November 29, 2010

Chafee's Aimin' to Give It

Justin Katz

What's the famous H.L. Menken quotation? "Democracy is the theory that the common people know what they want, and deserve to get it good and hard." I suspect that's going to be the unofficial slogan of the Linc Chafee years in Rhode Island. It came to mind when the Department of Revenue found that Chafee's plan to tax everything that moves in Rhode Island would actually increase the taxes that we pay by $121 million, rather than the $89.4 million that he'd been claiming:

The list of 93 items that are exempt from the existing 7-percent state sales tax, in addition to food, clothing and medicine, is made up of items that state lawmakers deliberately chose not to tax, among them: school meals, prosthetic devices and sales to charitable, educational and religious organizations. Also included: equipment purchased for manufacturing purposes and adaptive equipment that helps amputee veterans drive their cars. [Don't forget heating fuel.]

When asked last week whether Chafee favors taxing such items, his spokesman, Michael Trainor, said the former U.S. senator "never wavered" during the campaign from his plan to establish a 1-percent tax on exempt items, and is not wavering now.

"Certainly, in the early days of his administration, there needs to be additional revenue," Trainor said. "He views this as a temporary extension to the exempt items that would be retired as soon as the budget situation is under control."

And what happens when "the budget system" (along with spending) becomes more out of control? Well, the difference between items currently taxed at 7% and those to be taxed at 1% is minimal, wouldn't you say?

The quotation came to mind, again, when Chafee dug in on his pledge to wipe away E-Verify at the state level, doubled down with an intention to bring this campaign across state borders, and offered this non sequitur, which raises serious questions about the governor-elect's capacity for reason:

"We have a disaster of an economy. Unemployment is one of the worst in the country. We're way worse than our neighbors, who all have the same labor laws as us," except for the immigration order, he said. "Obviously it's not working."

Blaming the state's economic woes on the fact that the state government has at least minimal controls against the hiring of illegal immigrants is nonsense on its face. Can the man who is soon to be the chief executive of our state think no more clearly than that? Even the Providence Journal editors think Chafee's way off, on this one:

The governor-elect argued that E-Verify "simply doesn’t work" and "has proved ineffective."

That would surprise people with much greater expertise on the subject, including Janet Napolitano, the secretary of homeland security for President Obama, whom Mr. Chafee strongly supports.

"E-Verify is a smart, simple and effective tool that helps employers and businesses throughout the nation maintain a legal workforce," Ms. Napolitano said this month, in announcing that the program is being expanded at the federal level to include U.S. passports and passport cards for employment verification. Thirteen states now mandate E-Verify and the number will grow. (See "Chafee understates use of E-Verify system," news, Nov. 19.)

And even you don't agree with Chris Plante and the National Organization of Marriage, perhaps you'll hear echoes of Menken in the Chafee camp's handling of Plante's effort at least to be heard on the issue in the governor's office:

[Dhavee spokesman Michael Trainor] also denied ever telling Plante "that the governor-elect would sit down with him." In fact, Trainor said, his letter reflected his belief that a meeting would probably "not be productive" in light of Chafee's "long-established position" on the issue.

But Trainor said Chafee is, in fact, open to talking with Plante one-on-one about the issue. Explaining why his own letter to Plante did not raise this possibility, Trainor said it was sent without the governor-elect's knowledge, amid "literally hundreds of requests for meetings."

"But now that Mr. Plante has decided to make a public issue of this, Lincoln Chafee is more than willing to have him in and to have a conversation."

It's just basic politics to make some effort to allow the opposition to feel as if it has had input, thereby defusing some of the bitterness from the debate. Governor Carcieri, for one, met with advocates for same-sex marriage even though his stand was at least as strong in the opposite direction as Chafee's.

The frightening theme that recurs with every article concerning the soon-to-be governor of Rhode Island is that the people of the state are going to have to look to the General Assembly for balance and reason while Chafee's in the executive seat. Those who believe that the healthiest outcome for Rhode Island would be a hastening of its demise (and therefore, its recovery) may soon get their wish.

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I thought Chafee is someone who lives by his campaign promises. Let me quote:

http://newsblog.projo.com/2010/01/chafee-announcing-governor-run.html
"There are three keys to dealing with Rhode Island's budget woes.

"First: the state must control government spending and be more efficient....
"Third: I want to generate new state revenue from economic growth, not by raising taxes and fees.

---------------

Same exact quotes from his own web site:
http://www.chafeeforgovernor.com/2010/01/why_i_want_to_s.php

I wish I had time to dig through the WPRI Newsmakers videos, as I'm pretty sure I remember Chafee getting grilled on this, only to answer that he will not raise taxes until we have spending under control first.

So why does Chafee have to keep some campaign promises and not others?


Posted by: Patrick at November 29, 2010 9:10 AM

"Those who believe that the healthiest outcome for Rhode Island would be a hastening of its demise (and therefore, its recovery) may soon get their wish."

Unfortunately there is no "death". Just a slow, painful grinding away at working people to the benefit of the cronies, illegal aliens, welfare parasites and public unions.
Look at Deeeetroit, Newark, Hartford, Caifoooornia, etc.
But you know what? we as much as the fools in those places, deserve EXACTLY what we get.

Posted by: Tommy Cranston at November 29, 2010 9:23 AM

Although if this ever passes all bets are off...

November 29, 2010
For Tottering States, Bankruptcy Could Be the Answer
By Michael Barone

We won't be able to say we weren't warned. Continued huge federal budget deficits will eventually mean huge increases in government borrowing costs, Erskine Bowles, co-chairman of Barack Obama's deficit reduction commission, predicted this month. "The markets will come. They will be swift, and they will be severe, and this country will never be the same."

Bowles is talking about what the business press calls bond market vigilantes. People with capital are currently willing to loan money to the federal government, by buying U.S. bonds at low interest rates. That's because interest rates are generally low and because Treasury bonds are regarded as the safest investment in the world.

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But what if they aren't? What if investors suddenly perceive a higher risk and demand a higher return? That's what Bowles is talking about, and there are signs it may be starting to happen. The Federal Reserve's second round of quantitative easing -- QE2 -- was intended to lower the interest rate on long-term bonds. Instead, the rate has been going up.

The federal government still seems a long way from the disaster Bowles envisions. But some state governments aren't.

California Gov. Arnold Schwarzenegger came to Washington earlier this year to get $7 billion for his state government, which resorted to paying off vendors with scrip and delaying state income tax refunds. Illinois seems to be in even worse shape. A recent credit rating showed it weaker than Iceland and only slightly stronger than Iraq.

It's no mystery why these state governments -- and those of New York and New Jersey, as well -- are in such bad fiscal shape. These are the parts of America where the public employee unions have been calling the shots, insisting on expanded payrolls, ever higher pay, hugely generous fringe benefits and utterly unsustainable pension promises.

The prospect is that the bond market will quit financing California and Illinois long before the federal government. It may already be happening. Earlier this month, California could sell only $6 billion of $10 billion revenue anticipation notes it put on the market.

Individual investors have been selling off state and local municipal bonds this month. Meredith Whitney, the financial expert who first spotted Citigroup's overexposure to mortgage-backed securities, is now predicting a sell-off in the municipal bond market.

So it's entirely possible that some state government -- California and Illinois, facing $25 billion and $15 billion deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout. The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor union allies.

But the Republican House is not likely to share that view, and it's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate.

How to avoid this scenario? University of Pennsylvania law professor David Skeel, writing in The Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt.

Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy. Some have done so: Orange County, Calif., in 1994, Vallejo, Calif., in 2008. Others -- perhaps a dozen small municipalities in Michigan -- are headed that way.

A state bankruptcy law would not let creditors thrust a state into bankruptcy -- that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a "cram down," imposing a haircut on bondholders, and to rewrite its union contracts.

The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court.

It's not clear that governors like California's Jerry Brown, who first authorized public employee unions in the 1970s, or Illinois's Pat Quinn will be eager to use such a threat against unions, which have been the Democratic Party's longtime allies and financiers.

But the bond market could force their hand and seems already to be pushing in that direction. And, as Bowles notes, when the markets come, they will be swift and severe.

The policy arguments for a bailout of California or Illinois public employee union members are incredibly weak. If Congress allows state bankruptcies, it might prevent a crisis that is plainly looming.

Posted by: Tommy Cranston at November 29, 2010 3:05 PM
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