State Tax Increases on the Rise
The headline from Stateline.org‘s top story today reads, “State budget gaps top $200 billion; fee, tax hikes in the works.” But as Chris Edwards noted back in February, these so-called “budget gaps” are mainly fiction. Put simply, previous revenue forecasts overstated the amount of money that would be coming into state coffers. Now that revenues are drying up because of the slow economy, state politicians can’t spend the amount of money they intended.
For individuals and businesses, the economic downturn and resulting financial crimp means less spending and more prudence. For politicians and those living at the expense of taxpayers, it means raising taxes to keep the spending spigots turned on. As the table below shows, total state spending has increased at an excessive pace this decade:
Too often journalists report on the present plight of pro-tax and spend policymakers without considering decisions made in the past. Readers should bear the above table in mind the next time they come across such amnesic reporting .
Tarred by TARP
Government-backed equity was offered to adequately capitalized banks in order to remove the “stigma” from banks receiving TARP funds, and the management of these institutions took the bait and accepted the money.
Surprise, surprise: now they discover that the money came with strings.
Some banks want to pay back the TARP money to extricate themselves from government restrictions on compensation and pressure to make loans the banks view as unprofitable. Treasury Secretary Geithner has made it clear that the decision to pay back the funds early won’t be left to the banks, but to the Treasury: “My basic obligation is to make sure the system as a whole … has the ability to provide the credit that recovery requires.”
The banking system has thus become a tool for the government to further its policies. And the bankers themselves put their institutions in that position. While taxpayers may understandably feel the bankers got their comeuppance, there are at least two major problems with the Bush/Obama policy.
First, Mr. Geithner has misdiagnosed the problem.
We are in recovery from the effects of the bursting of a massive housing and finance bubble funded by debt. That boom in turn financed a consumption binge of monumental proportions.
The only resolution of a spending binge is restraint in the form of saving. Recovery requires not more credit and another boom, but a dose of economic sobriety.
Individuals and firms know that and are de-leveraging – unwinding what they now realize is excessive debt. That will take the rest of this year and the better part of 2010. Overall, credit is down because demand is down.
Second, and even more disturbing: it appears that the Obama Administration wants to control the financial sector in order to gain control over what Lenin called the “Commanding Heights” of the U.S. economy: the major industries and sources of employment. The auto industry is a prime example, and one in which the administration has involved itself directly. It is also pressuring major recipients of TARP funds to ease the terms of the loans they have made to firms such as Chrysler. Treasury is attempting to use the banks to conduct fiscal policy through credit allocation.
The bankers taking TARP funds got their firms into a mess and deserve no sympathy. Anyone believing in free markets, however, must oppose this power grab by the Obama Administration.
Let the banks pay the funds back and let it be a lesson for CEOs and their stockholders: If you take government funds, you have taken on an unreliable business partner.
9th Circuit Imitates Marcel Marceau
Last month, I warned that the 9th Circuit Court of Appeals would soon be handing the school choice movement a legal setback. Well, it’s here.
As expected, the 9th Circuit has reinstated a lower court challenge to Arizona’s scholarship donation tax credit program. The program allows taxpayers to contribute to non-profit Scholarship Tuition Organizations (STOs) that provide financial assistance to families choosing private schools. The taxpayers can then claim a dollar for dollar credit for their donation.
While this ruling leaves the program intact for the time being, it would almost surely require the tax credit program to be amended if it is allowed to stand. Fortunately, as I noted in my earlier post, the 9th Circuit is overturned as often as a caber at the Highland Games. Its ruling is unlikely to stand if appealed to the U.S. Supreme Court.
At issue is the fact that taxpayers are free to choose the STOs to which they donate their money, and private STOs are free to set criteria for the schools at which their scholarships can be redeemed. There are thus some STOs that offer scholarships only to religious schools. This is essentially the same situation that obtains when taxpayers claim deductions for contributions to non-profit charities. The charities can legally be religious or secular, and they can infuse the services they offer with religion, or not, as they choose. The whole thing is constitutional because it is the taxpayers, not the government, that decides which charity gets their funds. This is all settled law.
To get around the fact that the legal precedents were against it, the 9th Circuit decided to do a compelling impression of Marcel Marceau, pretending to hem itself into an invisible legal box. Specifically, the 9th Circuit decided to pretend that the constitutional restrictions limiting government expenditures (as in school voucher programs) also apply to the private funds at issue under tax credit programs.
That box, of course, does not exist. No government money is spent under the tax credit program, and the tax credits are themselves available on an entirely religiously neutral basis, in scrupulous conformance with the Establishment Clause of the First Amendment.
So here’s my next legal prediction: the constitutionality of the Arizona education tax credit program will ultimately be upheld by the U.S. Supreme Court, and opponents of educational freedom will have to resort to some new ploy in their efforts to herd American families back onto the public school plantation.
