State of the States

Get ready to pay.
States struggling to keep government running and balance their budgets are turning to higher taxes and fees to do the dirty work, potentially doubling the load of new taxes this year and erasing much of the savings from the high-flying 1990s.

Of course: "Smokers, drinkers and gamblers are top targets. So are drivers and traffic offenders."

Read all about it here and here.

Comments

[Sage]

And property owners, and employers...

[Warren]

Under the axiom of "that which you tax you discourage (and that which you subsidize you encourage)", taxing smoking, drinking and gambling is preferred over taxing income or property. Using traffic laws (or any law) as a revenue source is just corrupt. The state should never be allowed to profit from law enforcement, abuse is inevitable.

[Anonymous]

http://online.wsj.com/article_email/0,,SB105510885819090500,00.html
http://www.nytimes.com/2003/06/11/opinion/11FRIE.html
http://www.nytimes.com/2003/05/27/opinion/27KRUG.html
http://businessweek.com/magazine/content/03_24/b3837026_mz007.htm

[Lefty]

The biggest joke for getting around tax increases is a new local fee for using the "jaws of life" at accident scenes. If it's me, I want two quotes before I choose my provider.

[Anonymous]

Lefty,

What difference does it make? The government wants to pay for it anyway 😉

On the other hand, if you get hurt doing a "socially irresponsible" deed...

[david f]

"socially irresponsible" meaning:

smoking or drinking if the dems are in charge
drugs or masturbating if the republicans are in charge.
porn if either are in charge.

vote libertarian to avoid that judgement...

cheers,
drf

[Anonymous]

Putting the last 3 posts together, I hope they don't use the jaws of life if I crash my car while masturbating. Ouch!

[James Merritt]

In California, our dot-com economic bubble was especially prominent, and most turgid during 1999 and 2000. But if you don't count the ups and downs of those years, total statewide revenue expectations for 2003 are 22% higher (and the General Fund subset 13% higher) than in 1998. That means an additional fifteen billion dollars are going into state coffers (and seven billion of that going into the general fund), over 1998.

The growth of state spending, of course, has wildly exceeded even that solid, sustainable revenue increase, probably due to expectations raised (and, dare I suggest, promises made) during the two heady boom years.

Now, our Governor and Legislature whine about a "massive budget deficit." This means only that the State government is planning to spend way more than the river of cash now flowing into the Capitol can possibly support. Remember, that river of cash is already delivering 1.25 billion dollars more than it did in 1998, EVERY MONTH.

To lessen the deficit, the State is allegedly denying funds to the counties and cities, forcing them to raise taxes locally; yet the State spending and tax receipts are still appreciably higher than they were in 1998, with no reduction in sight. Why are we, then, firing local government workers, shutting down programs, closing schools, and so forth? This kind of dire action was neither happening nor credibly forecast in 1998. Altogether, it seems to me as if we will be paying quite a bit more for fewer benefits and less service. That's a crock.

As a fundamental approach, I think that the State should take a look at where it was in 1998, and fix the size of departments and programs that existed then to no more than 13% over their 1998 levels. Programs and departments that came into existence after 1998 can be funded with whatever unspent revenue remains. If that isn't enough to cover them all, then yes, some programs will have to be reduced or discontinued. Or pre-1998 programs will have to be reduced below the 13% increase over 1998 levels, or discontinued themselves, in order to make more room for post-1998 budget items that are now deemed "essential."

The amazing, practically heartbreaking thing is that, had a business enjoyed the kind of growth that California tax revenues have seen in the last five years, not even counting the spikes of the dot-com boom years, we would consider that business a resounding success. But if anyone could snatch defeat from the jaws of economic victory, spending all of the sustainable increase, the bubble windfall, and tens of billions more besides, it was the California State government. Calamities and crises do not provide enough cover to hide their fat behinds. Changes as big as those posteriors are necessary. I hope the voters will take that to heart, and remember also that Demos and GOP went hand in hand down the path to financial ruin, even though they now try to point fingers at each other. Vote for more independents and Libertarians in 2003 and 2004, or you can join the Sacramento blame game, by standing in front of a mirror and pointing at the idiot you see.

[James Merritt]

I almost forgot. Those numbers I used? They were from our "Sky is falling" Governor's OWN analysis:

http://www.dof.ca.gov/html/bud_docs/bud_link.htm

Check out the "Summary of State Tax Collections," in the "Governor's Budget Summary," page 72 (pdf page 82). It, and several other charts in the Summary, are real eye-openers.

[John Henry]

Seems to me to be a good thing on the whole. If my mayor/city council raise taxes, I can bend their ear about it when I see them in the grocery store.

If enough people do this, they might even listen. If they don't listen, it will probably be easier to ditch them (or make them think we might) than a person in DC.

Yes, yes, yes. All taxes should be local. It puts us payers in closer touch with the spenders.

[James Merritt]

I'm with John Henry on this one. But what garlic will chase away, and what stake will dust the State and Federal vampires, who are sucking us dry before cities and counties can slurp a drop?

