Wednesday, April 27, 2016

Budgeting by Area Code

Last week Greg Gianforte announced something he’s calling his “406 Tax Relief” plan.  Strip away the spin, and what this scheme amounts to is the elimination, over 4 years, of the business equipment tax, and a reduction of the top marginal income tax rate from 6.9 to 6 percent. Together, those two tax cuts would eat up about $200 million a year in revenue, which Gianforte plans to pay for by freezing state spending. So: 4 years, 0 increase in state spending, and 6 percent and there you have it: a budget plan inspired by an area code!

Not surprisingly, there’s no guarantee at all that this thing will work. Gianforte admits that his freeze on spending can happen only after we make some badly needed but unspecified investments in education, job training and infrastructure. Oh, and then we also have to account for the effects of inflation and population growth. Nobody knows how much all those things are going to cost us nor if, after coughing up $200 million a year in tax cuts, we’ll have the revenue to cover it, but Gianforte blandly assures us that “technology should help us generate some efficiencies elsewhere.” If that doesn’t work, we’ll probably just have to do what they’re doing in Kansas right now, in the aftermath of big tax cuts, and that’s to slash funding for essential programs. You know, things like schools, or health care, or highway safety. This is Reaganism at its finest: cut taxes first and ask questions later.|

It may seem that a budget plan like this is a complete mess, but believe it or not, for Gianforte it actually represents a modicum of progress. For the last couple of months, Gianforte was running around the state touting these same tax cuts, but was planning to pay for them by using up the cash reserves the state keeps in the bank in case of a budget emergency. As I pointed out in an earlier post, there were two big flies in that ointment. For one thing, Gianforte grossly overestimated the reserves he would have to work with. And more to the point, you simply can’t pay for permanent tax cuts with cash reserves, because the cuts are forever but the reserves are gone - spent down to zero - in a year or so. What’re you going to do then?  No, budget arithmetic pretty much dictates that if you have to balance the budget and you want to cut taxes, you’ll have to cut spending as well.  And with this new tax plan, Gianforte is reluctantly acknowledging that painful reality.

Gianforte may have the budget math down, but he’s still in the dark when it comes to budget policy. Every other year the legislature and the governor, Republicans and Democrats, get together in Helena to hammer out a biennial budget. It’s a difficult, contentious and wrenching process. There are all sorts of ways we can use tax dollars, and there’s not enough of those dollars to do everything we should or would like to do. So coming up with a budget requires some thoughtful weighing of the alternatives. And what Gianforte is proposing – to first and foremost cut taxes and then let the chips fall where they may – is about as far from thoughtful as you can get. But then what can you expect from a guy who actually relies on an area code to get his budgetary priorities lined up?