Cato and the Bailouts: A Correction for the NY Times ‘Economix’ Blog
At the New York Times Economix blog, economist Nancy Folbre of the University of Massachusetts writes:
The libertarian Cato Institute often emphasizes the issue of corporate welfare, but it’s remained remarkably quiet so far on the topic of bailouts.
Excuse me?
Since she linked to one of our papers on corporate welfare, we assume she’s visited our site. How, then, could she get such an impression? Cato scholars have been deploring bailouts since last September. (Actually, since the Chrysler bailout of 1979, but we’ll skip forward to the recent avalanche of Bush-Obama bailouts.) Just recently, for instance, in — ahem — the New York Times, senior fellow William Poole implored, “Stop the Bailouts.” I wonder if our commentaries started with my blog post “Bailout Nation?” last September 8? Or maybe with Thomas Humphrey and Richard Timberlake’s “The Imperial Fed,” deploring the Federal Reserve’s help for Bear Stearns, on April 14 of last year?
Cato scholars appeared on more than 90 radio and television programs to criticize the bailouts during the last quarter of 2008. Here’s a video compilation of some of those appearances.
Folbre complains that some people seem more concerned about welfare — TANF, in the latest federal acronym — than about welfare for bankers — TARP. Google says that there are 138 references to TANF over the past 13 years or so on the Cato website, and 231 references to TARP in the past few months.
Now she has a legitimate point. Welfare for the rich is at least as bad as welfare for the poor. And as much as welfare for the poor has cost taxpayers, the new welfare for banks, insurance companies, mortgage companies, and automobile industries is costing us more. Samuel Brittan of the Financial Times has written that “reassignment,” an economic policy that changes individuals’ ranking in the hierarchy of incomes, is far more offensive than a policy of redistribution, which in his idealized vision would merely raise the incomes of the poorest members of society. By that standard, taxing some businesses and individuals to subsidize the high incomes of others is certainly offensive. Of course, Brittan underemphasized the harm done by welfare to people who become trapped in dependency. But there’s good reason to oppose both TANF and TARP, and Cato scholars have done both.
Lest the good work of Cato’s New Media Manager Chris Moody go under-utilized, here’s a probably incomplete guide to Cato scholars’ comments on the bailouts of the past few months. (Note that it doesn’t include blog posts, of which there have been many.) Quiet? I don’t think so:
The President’s Make-Believe Fiscal Conservatism
At first, I thought the calendar was wrong and it must be April 1 and the White House was playing an April Fool’s joke. That seemed like the only logical explanation for a story in today’s Washington Post stating that the President wants all government departments to identify $100 million in supposed budget cuts. With 14 cabinet-level departments, that adds up to $1.4 billion of savings — and those savings almost certainly be measured against an ever-increasing budget baseline, which means that they would merely be reductions in planned increases. This is a shallow and insincere stunt to trick taxpayers. This is the same President, after all, that just squandered nearly $800 billion on a so-called stimulus bill. And this is the same President that just rammed through a $3.5 trillion budget. This chart provides a useful comparison.
For those who appreciate irony (or perhaps a late April Fool’s joke), the Washington Post story makes for interesting reading:
President Obama plans to convene his Cabinet for the first time today, where he will order members to identify a combined $100 million in budget cuts over the next 90 days, according to a senior administration official. Although the cuts would account to a minuscule portion of the federal budget, they are intended to signal the president’s determination to trim spending and reform government, the official said. …In his radio and Internet address Saturday, Obama repeated his vow for his administration to scour the federal budget “line by line” to reduce spending.
Update: Some people have written to say that Obama is asking his team to come up with a combined $100 million, not $100 million from each department. So my initial post gave him 14 times too much credit. This is almost beyond parody.
Is Rick Perry Really for Limited Government?
Conservative radio hosts are excited about a recent speech by Texas governor Rick Perry. Perry forcefully argued his theme of “unwavering support for efforts all across our country, but, most of all, here in Texas, to reaffirm the states’ rights affirmed through the Tenth Amendment to the U.S. Constitution.”
That sounds great, but does he really mean it?
In a study, I noted that Perry and the Texas state government are aggressive scavengers of federal grant dollars. The rise in federal granting is one of the central causes of the destruction of the Tenth Amendment in recent decades.
I noted that Perry’s official webpage is chock full of press releases touting his distribution of federal subsidies. These press releases are from a short time period in 2006:
- “Perry: Texas Farmers and Ranchers to Share $780 Million in Drought Assistance.”
- “Perry: FEMA Agrees to Reimburse Texas at Same Rate as Louisiana for Hurricanes.”
- “Gov. Perry Announces $1.6 Million in Grants to Juvenile Offender Accountability Programs.”
