Cross-posted from WhosPlayin.com

For some years now, I've considered myself to be fiscally conservative with regard to government taxation and spending policies. I only wish that I had learned from a younger age to be fiscally conservative in my personal finances, but that's another story for another time. I had to learn that lesson the hard way.

When one thinks about "fiscal conservatism", the word "Conservative" pops out and seems to associate the line of thought with the political ideology of conservatism, but this is not the origin of the term. Conservatism, as it applies to money, is a principle borrowed from accounting and economic studies. There is no such thing as fiscal "liberalism" as far as I know - just fiscal conservatism and fiscal irresponsibility.

The problem is that as of late, the oxymoronic "radical conservatives" who have run this country, some states, and many municipalities, have run the term "fiscal conservatism" into the ground. Saying that one is "fiscally conservative" is like saying one is "patriotic". It's a hollow term, because there is no reasonable dichotomy from which another group would claim the opposite. You'll find no candidate advertising their "Fiscal recklessness" or "Radical tax and spend plan". What we need is another term that will put a bit more meaning into the description of one's stance on budgetary and tax policy.

Though a Google search reveals I'm not the first to use the term "Fiscal Progressivism", I'd like to be among the first to define it. In my view, Fiscal Progressivism is not the antithesis to Fiscal Conservatism, but is rather an expansion upon it that takes into account social and moral imperatives, and the total economic costs and opportunity costs of choices.

Hallmarks of Fiscal Conservatism

First, I think it's important to define what I believe to be the hallmarks of fiscal conservatism:

A balanced budget where revenues closely equal expenditures
Borrowing only when it is necessary to fund projects with future economic return that will pay for the projects
Not borrowing to pay for day-to-day expenses.Not rolling over debt by issuing more debt
Setting a budget that accounts as closely as possible for every reasonable expenditure
Setting taxes (revenue) to accommodate for the inevitable modest budget overrun, while not creating too much of a surplus.
Taxing only what is necessary to fund the spending, but estimating tax revenues conservatively and setting rates appropriately.Taking into account previous years surpluses or deficits when setting current year tax and spending policy
Implementing reasonable controls on spending authority to prevent graft.
Striking contracts with suppliers and vendors to maximize volume discounts
Belief that an increase in spending does not always provide a proportional increase in benefit. In other words, throwing money at a problem is not the same as solving the problem.
Realizing that the Business Cycle means booms and busts. We cannot bank on projected tax revenues based on simple extrapolation from the top of the curve. Smart monetary policy can minimize the ill effects of this "manic-depressive" cycle of recession followed by expansions that eventually lead to "irrational exuberance" and speculation that lead to "market corrections".

When fiscal conservatism is implemented properly, we minimize taxation and spending while maintaining the function of government. I believe these terms can be agreed upon by both political conservatives and liberals. Our differences are based largely on the definition of the function of government.

Unfortunately, the current slate of "conservative thinkers" do not control spending, and abandon or outsource very important functions of government.. With a toolbox that contains only the "hammer" of tax cuts, conservative politicians tend to see every problem as a "nail" requiring yet another tax cut "hammer". Some would argue that this failure to maintain the function of government is their intent: to weaken government by bankrupting it. For some political conservatives, their disdain for government is only exceeded by worshipful adoration at the altar of the unfettered laissez faire free market economy. But, I'm drifting off-topic here.

What I'd like to do now is expand upon my earlier definition of fiscal conservatism and include the policy that will become the hallmark of "Fiscal Progressivism"

Figure 1 - 2 axis diagram where Fiscally Progressive is placed in terms of responsibility and long-term thinking.Hallmarks of Fiscal Progressivism

Fiscal Progressivism is comprised of the main tenets of fiscal conservatism, but with the following additons:

Recognition that Government Spending is not the only Spending that Needs to be Checked.

Since our government represents the people, and people desire to spend less and earn more, government should recognize the consequences of their actions or inaction - their cuts or increases to taxes and spending. If your city's failure to spend $100 to fix a pot-hole causes $10,000 in damage to a handful of cars, then your city has failed - whether or not its budget is balanced. If your state passes a business tax that brings in $10 million in revenue, but costs business $20 million to calculate and pay, then that tax should be reconsidered. Another example of this would be when smart government decides to perform road work at night. Though it may cost the taxpayers more to build the road, the cost is more than made up for by not inconveniencing drivers during rush hour.

