December 8, 2008

The Voice of Continued Decline

Justin Katz

True to form, the Poverty Institute's Kate Brewster notes that "two-thirds of the [state budget] gap is due to declining corporate, income- and sales-tax collections, as well as shrinking lottery revenues," but her proposed response is not to find ways to increase the economic activity that drives such revenue. Rather, she'd simply like to jack up the rates (or broaden the shadow, in the case of the sales tax)

One needn't dig too deeply around the foundations of her conclusions to begin to see the crack:

According to leading economists, it is better to raise taxes on high earners than to cut spending during economic downturns. The Center on Budget and Policy Priorities cites two well-respected economists — Nobel Prize winner Joseph Stiglitz, of Columbia University, and Peter Orzag, the recently announced director of the Office of Management and Budget — who during the last recession asserted that tax increases on high earners are less harmful than spending cuts. Raising taxes may result in money not saved, but cutting programs for low-income families will result in money not spent which has a more dramatic impact on the economy.

One would hope that economists making such general statements would append a long list of circumstances that must be present in order for their conclusions to obtain. If they did so, in this case, then Brewster's printer must have run out of paper before it got to the caveats.

In a system as oppressive as Rhode Island's, money not taxed is not merely "money saved." It's money spent more productively. It's money spent creating jobs, investing in education, and improving property.

Rhode Island must prepare itself for the reality that its policies for surviving as a state will tend to drive out one group or another. What the leadership must do — now that the voters have abrogated the responsibility to make the call — is to decide whether it wants to tell the needy to seek services elsewhere or to tell the productive that they'll have to turn their eyes to other states for opportunity. If the latter, the likes of Brewster best begin developing their excuses and spin for the continued shrinkage of state revenue.

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The "Center on Budget and Policy Priorities" is just the Poverty Institute writ large - a front group churning out "analysis" to lend a patina of think tank rigor (and thus media unquestioned quotations and "facts") to run of the mill lobbying by the welfare industry.

A must read for every Rhode Islander is this magazine article, for this explains the entire dynamic of what has been, and is, being foisted upon Rhode Islandl:

The Conspiracy Against the Taxpayers

As Rhode Island is the only other state besides Michigan to suffer a net loss of population, this despite the influx of illegals into Rhode Island, this 2003 piece from the same author is quite prescient:

I’m Outta Here

And finally, a personal favorite by that same author - though he discusses New Jersey, the parallels to Rhode Island are uncanny (and we're not just talking the Tony Soprano culture):

The Mob That Whacked Jersey

Posted by: Tom W at December 8, 2008 10:43 AM

BTW, in the "Conspiracy Against the Taxpayers" linked above, Rhode Island receives special mention:

"Though union leaders defend these porcine compensation packages by claiming that they help private workers by preventing a private-sector race to the bottom on wages and benefits, high public-sector pay is partly responsible for holding down private wages. Rhode Island is an especially telling example. The state ranks fourth in average pay in the public sector but only 23rd in average private-sector wages, according to the Rhode Island Public Expenditure Council. To cover its high public-sector employee costs, Rhode Island has consistently raised taxes, giving it the sixth-highest total state and local tax burden in the country, including one of the highest corporate tax rates and sky-high property taxes. Those high taxes drain investment capital out of private-sector firms, making it harder for them to finance improvements that boost productivity, which is what in turn allows private-employee wages to rise. Rhode Island businesses have among the lowest rates of investment capital per employee in the country—30 percent below the national average. Thus, the more the state enriches public workers, the further its private workers, who pay public-sector salaries, fall behind. Rhode Island should serve as a cautionary tale for other states: it has one of the highest rates of unionization in the public sector—62 percent, compared with 37 percent nationally."

"Mario Mancieri, a Portsmouth, Rhode Island, school administrator for 25 years whose task it was to negotiate with the local teachers’ union, made clear to the Providence Journal last year how outclassed local school boards and officials are when they go toe to toe with statewide teacher-bargaining units affiliated with a national organization. “As soon as one community picked up a benefit, it was only a matter of time before it would migrate to your community,” he explained. At every contract discussion, the union made demands that extended a benefit in new and often unique ways. “In my community, sick days went from 12 to 15 to 20. . . ."

"Then many teachers began complaining they didn’t take their sick days. . . . So [they said,] ‘I’d like to be paid for the days.’ So we paid it out in dribs and drabs over the years.” Resisting proved too costly. “We made every effort to hold the line,” Mancieri recalled, “but strikes are devastating to the community and we had three strikes.” All this casts in a new light the No Child Left Behind Act’s efforts to impose national accountability on an educational system whose management is local but whose employees are organized statewide and nationwide."

Posted by: Tom W at December 8, 2008 11:10 AM

"According to leading economists, it is better to raise taxes on high earners than to cut spending during economic downturns."

Yeah, it's not like those "high earners" could move to a place like Florida or cut down on the number of workers they have or something...

Posted by: Will at December 8, 2008 12:02 PM

Sadly, the General Assembly, despite its growing number of "progressives" apparently lacks the courage of Kate's convictions (or Tom Sgouros' for that matter). Apparently, rather than sharply raising taxes (which would helpfully speed the final crisis this state needs to begin the long climb back up), they would rather sit around and wait for that big check from Obama to solve this year's budget problem.

Of course, even if that check comes and solves this year's problem, it still leaves them with (a) the nation's leading unfunded public sector pension gap; (b) fleeing business and affluent taxpayers; (c) more residents working in MA and CT, and paying most of their income taxes there; (d) growing numbers making purchases online or across state lines to avoid RI sales taxes; (e) declining gaming revenues; and (f) rising costs for our extremely generous welfare programs -- RiteCare, FIP, child care, etc.

But, apart from their lame and whiny cry to raise taxes on the evil rich and corporations, they have absolutely no idea of how to stop the inevitable train wreck.

Posted by: John at December 8, 2008 3:57 PM

We need to understand that what they mean by "the rich", is anyone with an income. Y'all may think I'm kidding, and if you do, the jokes once again on you.

Posted by: Rasputin at December 8, 2008 4:17 PM

>We need to understand that what they mean by "the rich", is anyone with an income. Y'all may think I'm kidding, and if you do, the jokes once again on you.

I take you very seriously. They believe in "equality" - and since there have always been, and always will be, poor people, they won't stop until everyone is equally poor.

Posted by: Tom W at December 8, 2008 10:03 PM

"Yeah, it's not like those "high earners" could move to a place like Florida"

Those mean ol' rich people just need to stay put and let us tax the heck out of them.

Posted by: Monique at December 9, 2008 8:25 AM

>>Those mean ol' rich people just need to stay put and let us tax the heck out of them.

Hey, we have a captive audience thanks to our "great quality of life."

I mean, geez, we have 4-5 months of good weather, property taxes that provide world-class schools and smooth roads, structurally sound bridges, a national reputation for clean and efficient government, and low per capita debt and fully funded pension and OPEB plans, and a vibrant economic policy, as evidenced by our below-average unemployment rate ... and soon, brand spankin' new toll booths. What's not to like, right?

Uh, wait. Never mind.

The Southeast is looking better all the time, isn't it?

But hey, they're really gonna miss those Dunkin' Donuts on every street corner, that'll fix 'em!

Posted by: Tom W at December 9, 2008 9:38 AM
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