March 17, 2011

The Governor's Faith That You Don't Matter

Justin Katz

Here's an interesting tidbit from Ed Achorn:

I asked Governor Chafee last week whether he, or anyone in his administration, had done an analysis of the number of jobs that his tax hikes would cost the state, since many financially stressed Rhode Islanders would respond by traveling the short distance to neighboring states for goods and services.

After three rounds of spin by Mr. Chafee and his aides, I finally got the governor's answer on the fourth try:


The loss of such private-sector jobs seem to be of little concern.

To take the charitable view, it might just be that Chafee and his administration lack the competence to ask and answer such difficult questions. It's much easier to simply calculate a tax as if it will have no effect on the behavior being taxed. One would think, though, that some effort might have been made to figure out what incentives would be created by the new taxes and what ripples would therefore be likely.

Be that as it may, government budgeting isn't ultimately a matter of predicting revenue and planning expenses on its basis. Rather, it's ultimately a matter of making the books appear balanced to conform with the law and adjusting later when financial reality gives the politicians excuses to act. In the case of the current governor, it seems likely that, when revenue doesn't increase as much as he expects and when his meager and vague cuts and efficiencies don't produce the predicted savings, he'll seek to increase taxation yet again. More of that shared sacrifice... meaning that taxpayers share the sacrifice among themselves to support government.

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Even worse, Chafee's projections for the amount of revenue to be raised by his tax increases are totally unrealistic.

Tax rates and revenue cannot be projected using a static model, because people respond dynamically to changes in taxation. In the same way that people change their driving habits as gas prices change, they will change their buying habits. This will hurt businesses throughout the state, but particularly in the border towns.

Misguided policies based on the fundamentally wrong-headed "progressive" view of society have always proven counterproductive - they never achieve their stated goals and do enormous collateral damage. This one will not be an exception.

Posted by: BobN at March 17, 2011 10:32 AM

"I asked Governor Chafee last week whether he, or anyone in his administration, had done an analysis of the number of jobs that his tax hikes would cost the state"

Actually, from what Patrick says, it doesn't matter to the governor's administration. They are averse to money staying in the private sector because all we do is save our money.

Apparently, none of us have break-even household budgets; we're all richie-richs bracing for the inevitable peasant revolution by stashing our cash away.

It goes without saying, of course, that we don't need the jobs that Ed Achorn is concerned will migrate over the state border.

Posted by: Monique at March 17, 2011 12:43 PM

"Tax rates and revenue cannot be projected using a static model, because people respond dynamically to changes in taxation."

I'm not disagreeing with that notion in general, but will people really change buying habits over 1%, especially when the same items are often taxed at 6.25% in MA?

Do we think that more people will eat out now that the dining tax would be 7% and will people buy more other stuff now that it's 6%?

If people are going to respond negatively to the 1% tax, shouldn't they also behave positively about the drop in the other tax rate?

Posted by: Patrick at March 17, 2011 1:50 PM

Just what need more studies! Say, did anyone do a study on the number of jobs lost due to the overhead of using e-Verify? How about the number of jobs lost due to the Carcieri tax cuts for the wealthy or cuts in aid to cities and towns? No study, huh? Wonder why that is?

Hey, I'm not fan of regressive taxation plans (given the alternatives I'm not sure this isn't one of the better options), but you guys are off your rockers suggesting paralysis by analysis is a valid option at the moment.

Posted by: Russ at March 17, 2011 2:22 PM

I feel like this state has multiple personality disorder. We want to be a retail and services destination, but then we continually keep our sales taxes above our neighbors, who are only minutes away.

We need to start acting like what we really are, a tiny city-state between the richest state in the nation and a pretty well-off one. Let's flatten and drop the sales tax to be just a hair lower than our neighbors and take a bite out of our 'empty shops, no jobs' problems. Even an entry-level cashier's job can keep someone off of state assistance, and it's certainly a better stepping-stone than twiddling thumbs waiting for a check to come in.

Posted by: mangeek at March 17, 2011 2:53 PM

It is mind over matter with Chafee:
He doesn't mind because we don't matter!

Posted by: Bob at March 17, 2011 4:39 PM
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