Today there’s about $100 billion of that worthless
paper circulating in this country. Now my question is, who needs restriction
on taxes when you have a magic mill to grind out paper money to the heart’s content? Now I asked any member of the panel, how can
we stop that paper mill from grinding out this enormous quantities of paper money, which
is flooding a country with inflation? John Charles Daly: Mr. Bork, you’ve been our starting wheel. Would you? Robert Bork: You simply write the amendment in
terms of a limit on spending, not upon taxes. And when there’s limited funds, spending much
less incentive for the federal government to inflate because they can’t spend it. John Charles Daly: Okay, next question, please. Yes, sir. Mike: Mike Balsono [sp] American Enterprise
Institute. I’d like to address my questions to the Mayor. Mr. Mayor, most of us who have been around
Washington for some time have been able to document and see visible amounts of fiscal
waste in the federal government. We hear about it and see it and state level. Where as a mayor would you put the fix on
it? I mean you seem to be against putting a cap
on it. You against freezing the top of it. Where would you suggest that this taxpayer
go for relief? Lee Alexander: Well, of course everyone is very management-oriented
and I’m the first to point out as I did earlier, that my city is probably the only major city
in the state of New York that runs in the black, and I’m very proud of that fact, but
there’s a limit as to efficiency in government at the local level. The fact still remains, as I earlier indicated,
that the large share of my operating budget goes to police, fire, and department of public
works and payments. There’s very little I can do about that unless
to reduce those departments, but there’s the notion that all we have to do is take this
rusty machinery that sits in our cities and gold plate that machinery and it’ll function
a lot better. That’s nonsense. There are structural tax deformities that
we have to correct. Now if there’s any level of government that’s
efficient, and I happen to believe it’s at the local level because the people put the
pressure on us there. We’re always under the microscope. We’re always under siege and that is as it
should be. I think were the most responsive group of
elected officials in the country because of our accessibility. Now I’m not about to advise you where the
government at the federal level could be more efficient. All I know is that the government has developed
some sophisticated tools in delivering aid to the cities, which should save billions
of dollars in the long run. We call it a targeting mechanism. In the past when money was distributed it
distributed to those who needed it and those who did not. As a result of intensive lobbying by the mayors
in this country and in a cooperative administration under President Carter, we’ve developed some
sophisticated formulas which will save the federal taxpayers billions of dollars because
we will target in that money to where it’s needed with various triggers and I’m sure
you’re familiar with what I’m talking about. I think the government is moving in the right
direction in that sense because it will take less dollars if we can find out where those
dollars are best spent, best needed. John Charles Daly: All right sir, would you ask the question? Bob: My name is Bob Levine. This is for Mr. Bork. You said that what your proposal would do
would limit government to its current share, which is one third, but your precise proposal
was to take account of inflation, increase government spending for that take, account
of population change, increase government spending for that, explicitly not increase
government spending for economic growth. In that case, logically, you’re condemning
government to an ever decreasing share. That may be good or may be bad, but it shouldn’t
be represented as a constant share. Robert Bork: No, no, I didn’t say a constant share. I said a constant amount. I’m not at all taken aback at the thought
that government’s share of the total economic pie might decline. I can bear up under that finding. Bob: Forever and ever under constitutional
amendment? Robert Bork: Because it sounded attractive, yes. John Charles Daly: All right. We already have time for one or two questions,
ma’am. Jodi: My name is Jodi Scoros [sp]. I’m a social worker in the local school system
and we’ve been talking a lot about different people don’t want income tax coming from different,
don’t want taxes coming from different places. And I’d like to ask each of you of what you
think an equitable tax system would be. Who should pay and about how much? John Charles Daly: Mr. Headlee. Richard Headlee: I’m not here to say I think taxes
are great, but frankly we’ve worked hard for a couple of hundred years. We’ve got taxes coming from a lot of different
sources, and I think we’ve probably got equity. It got out of balance in California because
of an aberration in the supply and demand of houses and property and what have you. All in all, people are concerned about the
total bite. I mean wherever it comes from, and so that’s
what really what we have to be concerned about. The total bite. Let the legislative process continued to seek
equity and fine tune it and carburetor adjust it, but let’s control…Let’s define the public
sector. Let’s define what of our economic pie we’re
going to devote to the public sector and then work within that definition. John Charles Daly: That answer was so comprehensive. I must take advantage of it to announce that
we have run out of time. And this concludes another public policy forum
presented by the American Enterprise Institute for Public Policy Research. On behalf of AEI, our heartfelt thanks to
the distinguished and expert panelists, Mr. Richard Headlee, professor Robert Bork, Mayor
Lee Alexander and Mr. Carl Holman and thanks to our guests and experts in the audience
for their participation. Peter Hackes: This public policy forum on the taxpayers’
revolt has brought you the views of four experts in the field. It was presented by AEI, the American Enterprise
Institute. It is the aim of AEI to clarify issues of
the day by presenting many viewpoints in the hope that by so doing, those who wish to learn
about the decision-making process will benefit from such a free exchange of informed and
enlightened opinion. I’m Peter Hackes in Washington. Announcer: This public policy forum series
is created and supplied to this station as a public service by the American Enterprise
Institute, Washington DC. For a transcript of this program, send $3.75
to the American Enterprise Institute. 1150 17th street, Northwest, Washington, DC,
20036.

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