August 19, 2011

The Thought of Too Few

Justin Katz

In a letter to the Providence Journal that doesn't appear to be online, Karin Gorman expresses a feeling that many of us share:

Things became heated [at a recent Operation Clean Government event] when state Rep. Larry Valencia, former president of [the organization], suggested that everyone needs to come to the table to solve the pension problem and increase taxes.

This was a room full of people who actually pay attention. We are tired of hearing that. That statement upset just about everyone in the room. There's been enough talking. Now is the time for action

And that action is not raising taxes, fees, and fines on an over-taxed-feed-and-fined population. Unfortunately, it's difficult to escape the conclusion that not enough of us feel this way to overcome the apathy and vested interests of everybody else.

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"suggested that everyone needs to come to the table to solve the pension problem and increase taxes."

See, a lot of people have been at the table - sounding the alarm over the pension problem - for many years.

Only now that it's clear that pension and pay checks are going to bounce have other people started to arrive at the table. That they are new arrivals to the table is obvious from the (non-feasible) solutions that they are proposing.

Case in point: Rep Valencia (and others) suggest that raising taxes will fix things.

But Rhode Island has the fifth highest state and local taxes nationally and its business climate is dead last. More importantly, the problem simply isn't going to be solved via the raising of taxes and fees and tolls. The magnitude of the shortfall is far too great.

Possibly these late arrivals should sit at the table for a while STUDYING all aspects of the situation before they exort others to participate in shallow, non-feasible solutions.

Posted by: Monique at August 19, 2011 4:43 PM

Remember when Carcieri was telling people this was going to happen and people (like Crowley) said he was just being alarmist and exaggerating?

Posted by: Patrick at August 19, 2011 7:27 PM

"that action is not raising taxes, fees, and fines on an over-taxed-feed-and-fined population."

I just want to chime-in on this. What's worse, raising taxes and having balanced budgets, or issuing debt and ending up only getting a maximum of $0.70 for every dollar spent (the rest going to debt service)?

I ask because as much as we all hate raising taxes, we've been kicking the can so hard and running government on bonds that you would need to cut spending 40% on the federal level just to be balanced. Does anyone think we can really cut 40% of the federal budget? And that's just the picture today, Medicare and Social Security are on track to eat the ENTIRE federal budget in a few years.

Conservatives and liberals alike understand that we're living on what amounts to an entire years' worth of GDP in debt already. It seems to me that no matter what, we're going to have to dramatically cut spending AND dramatically raise taxes in order to get the ship right-side-up.

I know I'm referencing the national problems, and this is a post about local issues, but the same factors in general are at-play.

I really don't think we can fix the economy by having the government 'pull a keynes' OR by cutting taxes a little bit. The overall tax levy/GDP is still low compared to other nations that are happily humming along, and the 'slowdown' is looking more and more like the new long-term reality. Neither philosophy will work.

Posted by: mangeek at August 20, 2011 1:04 AM


That analysis sounds plausible in the way that moderatism often does... person A picks a position, person B picks a contrary position, and person C pats himself on the back for trying to split the difference. Frankly, I think our nation's difference splitting might be an underlying part of its problem.

Note how you begin: "What's worse"? Well, neither; it's a false choice. You assert that a 40% cut in government can't be done. I assert that 40% ought to be no problem at all. (I'd note, by the way, that government revenue as a portion of GDP increased after both the Reagan and Bush tax cuts.)

As for the comparison with other nations' spending, I question how valid that is. For one thing, spending across the globe assumes a certain amount of spending by the United States — on defense, on innovation, and so on. For another, most nations are much smaller and socially homogeneous. For yet another, I've yet to see an analysis that compares the per-GDP spending of all layers of government.

Other nations, especially in Europe, are more akin to our states than our nation. What happens to the comparison when one compares the tax burden of a person living in, say, Tiverton, RI, USA, with somebody living in a particular town in France?

Posted by: Justin Katz at August 20, 2011 7:46 AM

I am always willing to negotiate in good faith, but the problem for me is that compromising with statists is like wishing upon an evil genie. It always makes you worse off than when you started, like wishing for a wife that's 20 years younger and you age 20 years. All we ever get are budget "cuts" that are actually agreements to grow government at a slower rate. Literally everything progressive-Democrats have ever promised me has been a lie - welfare helps the poor, disability helps the sick, public education helps the children, unions help business, government spending helps the economy, etc. How am I supposed to believe the same people who destroyed my home state and forced me to live in exile? They've been promising to help me for nearly three decades now and all that ever happens is more of my money is taken away and the quality of public services declines.

Posted by: Dan at August 20, 2011 8:54 AM

Your question provides a false choice. Its not a one or the other answer. Even when raising taxes, government has already shown that they will continue to borrow money so one isn't exclusive from the other. When you ask if we can really cut the budget 40 percent, I assume you are targeting the borrowing of 40 cents on the dollar. That has to be your goal otherwise government will continue to live beyond it's means. From my point of view, what is the goal if you're not trying to wipe out your debt? I don't trust government to raise taxes and stop borrowing. They have no track record of doing that.

Posted by: Max Diesel at August 20, 2011 9:03 AM

By electing the Kool Aid party since 1934 the people deserve to have an 11% sales tax, $30 tolls on their highways, ever increasing property taxes etc. to keep feeding the cronies, union pigs, welfare leeches and anchor babies.

Posted by: Tommy Cranston at August 20, 2011 9:57 AM

The big question for me is "how do we cut 40%?". What does that actually look like? It would absolutely mean cutting a ton of military spending on the national level, and cutting a ton of Health and Human Services spending on the state level. I'm actually OK with both of those, but figuring out what to cut on the -inside- of those budget items is really tricky.