- “Perry: Homeland Security Grants to Focus on Technology Needs.”
- “Gov. Perry: Presidential Disaster Declaration Approved for El Paso.”
- “Gov. Perry Announces $38,098 in Victims of Crime Act Funds to El Paso County.”
- “Gov. Perry Announces $3.6 Million in Grants to Local Law Enforcement.”
Notice how Perry takes credit for all the new spending? Politicians love spending, especially when they can foist the cost on taxpayers living in other states.
Look at these two press releases up on Perry’s website right now:
- Apr. 9: “Gov. Perry Backs Resolution Affirming Texas’ Sovereignty Under 10th Amendment.”
- Apr. 10: “Gov. Perry Calls on FEMA to Assist the State in Fighting Wildfires.”
Governor Perry: Do you want to revive the Tenth Amendment or do you want the FEMA money? You’re giving us whiplash out here!
I don’t think Perry’s tax policies have been particularly conservative either, as they have centralized fiscal power at the state level and thus reduced beneficial competition between local governments.
What “Taxpayers?”
In an editorial yesterday on President Obama’s proposal to end federal guaranteed student lending and turn everything into loans and grants direct from Uncle Sam, the New York Times had an interesting take on what constitutes putting ”taxpayers’ interests first”:
Private companies that reap undeserved profits from the federal student-loan program are gearing up to kill a White House plan that would get them off the dole and redirect the savings to federal scholarships for the needy. Instead of knuckling under to the powerful lending lobby, as it has so often done in the past, Congress needs to finally put the taxpayers’ interests first.
So let me get this straight: Redirecting tax dollars from lenders — who do get cushy fees and security through the guaranteed loan program — and giving it to students is somehow in the best interest of taxpayers? Maybe I’m old fashioned or something, but wouldn’t the best thing for taxpayers be to get their money back, not just see it shuffled from one special interest to another?
Obviously it would, and not just because taxpayers are best off when they decide how their ducats are used. As Andrew Gillen and I made clear in a Capitol Hill briefing last week, the best thing that could happen for taxpayers, students, and all of society would be for the federal government to provide much less aid to students, not more. The reality is that student aid drives massive, self-defeating college price inflation, creates ugly bloat and waste in our ivory towers, and ultimately cramps economic growth.
And we wonder why there are tea parties!
Congressional Bonuses
The Wall Street Journal reports,
While Congress has been flaying companies for giving out bonuses while on the government dole, lawmakers have a longstanding tradition of rewarding their own employees with extra cash — also courtesy of taxpayers.
And at the very time that Congress was mishandling the financial crisis and trying to direct popular outrage at Wall Street, not Washington, the bonuses were getting bigger:
Capitol Hill bonuses in 2008 were among the highest in years, according to LegiStorm, an organization that tracks payroll data. The average House aide earned 17% more in the fourth quarter of the year, when the bonuses were paid, than in previous quarters, according to the data.
LegiStorm is a pretty scary website for congressional staff members and privacy advocates. It makes readily available not just staffers’ salaries but their financial disclosure forms, including their spouses’ sources of income, as the Washington Post reported this week. I used LegiStorm myself (or technically interns Schuyler Daum and Jonathan Slemrod did) to write about how the Republicans shoveled bonus money to their staff members before they lost control of committee budgets after the 2006 election. Now that bonuses have become a focus of outrage, maybe Congress should impose 90 percent clawbacks on the bonuses of congressional staffers — and bonuses to other federal employees. After all, they’ve mismanaged the government’s finances far worse than AIG employees mismanaged that company.
New York’s ‘Not Austere’ Budget
“Not Austere” is how the New York Times is describing the state’s $131.8 billion budget for 2009-2010. As a colleague pointed out to me, “how bad does a budget have to be for the New York Times to call it ‘not austere’?” Apparently, pretty bad.
In addition to an estimated $7 billion in tax and fee increases, total state spending would increase almost 9% when federal “stimulus” money is included. Supporters dismiss the inclusion of bailout money in the totals, but for those who think the “temporary” federal bailout money won’t foster otherwise higher state spending going forward, I’ve got a lot for sale in Poughkeepsie.
The Albany Times-Union reported that Gov. Paterson cited public employee labor contracts as a reason for the budget increase. Once again, the needs of the productive class (i.e., taxpayers) take a back seat to the bureaucratic class living at their expense. Of course, New York’s policymakers were also able to find money for critical expenditures on “gun clubs, churches, a yoga foundation and the Wantagh American Legion Pipe Band, among thousands of other projects.”
