D. Dowd Muska


New Year, New Taxes, Same Denial

December 25, 2014

Federal taxes probably won’t be raised in 2015. Good. At the state level, though, revenue-grabbers are massing. Be on guard.

Tax attacks on multiple fronts are probable because budget deficits plague the “laboratories of democracy.” Predictably, the Northeast has the worst afflictions. According to the Pittsburgh Tribune-Review, Pennsylvania’s Democratic governor-elect “steps into office … confronted with the same problem that Republican Gov. Tom Corbett had in 2011: a multibillion-dollar deficit left by his predecessor.” Connecticut clipped $54.7 million in spending last month, with more to come. (The combined deficit for the Nutmeg State’s next three fiscal years tops $3.1 billion.) Vermont, still dreaming of a single-payer healthcare system, is $100 million in the hole.

The Bay State’s outgoing governor is “proud of the fact that our students lead the nation in student achievement, that we’re number one in America in health care coverage, in veterans’ services, energy efficiency, economic competitiveness, entrepreneurial activity.” But Deval Patrick is not trumpeting the fact that he’s leaving behind a serious arrearage. On analysis estimates that in addition to the $250 million in cuts already implemented this year, Massachusetts needs another $750 million worth of austerity.

In the mid-Atlantic, Virginia is shaky, but Maryland’s in crisis. The Baltimore Sun reported that during “the next 18 months, state revenue is expected to fall nearly $1.2 billion short of … expenses.”

Heading west, Illinois’s new chief executive said the state is “in deep, deep trouble financially,” and warned that the “next 24 months are going to be rough.” Kansas is scrambling to close a $279 million deficit. Nevada’s current-fiscal-year gap is $162 million. (Moody’s is not happy.) The abyss in Arizona is $520 million now, and $1 billion in 2016.

Wait a second. The stock market is booming. Housing, however slowly, is rebounding. Almost 11 million private-sector jobs have been created in the last five years. Shouldn’t states’ books be balanced?

Yes, but “should” has little connection to political reality. Some states marinate in the deep-blue strategy of frequent taxes hikes and rampant Nanny Statism. Others hew to the reddish approach of light taxes and common-sense regulations. Several can’t decide which model to adopt. But all share one thing in common: an unwillingness to cut spending. The Great Recession struck seven years ago, yet to this day, old habits haven’t been broken. Large, permanent staff reductions weren’t made. Reforms of bureaucrats’ excessive compensation packages were achieved in a handful of states, but they weren’t enough. (The Economist wonders if Illinois is “America’s Greece,” scolding it for having “the most underfunded retirement system of any state and the largest pension burden relative to state revenue.”)

Federal freebies -- primarily the “stimulus” enacted in the early days of the Obama administration -- were grabbed with glee. Where possible, taxes were hiked. Rainy-day reserves were emptied. Worst of all, perhaps, was states’ acceptance of Obamacare. Medicaid provides low-quality service, and its finances are staggeringly unsustainable. But many governors, including a few GOPers, expanded the program. The establishment of state “exchanges” was aided by federal subsidization of initial operating outlays. “That money is essentially gone,” noted the Cato Institute’s Michael Tanner. “That was always one of the arguments about why states should not take this route. They ended up having to pay for the costs.”

Corporate welfare -- particularly giveaways to “green” energy, agriculture, and movie and television productions -- wasn’t trimmed. Competitive-contracting and privatization efforts were paltry. Taxpayers continue to fund arts, culture, and tourism bureaucracies. Transportation policy is still determined by social engineering and wishful thinking, not real-world mobility needs. The preschool lobby is powerful. And college-is-for-everyone groupthink is as pervasive as ever, fueling hugely expensive “investments” in government-university systems.

Maryland’s governor-elect vividly described his state’s dangerous denial: “We have drained our checking and savings accounts, maxed out every credit card. We tapped into the Christmas fund, the college tuition funds, and we even broke into every one of the kids’ piggy banks. We are going to have to make some very difficult choices, because state government cannot continue to spend more than it takes in.”

Nearly five years ago, the Chicago Tribune offered a harsher assessment. “Illinois,” the newspaper editorialized, “needs an end to the mutual admiration society of public officials and public eployees coddling one another.”

The advice went unheeded -- in Illinois and elsewhere. So in 2015, expect to hear quite a lot about the “need” for “additional revenue” to keep up with “demand” for government “services.”

Cuts? Layoffs? Pay and benefit concessions? Cue the crickets.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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