I'm more interested in meeting halfway, there are changes to the tax code that I think would benefit the economy more than simple cuts within the existing hodgepodge of rules. The technologist/libertarian angel on one of my shoulders is telling me that the Free Market would be a lot freer if we didn't have so many oddball tax credits and subsidies. Here are a few things that would allow for revenues to go up, but might 'optimize' the tax code with free market principles in good ways:

1. Get rid of the Mortgage Interest Tax Credit, gently. Eliminate it for new loans, but existing ones would keep it for a decade. This tax credit, while loved by many, artificially props housing prices up by 15% or so and encourages people to keep refinancing. Instead, we should let housing prices drop, reform low-income housing programs, and encourage people to get on a track to pay off their mortgages before they hit retirement age, which allows for reform of Social Security in thirty years.

2. Change the way Medicare works for terminal patients. I've seen the medical providers 'cash-out' on dying people too many times. Grandpa is 89 and has terminal lung cancer, but they do $1M of treatment instead of encouraging him to go to hospice. That's crazy, and it makes up a big portion of Medicare spending. Maybe we could just change the 'default' behavior so that some helpless cases would need to 'opt-in' to expensive care through a few meetings with a counselor and lawyer.

3. Get the military out of Japan, South Korea, Iraq, Kyrgyzstan, etc. All the troops I know in the military (and at my age, I'm friends with several career military folks) think we're not actually doing anything of value there. The troops are disheartened and not optimistic about what we've done or what we're doing. Bring them home and repatriate them to their states, where we might be able to put some of them to use on civil projects.

4. Reform taxes for the 'trust fund' class. I work hard and pay taxes, but I have friends who don't with trust funds who pay lower taxes than me. It's a crazy short-circuit of the economy to tax investment income differently than regular income. Rather than look at this as a disincentive to investing, I see it as fixing an artificial incentive that's already there, like the Mortgage Interest Deduction. It distorts the picture in order to keep stock prices higher.

5. Cut a bunch of Homeland Security. Really. It's out of control what these people are up to. I have a friend in the ATF and the U.S. Marshalls, they have more manpower and equipment than they know what to do with, so they 'practice' their raids on nonviolent criminals. Do we really need SWAT teams of federal agents wearing bulletproof vests and night-vision goggles to respond to internet pedophiles, because that's what's happening. Do we really need everyone to go through a TSA checkpoint, or can we profile and assume that the Regular Joe who has a job and family is safe to show his ID and walk on a plane.

6. Cut farm subsidies. This is a no-brainer. Keep the programs, but phase them out as a function of the size of the operation. We solved our food stability problems a while ago with the subsidies, but now it's time to get ahead of the NEXT problem with food and prevent a biological monoculture from domainating our food supply (read: potato famine). Favor operations that have fewer than ten employees or something.

Posted by: mangeek at August 20, 2011 1:21 PM

The only solution liberals and "progressives" ever offer is higher levels of taxation. Can there be any doubt that this is what will be proposed? Liberals do not grasp the concept that lowering taxes leads to more revenues. They will continually revisit the playbook of failed past policies. Brace for higher taxes and lower revenues leading to a deeper and wider cesspool of debt.

Posted by: ANTHONY at August 20, 2011 4:33 PM

Your friends in the military are more honest than my friends in the military, mangeek. Most of them are too proud or too deluded to realize that they aren't the saviors of the world they were told they were in training, and that they are actually just a more socially acceptable form of welfare recipient at this point. Some of them are stationed in Okinawa and insist they are needed there despite their daily two-hour lunches, daily chess matches, and marathon workout sessions. I lost a friend last year because I got tired of him calling me a "civilian" like it was a bad word and insisting that he "knew things" to which I wasn't privy that justified our presence there. He's a career sergeant who has never seen combat and lists himself as a libertarian on Facebook - I got tired of him raising my blood pressure all the time.

Most government problems aren't really sinister, they just amount to a lack of incentives. There is no incentive for all these people lounging around bases across the world to come forward and acknowledge the problem. What do they get as a reward - Shame? Rebuke? Unemployment? And anyone else who dares to point out the problem is immediately labelled a traitor or a coward, or told that they aren't allowed to make that judgment because they haven't "served." Our entire jingoist culture would have to change to justify the kinds of military reductions that are needed, and I don't see it happening.

Posted by: Dan at August 20, 2011 5:09 PM

"lowering taxes leads to more revenues."

That's only true when you're on the right side of the famous Laffer Curve. I don't think we actually are. My actual federal tax rate (not Social Security or Medicare, after deductions) is around 10 or 11 percent, lowering it or raising it by 50% (to 5% or 15% respectively) wouldn't change my monthly budget much at all.

There are other factors besides taxes which I think are impacting the economy much more.

Cutting 40% of spending today and not borrowing would cut the GDP by 10% or so, and that would almost certainly cause 'great depression' style unemployment and strife in the short term, with virtually no economic upside for twenty years. Meanwhile, adding a public option (if it's done correctly) for health care would raise taxes another 10% of GDP, but it would allow employers to stop worrying about health care costs and 'free up' the 'wasted' 10% of GDP (the difference between what we pay and other nations do). I think that's a place where there's a legitimate way to expand business AND help the economy overall. At the same time, we need to simplify taxes and regulations, which will help smaller businesses, even if it means that the overall tax levy goes up a bit on account of it.

Posted by: mangeek at August 20, 2011 6:49 PM
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