Friday, January 23, 2009

Creeping Debt

Enough mirth! The internet is serious business, and this are serious times.

I hear a lot of wailing and gnashing of teeth about Minnesota's budget shortfall. And as usual the solutions to deal with this deficit offered boil down to either raising revenue (ie taxes), cutting spending or a combination of both. But here's what I don't understand.

You've got the Growth & Justice / Minnesota 2020 / DFL philosophy that we need a big bloated budget to - in addition to funding vital services everyone agrees on like transportation infrastructure, courts and public safety - "invest" in Minnesota's "future". These "investments could be in anything from subsidies for higher education to ease (or eliminate) tuition bills, universal health care, midnight basketball programs, indoor hockey rinks, 3:30 PM Monday-Wednesday-Friday lacrosse programs etc. A whole bunch of things that would improve that nebulous "quality of life" that these liberals are always mumbling about but rarely defining.


And the way the government raises revenue is mainly through the taxation of income. Personal income, investment income, business income (profits) and so on.

Also, fine.

So if the Growth & Justice 2020 DFL crowd wants all the items on their wish list, they need to raise the revenue - mainly through the taxation of income - to fund all these wonderful projects. Let's say that we're in boom times and that they do so. The top marginal rate is, say raised to 12% and all these wonderful things are fully funded. Because, remember: we need them in order for Minnesota to be a "competitive" state with an acceptable "quality of life" where everybody can get a cheap college "education" and affordable "health care" so they can play basketball at midnight until they "pass out" from exhaustion and the ecstasy of living the good life in Minnesota.


So what happens when, as now, a deep recession hits and the pool of taxable income contracts?

Well, some would have the legislature raise taxes to meet the revenue needs to keep all those wonderful programs funded.


So, now the top marginal income tax rate on those awful rich people is, say 15%, which, let's assume, generates enough revenue to keep all these wonderful programs afloat and the kids off the streets every other weekday playing fully-refereed lacrosse games. Whew! We dodged a bullet there.


And what's better, look now! We're coming out of the recession! Incomes at all levels -and especially amongst those loathsome rich are rising again! Hooray and hallelujah! Happy days are here again! State revenues fueled by that top marginal rate of 15% go through the roof. Suddenly, the state has more than it can spend. Yipee. And so the governor decides to cut the top marginal rate back to -

What's that? You want to spend that extra money on more programs or to fund the existing ones even more lavishly?


So now, because the state can "afford" more largess in its programs, spending is increased to accommodate the new higher revenue levels. College is free (and comes with a complementary laptop), the bleachers in those new hockey rinks are equipped with vibrating butt warmers! Legions of people are hired to staff legions of new public employment openings. New bureaucracies are forged. Health care is now totally free! Public parks staffed 24 HOURS A DAY OH BRAVE NEW WORLD - EMBRACE ME IN YOUR RAPTURE! THIS REALM, THIS HOLY PLACE THIS MINNESOTA!!11!!1!!

And then the bottom falls out again. Taxable incomes decrease, revenue contracts. What to do now?

Raise the taxes? Cut spending? Both?

How about pegging the budget to the lowest times, and keeping taxes where they are; increasing the budget modestly during the good times and putting away any surplus to cover the spread during the lean times? Am I the only one that sees the deep, fundamental flaw in the DFL Growth & 2020 model of governmental finance and policy? I'm not?


No comments: