Underground government

Tax-imposed constraints on one's ability to accumulate wealth (or to just break even) have induced taxpayers to conceal hundreds of billions of dollars from the tax collector in the ''underground economy.'' A question that has received much less attention, however, is how politicians have responded to recently imposed constraints - such as Proposition 13 - on theirm abilities to accumulate wealth and power through the political process.

History reveals that for nearly a century state and local governments have responded to taxpayer revolts by preaching fiscal responsibility while practicing fiscal profligacy through creating scores of ''off-budget enterprises'' (OBEs). Taxpayers' demands for fiscal responsibility have also spawned the growth of the off-budget activities of the federal government, creating an ''underground government'' at all levels.

In 1974, when Congress passed the Budget Reform Act amid a shower of rhetoric about bringing federal spending under control by holding itself formally accountable for total spending and deficitsm, it simultaneously began slipping numerous federal agencies out the back door and off the books. This move toward ''back-door spending'' appears to have universal appeal: It was the Reagan administration which placed the Strategic Petroleum Reserve off budget, and there have been bipartisan rumblings about ''solving'' the social security crisis by placing the system off the books.

The chief culprit here is the Federal Financing Bank (FFB) which, in effect, launders money for federal agencies. The FFB borrows money from the Treasury which is not included in the budget document. It then dispenses these funds to federal agencies in a variety of slick scenarios which allow the agencies to bypass Congress in granting subsidies to all the various special interests. While much has been made of the growth of ''uncontrollables'' in the federal budget, such growth pales in comparison to off-budget spending, which increased by 23,100 percent - from $100 million to $23.2 billion - from 1974 to 1981.

A second category of off-budget chicanery is the hidden interest subsidies from guaranteed loans, which totaled more than $90 billion in 1981. Although taxpayers are liable for these loans only in case of default, major hidden costs are borne by less-favored borrowers who are crowded out of the credit market.

In 1980, when a 20 percent prime rate and a 16 percent consumer loan rate bankrupted scores of small businesses, the Rural Electrification Administration began a new program to finance cable TV stations with 35-year loans at 5 percent; rural home mortgages went for 3.3 percent, and student loans for 7 percent. At a time when high interest rates limited private firms to only the most productive investments, federally favored borrowers invested in projects yielding only a fraction of the nonguaranteed investments. By socializing risk and subsidizing failing or unprofitable businesses, loan guarantees reduce the productivity of the nation's capital stock, which hinders economic growth and exacerbates both unemployment and inflation.

In addition to the FFB and loan guarantees, there are privately owned but government-controlled enterprises that spent about $50 billion in 1982. These include the Federal National Mortgage Association, the Farm Credit Administration, the Federal Home Loan Bank Board, the Foundation for Education Assistance, and many others.

Of $155.8 billion in federal credit outlays in 1982, fully 82 percent is accounted for by off-budget spending or guaranteed loans. Adding an estimated $ 50 billion in borrowing by government-sponsored enterprises makes the federal government responsible for about 40 percent of all credit advanced in the credit markets in 1982, compared to just 11 percent in 1969. Although many have treated federal credit activity as though it constituted the proverbial free lunch, the crowding out of private investment and the subsidizing of economically inefficient but politically popular investments will surely contribute to further economic stagnation.

Things are not much different at the state and local levels of government where the off-budget public sector actually rivals in size the on-budget sector. State and local OBEs are financed by issuing nonguaranteed and non-voter-approvedm revenue bonds, and by various other subsidies from other units of government. They are managed by political appointees rather than elected officials, eliminating much of the pressure from taxpayers. This detachment often leads to gross inefficiencies. The off-budget Washington Public Power Supply System, known throughout the Northwest as ''Whoops,'' is now about to default. It had to scrap two partially completed nuclear power plants after investing $2.25 billion in them, and now finds itself unable to pay its debts.

It is evident that politicians, like taxpayers, do not like to have constraints imposed upon their ability to accumulate wealth, and will go to great lengths to avoid such constraints. Little progress will be made toward achieving fiscal responsibility unless politicians are held fully accountable for spending and borrowing, both on and off budget. The question which must be asked is: If such activities are ''legitimate'' functions of government, why then are they so well hidden and isolated from the American taxpayers?

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