I used to be a small business owner...

...myself. (That's me -- way, way in the back. No, the guy next to him.)

For several years, I had a futures execution business on the trading floor of the Chicago Mercantile Exchange. At one point, I had two employees and a nice income -- life was good. But then ... the world changed. More and more of my customers migrated to the electronic platform and my commission revenues suffered. I suddenly found myself in the horse-and-buggy business in a world where the automobile was rapidly gaining in popularity.

I soon decided that since I couldn't control the revenue side of my business, I would take action on the part that I could control -- the cost side. So I lowered commissions, laid off first one and then the other of my employees, shed my membership and ... well, you can probably guess what happened next -- I turned off the lights and closed the doors.

Now this isn't a story about whether or not I was a good businessman. (In truth, I was probably no better or worse than the next guy -- the business environment in which I operated just changed. That's life.) No, this is more about revenues and expenses. Because, as I mentioned earlier, in a situation where the industry was contracting, I had no control over revenue.

Governments, on the other hand, do have some control over revenue.

I bring all of this up after reading an article in the Times yesterday, "After Years of Cost Cuts, Texas Tries to Find More" (my emphasis):

It is hard to overstate the budget-cutting furor that has gripped lawmakers in this capital, where the Republicans who control the Legislature and all statewide offices believe voters sent them an ironclad mandate last year to shrink the size of government.

But the Texas government was already a relatively lean operation after years of conservative fiscal policies. So when the Texas House passed its budget bill last weekend, the depth of the cutbacks necessary for the Republican majority to stick to its promise of no new taxes became clearer. It was not a pretty picture.

The bill would slash $23 billion from the current level of state and federal spending over the next two-year budget cycle — a 12.3 percent reduction that does not take into account rising costs to meet the needs of Texas’s growing population.

In a party-line vote, the House slaughtered dozens of sacred cows. The budget bill makes huge cuts to public education, nursing homes and health care for the poor. It slashes financing for highways, prisons and state parks. It eliminates full-day preschool, cuts teacher incentive pay and reduces scholarships for college students by two-thirds.

“You are cutting to the bone in the state of Texas,” said State Representative Sylvester Turner, a Houston Democrat. “The Republican game is: ‘We want smaller government, and we will do whatever it takes by whatever means necessary, regardless of the cost.’ ”
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But Republican leaders in the House say that the state has to live with its reduced revenues. Raising taxes would hurt the economy, they say, and dipping into the Rainy Day Fund is unwise, given the prospect of cutbacks in federal aid.

“This is the hand we were dealt,” said State Representative Larry Taylor of the Houston area, the chairman of the Republican Caucus. “That’s how much money we have. We don’t have a choice in Texas. We can’t print money. We can’t go into debt.”

But you could raise taxes.

The depth of the cuts, however, has caused divisions in the party. Some Republicans in the Senate are balking at the large reductions in money for public education and health care for the poor, calling them shortsighted. “The kids aren’t going away,” said State Senator Robert F. Deuell, a Republican from Greenville and a physician. “So you can build a school, or you can build a prison.”

The Senate is currently laying out its own budget bill, and Republican leaders say it will contain about $10 billion more than the House version, most of it for public schools and Medicaid. Senate Republicans are looking at various ways to raise revenue without calling them tax increases, like speeding up tax collections and eliminating some exemptions.
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Veteran lawmakers on both sides said they were suffering from the public reaction against federal spending and the deficit in Washington, even though the state has little debt. In the Texas House, 31 freshman Republicans were swept in on the Tea Party tide on a small-government platform, and they are in no mood to compromise on raising taxes.

“You can’t exaggerate the anger and frustration in Texas with the behavior of the federal government,” said the State Senate finance chairman, Steve Ogden, a Republican from Bryan. “And to a certain extent we are thrown into the same boat.”

Is that what this is really about? The mismanagement of the Bush years?

The public pressure to reduce taxes makes it difficult to do something about what many budget experts say is a chronic shortage of revenue in Texas. The experts said the economic downturn caused only a third of the revenue shortfall here, as sales tax receipts fell off. Most of it, they said, stemmed from the state’s decision to overhaul its business tax structure and to reduce local property taxes in 2006. Various tax exemptions have also weakened revenues over the years.

“The tax system is out of whack,” Senator Ogden said. “There are more and more exemptions, and the taxes we do have are not performing as expected.” At the same time, Texas continues to grow by about 1,500 people a day, and costs are rising inexorably. “It’s unstable,” he said. “The curves will not cross.”

The House plan would give schools almost $8 billion less than current state law requires over the next two years. Medicaid would be about $4 billion short of what officials say is needed to meet the growth in caseloads. One group of budget analysts predicted that 97,000 teachers and school employees would be laid off. Other analysts said that the cuts to Medicaid would force hundreds of nursing homes out of business and would have a devastating effect on rural hospitals and doctors.

So how does this thing end? Will Texas, like my business, just keep cutting and cutting until ... what? Anarchy? Is that the goal here? Why not just raise taxes? After all, unlike my business, the state of Texas does have control over its revenue. Why not just take that option? What is with this modern-day Republican aversion to tax increases? Heck, even the sainted Ronald Reagan raised taxes when he had to -- several times.

I agree that you can't spend your way to prosperity, but I doubt if you can cut your way there either.