Repeal the 16th Amendment, for a start.

Also beware: there are ways of John Henry getting his wish that he and we might not like. California's AB 1690, for example, would make INCOME TAX legal at the county and city level. I'm all for abolishing Federal and State income taxes, but I don't want Counties and cities to come along and pick up the income tax racket, where States and the Feds leave off. Income tax and its attendant mechanisms and implications are bad, bad, bad.

[James Merritt]

"The State, county and municipal governments are generally the biggest employers in most, if not all, states." -Lefty

Is this true? If so, where can I find it confirmed? And if so, we're all in a heap'o'trouble. Why? For the same reason that people who are outraged that over 50% of the population being below average in income are in trouble. Or the people who were late to the Ponzi scheme party (or the social security trough, for that matter) are in trouble.

Now, I understand that a government may be the largest single EMPLOYER in a region, but in anything approaching a free market situation, it cannot be the primary source of employment in a region, without subsidy from outside the region.

I understand about the economic impact of laying off a bunch of government workers, but to the extent it were necessary, it would be the REaction which necessarily complemented the original impact that came from taking the money away from private-sector productive taxpayers in the first place. The recoil can't be helped, and any attempt to prevent or postpone it will, experience suggests, only make things worse. Eventually, the recoil impact WILL be felt. All we can do is choose how to feel it (or not choose, thus letting the recoil reaction be in complete control).

[Lefty]

The business payroll numbers came from the SBA and the state budget is pretty easy to find. The others are just guessed but based on valid assumptions, I think. And I didn't even count Social Security recipients. Please, if you run on to some contradictory information, let me know.

I'm trying to understand the meaning of this, too. For instance, does it make a difference to the economy if the highway department worker is drawing a paycheck from the state or a business when he patches that hole? The money is taxed and spent just the same.

As far as where the money comes from, remember that it's just a concept, not rooted in anything but the public faith. It's printed, passed and re-passed around in numbers of whatever the market will bear.

I just picked Missouri because I'm familiar with it and it is the epitome of average. The numbers would undoubtedly be different in California and Alabama but the principle is the same. Local economies, especially in rural areas, are very dependent on government spending.

[Franklin Harris]

In Alabama, the newly elected Republican governor has put together the largest tax increase in state history -- $1.2 billion. Voters will get a crack at it in September. We're told the state is in the worst financial shape since the Depression, so, obviously, people just need to be taxed more. (Never mind that the state's sales tax revenue is up this year over last year.)

[EcoDude]

"When you lay off state employees, you dry up the consumer spending that's driving this economy." --Lefty

Suppose that the tax revenue that pays the salary of these state workers is returned to taxpayers. What difference does it make if state employees spend the money instead of the taxpayers? Isn't there a multiplier effect when taxpayers spend the money as opposed to state employees?

[Student]

Lefy, what is "The Big Dig"? I heard it's some place in Massachusets.

[L.Spooner]

Student, your question reminds me of an age-old government scheme to "keep the economy running."

They "create jobs" by having thousands of workers dig a big hole in the ground (using table spoons) and then have those workers fill up the hole again (using tea spoons.)

There! That oughta keep 'em employed for years, and "keep the economy running," won't it?

Pop Quiz: Any idea what they pay the workers with?

[Lefty]

Let's look at an "average" state - Missouri. They are proud of their averageness and we can maybe project some feel for how government expenditures contribute to local economies.

According to the SBA, total payroll in Missouri is about 72 billion dollars. State expenditures are about 16 billion. There are two major metro areas, over 100 counties and a bunch of medium size cities. So, conservatively I'm guessing these other governments spend an additional 16 billion. Add Missouri's 1/50th share of the Fed's 2 trillion in spending a year and you get another 4 billion for a total of 36 billion in government spending.

If you apply my 80% personnel cost assumption (I can't confirm that offhand but think it's reasonable) and you get about 29 billion in government payroll versus the 72 in the private sector. That's 40% of the state's consumer economy coming from public employees and doesn't even take into account the other 20% of government spending, most of which goes to private contractors and vendors.

That's a huge baby to shrink down to drowning size. All of these employees pay taxes, buy homes and cars, vote and keep our consumer economy's pump primed.

[Lefty]

There's a problem here, James. Over 80% of all those state and local budgets are in personnel. They flow their salary qickly into mortgage and credit card payments, grocery stores, kid's stuff and whatnot. The State, county and municipal governments are generally the biggest employers in most, if not all, states. When you lay off state employees, you dry up the consumer spending that's driving this economy.

[James Merritt]

Lefty, it is hard for me to believe your figures, but I'll accept them for point of argument. Unless the lion's share of the public sector payroll expense is subsidized by OTHER states via federal largesse, or the majority of the payroll comes from user fees for services, then we have the perverse situation where EVERY employed taxpayer is HEAVILY subsizdizing another in Missouri. This would turn Missouri from the "show me" state to the "show me the money" welfare state.

