What If Gavin Newsom Were Governor of Vermont?

There’s only one billionaire in Vermont. No wonder the government there is so small.

To which more than a few might reasonably reply that there’s no way government could be small in Vermont. After all, this is the state that elected a socialist in Bernie Sanders as one of its U.S. Senators, not to mention how left-wing the voters are in this deep blue state.

Except that Vermont’s government is small. Its most recent state budget was $9.3 billion, and the state’s debt is $7 billion. Some might point out that Vermont’s government is sizable relative to its small population, but the fact remains that relative to other U.S. states (Texas has budgeted $330 billion in spending over the next two years), Vermont has a small government.

It raises a basic question: what if California Governor Gavin Newsom were Governor of Vermont? Would Vermont by extension have California’s state government budget of $350 billion alongside state debt that exceeds $1 trillion? There’s a lesson or lessons in the towering stupidity of the question.

While there are over 200 billionaires (the previous number is almost certainly an undercount) residing in California, Boston Scientific co-founder John Abele is in a billionaire club of one in Vermont.

Fewer billionaires, centi-millionaires, and millionaires means reduced wealth to tax, and smaller government by extension. Government spending doesn’t boost economic growth as economists believe, rather how much governments can spend and borrow is a certain effect of how much taxable access to economic growth governments possess.

If governor of Vermont Newsom would be presiding over a much smaller government with much less debt. Which is no insight. It’s simple economics.

Governments are surely limited by voters, but the much more powerful limiting factor has to do with how much money governments take in from taxation. And since money is ruthless, it’s only the governments that take in a lot of tax dollars and that are expected to take in a great deal more in the future that can borrow in sizable amounts.

Except that what’s simple economics isn’t accepted wisdom on an American right wing that rhetorically favors limited, less indebted government. According to conservative and libertarian scholars and pundits alike, government debt is an effect of governments spending more than they take in. See Vermont to grasp the problem with such a simplistic view.

Vermonters have yet again elected a socialist (more than once!) to represent them in Washington, yet the size of their government isn’t just a rounding error relative to California’s budget, but also that of Texas. Texas doesn’t have near the billionaire count that California does, but quite a bit more than a few reside there. Which is the point.

Government spending and debt has little to do with the ideology of the citizenry, or more laughably legislators spending more than they take in, rather it’s an effect of existing tax revenue in concert with market expectations about rising tax revenue in the future. Please keep this in mind as the experts from left, right, libertarian, and supply side camps monolithically conclude that more tax revenue is needed to shrink government debt.

They’re abjectly wrong. Vermont, California and Texas show why. Government revenue and expectations of future revenues decide the size of government and its indebtedness. Until this problem of too much tax revenue is addressed, watch governments and their debt continue to grow without regard to the ideological lean of voters.

Originally published on Real Clear Markets.