Andrew Olmsted has an interesting post comparing the pressures to raise Federal spending with the pressures to restrain it. It’s a good analysis, missing only a few things (pretty much ancillary to, rather than central to, his point).
For example, the only political pressure that exists to lower spending is from the opposition party, which gets to do less of it. Thus, the Republicans are now the party of big Medicare spending increases, and the Democrats are the party that wants a “balanced” budget. (The scare quotes are because they don’t actually mean balanced the way normal people do.)
Also, it should be noted that the Founders understood this dynamic; it’s not new. Because the Crown had unlimited powers to tax, the Crown had unlimited powers to spend – well, limited only by the amount of money in the system. In other words, government power itself – to dissuade by means of laws, to compel or prevent by means of police powers, to wage war by means of creating a large standing army – all of these powers are essentially unlimited. And when the government asserts a power, it inherently diminishes the power either of other governments (in the case of war) or more likely its own citizens or subjects. So the unlimited power to tax leads to the unlimited power to do anything else, and the consequent limiting of non-governmental power. Note that in any nation where government has had this power and has faced a national emergency of sufficient magnitude, those governments have been universally willing to bankrupt the taxpayers both publicly and privately to get out of the crisis, or at least to avoid having the government officials consumed by it.
That power problem is why the original Constitution forbade direct taxation. Indirect taxation is avoidable: I can minimize my purchasing, and maximize my self-sufficiency, so minimizing sales taxes; I can refuse to sell anything, so avoiding other kinds of transaction taxes; I can refuse to import or export, so avoiding customs; and so on. I cannot refuse to have an income, or I would be destitute; so I cannot avoid income taxes. I can refuse to own property, but cannot refuse to have a place to live, so I cannot avoid directly or indirectly paying property taxes. If the government’s ability to obtain revenue is limited, government’s power is also limited.
Andrew mentions ways to increase the downward pressure on government spending – increased deficits require increased interest payments, which shrink the pool of money available to do anything else (of course, this is no help to the taxpayer, who has to actually pay the interest on the debt in addition to current needs); politicians could exercise self-restraint (laughably unlikely).
Andrew also mentions a way to reduce upward pressure: voters could refuse to elect or re-elect representatives and Senators who don’t control spending. This is a fanciful notion, given the incentives mentioned by Andrew for voters to prefer increased spending in detail, while opposing it in the aggregate.
Andrew neglects a couple of possibilities, worse than those he mentions. The economy could collapse, and the people be driven largely into destitution. The country could be so weakened by runaway spending as to lose the ability to defend itself (see, for example, most of Europe). The people could revolt over the level of taxation. People with wealth could flee the country, taking their wealth (and wealth creation) with them. People could cease generating wealth, or intentionally lower their income and productivity, to pay less in taxation (which is one mechanism that can lead to economic collapse, if the government doesn’t adjust in time; if they do adjust, it stops here, at stagnation).
I only mention these terrible outcomes because historically they are how runaway government spending has eventually been ended.
There is one direct tax that was present from the very creation of the Republic: head taxes. It was the primary revenue source for the federal government for many years. There’s certainly no way to avoid it. But it, too, is limited.