Maybe it is so, but in that case, you have to feel sorry for taxpaying Missourians.

[James Merritt]

The point I was attempting to make about the 60-40 split between private and public payroll is this: without subsidy from the outside, the 60% of private sector workers must necessarily pay for the 40% (less, I suppose, the amount that the 40% themselves pay in taxes, which are, nevertheless, ploughed back into the government finance cycle).

Now, the government (not the state or local governments, but the Feds at least), can simply print more money to pay their workers, but all this will do is cause inflation, which means that the purchasing power of the 60%'s income would go down, and so they would end up paying anyway.

If the government size is independent of grassroots will (which, historically, seems to have been the case for decades) -- if, as Lefty implies, government tends to resist shrinking, out of fears that the corresponding unemployment will rock the economy -- then the private-sector 60% are basically enslaved by the public-sector 40%. THAT's why I feel sorry for the 60% in Missouri, if Lefty's figures and assumptions are correct.

I don't mean to inflame by using terms like "enslaved," but I can find no other words that really fit. The private sector works -- wealth is created, needs are satisfied -- when buyers and sellers can come together voluntarily to do business. When they are compelled to do business, for whatever reason, we say that the system is broken, and that one or both parties is getting the shaft. In the worst cases, we do use the term "enslavement," and a 60-40 split would certainly seem to be pounding on the "Worst Case" Clubhouse door, seeking full membership.

It seems clear that government workers -- many of them, at least -- good work and provide value that SOMEBODY would need to provide and that somneone else would need to pay for, one way or the other, so the 60-40 split may not be as bad as it seems. On the other hand, experience has shown that there is a reasonable amount of pork and fat in government payrolls -- if not in salaries themselves then in benefits, and if not there, then in over-employment, or employment to staff unnecessary functions. And of course, even for truly necessary functions, the taxpayer doesn't really get to choose the supplier, and cannot guarantee either that the price is right or that the job will be done promptly, and to the taxpayer's satisfaction. If Lefty is correct about Missouri, 40 cents out of every dollar is spent according to a political decisionmaking process at best, and political whims and cronyism at worst. If Lefty is correct about Missouri being "average," then heaven help the 24 states that are "above average" in the magnitude of public-sector employment.

My suggestions for an approach to "rightsizing" goverment, in correction for the burst dot-com bubble, do not amount to saying that we should cut government back to the bone or beyond. In fact, my comments were made in reaction to alarmist statements of that type from our government officials. No doubt there will be some discomfort involved in the adjustment of government size to the reality of the underlying economy. No doubt there will be ripples in the economy. But, unless tons of systemic fat were larded on during the relatively few boom years -- which I doubt, as it appears that state governments simply blew their windfalls in the manner of California's profligacy -- I think that the transition from public to private spending will be far more benign on all concerned than the inevitable crisis and collapse that will come when taxpayers ultimately revolt. When the rightsizing is done, sad to say, we'll still have huge government. After all, who was saying that government wasn't nearly big enough in 1998?

I think that those who "created" all the government jobs that are now being brought into question by the economic situation, have a lot of explaining to do. They are the ones who, if it comes to that, will be responsible for the defaulted mortgages, personal bankruptcies, and dislocated lives of dismissed public sector employees, NOT the long-suffering taxpayers. In an earlier day, such scoundrels were tarred, feathered, and run out of town on rails. These days, it seems the worst we ever do to them -- and this not often -- is vote them out of office. So let's at least do that much. The free-spending politicians played games with people's lives. They need to pay for that irresponsibility somehow.

[James Merritt]

Then Lefty, you think wrong.

Nobody wants a repeat of the depression, but mis-management in government will surely bring it upon us, regardless. I think the mis-management has already happened, in fact, and that we'll only amplify the coming (already arriving?) harm by trying to maintain artificially inflated government payrolls. We can keep making a bad situation worse, or we can take action to arrest and, eventually, to reverse its development.

Those who are concerned about the government employees who took their jobs in good faith and worked hard, and who will now be the victims of political game-playing and public-sector mis-management -- I count myself as one such concerned citizen -- should be about the business of promoting and supporting developments that will create private sector jobs for former government employees. The pay and benefits may not be as great as government service, in some cases. But in other cases they will be better, certainly better than unemployment, which seems inevitable, anyway.

Understand, Lefty, anyone who is laid off from government service in your 60-40 scenario is someone whose job existed because of a lie: a lie that what goes up would never come down, that the work being done was essential, that the government could continue to tax or print money indefinitely to maintain the payroll. It is no favor to anyone concerned, to keep people employed on that basis. The best favor is to get people off the government payroll and into jobs where there is a real, popular demand for their products and services. Fear-mongering about the "economic upheval" that will occur with government layoffs overstates the problem, impedes that necessary process of transition from public to private sectors, and, in my view, is almost as irresponsible as the original lies and mismanagement.

[Lefty]

James, I think you long for the good old days of the Great Depression.

[Richman Hannah]

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DATE: 01/20/2004 11:20:02
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