The biggest tax increase is a surcharge on personal income taxes paid by “the wealthy” that is supposed to net state coffers $4 billion. (Note to New York personal income tax payers: New Hampshire doesn’t have one.) But other tax increases will hit all walks of New York life including an increased assessment on utilities, a motor vehicle registration fee increase of 25 percent, an increase in driver’s license fees of 25 percent, increased taxes on beer and wine, a tax increase on auto rentals of 1 percent, and possibly the most insulting — a new $100 fee on tax preparers (guess who’s going to ultimately pay that one?).
Here’s A “Toxic Asset” for You…
The Obama administration seems obsessed with making American taxpayers eat toxic assets. And I’m not talking about bad paper, derivatives, or any other inscrutable financial stinkers. I’m talking about good ol’ American public schooling.
Truth be told, after listening to the president’s presser last night, even I started to think that the key to American economic success is “investing” in education. After all, once you’ve heard something for about the twentieth time, you start to believe it. I mean, that’s how propaganda works, right? But somehow my mind refused to give in, and it forced me to remember:
We’ve been “investing” in government schools for decades, and have been reaping nothing but AIG-like results!
I actually laid out the startlingly awful returns we’ve gotten for our education dollars in several blog entries last month, but thought I’d revisit the basic, revolting facts one more time. I want it to be absolutely clear that lavishing more money on education isn’t change, nor, given what we get for the money, could it possibly be the key to long-term economic success.
So what have we invested? Let’s start with total outlays for elementary through post-secondary education, taken from table 26 of the latest Digest of Education Statistics. In 1969 we spent a total of $347 billion in inflation-adjusted dollars. In 2007, we spent $981 billion, a 183 percent increase.
How about public k-12 spending on a per-pupil basis? Again using Digest data (table 181) – which understates total expenditures by excluding such things as “state administration expenditures” – we can see that we’ve been spending increasingly sizable amounts. After adjusting for inflation, in 1969 we spent $5,161 per child. By 2005, that number had more than doubled, hitting $11,643. And what has that “investment” yielded?
Other than massive bloat, bupkus! Looking at National Assessment of Educational Progress long-term trend scores for 17-year-olds – essentially, our schools’ final products – we see almost complete academic stagnation. In mathematics, the average scale score was 304 (out of 500) in 1973, and only a measly 3 points higher in 2004! That’s a one percent increase in math outcomes for a roughly 100 percent increase in funding! And that actually beats the “return” in reading, where 17-year-olds were at 285 in 1971 and, yup, 285 in 2004!
How about higher education? Here we don’t have very good outcome measures and it is difficult to break down overall per-pupil expenditures. What we do have, however, suggests another bad investment.
To get a feel for expenditures, we can examine the State Higher Education Executive Officers report (figure A) showing that total revenue collected per full-time-equivalent student at public institutions, adjusted for inflation, grew from $8,463 in 1983 to $11,037 in 2008, a 30 percent increase. We can also look at aid per student, most of which came through government. According to data from the College Board (table 3), in 1983 the average full-time-equivalent student received $3,769 in inflation-adjusted aid. In 2007 she got $10,392, a 176 percent increase.
What are the returns on these investments? Again, lots of bloat, but from what we can tell, relatively little of educational value. Graduation rates, for one thing, seem to be falling.
According to the Population Studies Center, within eight years of graduating high school, 51.1 percent of students in the high school class of 1972 had finished college degrees. In contrast, only 45.3 percent of 1992’s high school class had done the same. And grads seem to be getting less well educated; according to the National Assessment of Adult Literacy, between 1992 and 2003 literacy levels dropped for both Americans whose education maxed out at a bachelor’s degree and those with graduate degrees. Whether it was graduates’ ability to read prose, documents, or handle math, scores went down while costs went up.
So all told, what do we have to show for our education investment? Pretty much just empty bank accounts. And yet, some politicians just can’t seem to get enough of those toxic assets!
The Stimulus Bill, Rebranded
A while back I noted that the administration had helpfully developed a special symbol to brand its wonderful stimulus program. The purpose is to ensure that the people will be eternally grateful and thus will reward the president with their votes, er, no, that would be partisan and run contrary to everything the new administration stands for. The purpose is to educate people about what the government is doing on their behalf.
As one would expect, with a symbol so ridiculous have come some wonderful parodies. Several focus on what is being done to the taxpayers. There’s even a funny poster to go along with some other entries.
The strongest defense of individual liberty today is going to come from entrepreneurial activists around the country like these, who have harnessed the power of ridicule, not politicians on Capitol Hill who, after voting for bloated federal budgets for years, now claim to realize that government spending is a bad thing. The latter are “the summer soldier and sunshine patriot” who Thomas Paine spoke of back in 1776. It is up to the rest of us to carry the heaviest burden of the battle for liberty. The the fight is worth it as the price of freedom always has been high. As Paine noted in “The Crisis”: “it would be strange indeed if so celestial an article as freedom should not be highly rated.”
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