Recognition that Budgets are Moral Promises, Putting Monetary Priority on Societal Betterment

Whether the issue is defense, streets, drug treatment programs, welfare, or whatever, a budget puts money behind the priorities.

Recognition that rapid changes in budgets from one year to the next - whether through cuts or increase - cause waste and should be avoided

In the case where an agency or entity funded by government cannot rely on a steady and predicable budget, sacrifices are made by ditching long-term planning for short-term tactics. No doubt that everyone has heard of cases where money is virtually wasted near the end of a fiscal year because agencies of government fear reductions in future budgets if they should have to return some to the state.

The belief that prevention is less expensive than reaction.

For instance, when one compares the cost of diplomacy versus war, or healthcare versus sick-care, or building roads versus the lost time and productivity, and fuel costs related to traffic congestion. The best-run schools cost less per student than the least expensive prison. Cities can invest in parks and recreational facilities for teens, or they can pay the price fighting gangs and drugs later.

The belief in taxation and tax incentives as a tool for social policy

So-called "sin taxes" are not the only example, but they are a good example. The price that a consumer would pay on the free market for a particular good or service is NOT always the true economic cost - either to the government, or to the consumer. Certain products or services that have a measurable and indisputable societal cost need to be taxed to the point that they become less desirable, and the tax collected balances the cost to society. A good example of this would be gasoline. The security of the supply and the environmental consequences of burning it are costly and negative. Besides the tax increasing the cost and decreasing demand, it helps fund our roads.

On the other hand, tax incentives can encourage private-sector behavior that has public benefit. We must not allow ourselves to use tax incentives for one political entity to cannibalize the benefits from another political entity, putting them into a bidding war for an economic benefit that has to locate somewhere.

We must recognize though - that no entity can unilaterally remove itself from the game on principle - it's a function of higher level government entities to ensure that its subdivisions do not compete against each other. States should ban municipalities from engaging in it, and the federal government should ban states from it.

Other taxation plans, such as the Flat Tax and the [url=Link Tax[/url] point out (and somewhat rightly so) that this power of taxation for social policy is often abused to the enrichment and added power of the politically elite. It is difficult to dispute that, but we need to solve this with ethical reforms at nearly all levels of government.

Privatization does not always make sense.

Certain government functions and services can be efficiently performed by both government employees and private sector firms, depending on the type of good or service. Corporations' primary responsibility will always be to their shareholders, with profit as an incentive to cut corners. These private-sector firms are not as responsive and accountable to the taxpayers as governments. Each "PPP" or Public-Private Partnership opportunity should be viewed with natural skepticism. Too often these are simply a way to funnel taxpayer dollars to cronies with campaign contributions. Small cities may not have the manpower and expertise needed to run their own solid waste management systems, and thus a franchise with a commercial hauler could be more cost effective. On the other hand, for the federal government to hire private companies to oversee disaster recovery and security on the scale of a Katrina-sized disaster is simply wasteful. We need to ensure that our government agencies are ready and able to perform the functions we pay for. Further, there are moral and ethical reasons why certain functions should NOT be outsourced regardless of the "savings". K-12 Education, and corrections are two such areas that immediately come to mind.

Holding those accountable who hold the purse strings.

We must uphold the highest moral and ethical standards when spending the taxpayer's money. Those who set budgets and appropriate funds and negotiate contracts should have no ethical conflicts of interest. There should be no gifts or favors changing hands. All possible conflicts need to be disclosed. Unannounced audits of all contracts, payments, and tax assessments should be conducted periodically by non-partisan entities. Lastly, there should be consequences for those who waste or misuse taxpayer money.

Progressive taxation that rewards the true drivers of the American economy: the workers and the entrepreneurs.

This is nothing new, as the U.S. Government already has a progressive income taxation method that expects more from those individuals and corporations that earn more. Lower to middle-income wage earners and small business owners pay less. However, unearned income, such as that from inheritance over a certain amount, and certain capital gains should be taxed. This is also the current public policy.

Fiscal Progressivism, implemented at any level of government will ultimately provide these long-term benefits:Lower overall public spending as a proportion of GDP*Lower taxationIncreased public servicesIncreased efficiency of government

* Government budgets may increase some initially because of current "reactive" spending policies overlapping with new "proactive" policies meant to prevent the reactive overspending in the future.

In the upcoming campaign season, I sincerely hope to hear candidates from all sides express the ideas of Fiscal Progressivism. I'm particularly interested to hear your take on it, so please post your comments!