LR-123: Tax Relief or a Job Killer?

If all goes according to a Republican plan, Montanans will vote in November on Legislative Referendum 123, which provides for returning to taxpayers, by way of income and property tax credits, half of any excess balance in the state’s checking account.  By “excess balance” I mean money left in the General Fund at the end of the year, above and beyond what the Legislature projected would be there when it drew up the budget.  LR123 is being challenged in court on legal and constitutional grounds  (you can read about the challenge here),  but nevertheless it sort of sounds like a good idea, doesn’t it? Why should the state sit on a pile of money it apparently doesn’t need and didn’t plan on having? Why not send it back to the taxpayers?

Well, not so fast. The problem is that LR 123 would take away one of the important tools we have to fight job loss when the economy goes downhill, as it did in 2008, and repeatedly before then.

The Great Recession of 2008 resulted from plummeting spending by companies and households, which led businesses to cut production and jobs because markets for their products were drying up. The right policy under the circumstances was to increase government spending, and that was what President Obama did with the 2009 stimulus bill. Unfortunately, the stimulus was not as effective as the President said it would be, and Republican politicians have argued ever since that the stimulus failed.  That’s nonsense: almost every analyst will tell you that the stimulus kept things from getting much, much worse.  And economists like Paul Krugman warned at the time that the stimulus wouldn’t live up to its billing, not because spending would have no impact at all, but because there wasn’t enough of it, given the mess we were in when President Obama took office.

Krugman also points out – and here’s where LR123 enters the picture – that at the same time the Federal government was trying to increase spending, states were cutting back.  They were doing that because in general they are required to balance their budgets. When the economy tanks and tax revenue falls, states have to cut spending, which just makes the collapse and job loss worse. In short, requiring the budget to be balanced promotes economic instability; both booms and busts get bigger.

So, is the state of Montana doomed to do exactly the wrong thing when the economy begins to falter? Not necessarily.  To balance the budget, the Legislature needs to do two things: not borrow money to pay for General Fund expenditures and end the budget year with a reasonable balance in the bank.  We can spend more than we tax if we start the year with more money in the bank than we need when the year is over. It’s a simple concept: tax revenues are volatile, but we can keep spending from being as volatile by saving the extra taxes we collect in good times and spending them in bad times. Hold some reserves for a rainy day:  it’s something that every business and household routinely does. But if LR123 passes, the state of Montana will not be able to take the same reasonable, job saving precaution.

Republicans aren’t bothered by this thought because they know that spending can’t create jobs. Well, sort of.  Spending on the Keystone XL pipeline will apparently create a ton of jobs. It’s just government spending to build a new College of Technology that won’t. Go figure.

Gerrymandering the Montana Supreme Court

Unless the courts toss it out on constitutional grounds some time soon, Montanans will have the dubious privilege of voting on LR-119 in this June’s primary election. This measure, which was pushed through the Legislature with heavy Republican and almost zero Democratic support, would provide for Montana Supreme Court justices to be elected in the future by district, rather than statewide, as they are now. Not surprisingly, given its provenance, the referendum has just won the approval of the Montana Chamber of Commerce.

LR-119 has been flying under the radar so far, but you can expect to hear a lot  more about it in the coming months. Proponents are going to be telling you that it will get people more interested in Supreme Court races, that it will bring those races down to the local level and make them more competitive and reflective of local  concerns, that it will create a regionally balanced court, that it will...well, who knows what additional benefits it will shower on Montana?

What you won’t hear from proponents is that if LR-119 passes and some day you have a case before the Supreme Court, you will have had the opportunity to vote for only one of its six members. You won’t hear that we will have a court that could, and very likely will, be made up of six justices, not one of whom could win a statewide election. You won’t hear that we will have a politicized court beholden to parochial regional interests rather than responsive to one people and one Constitution.

And what you really won’t hear is that Republicans want LR-119 to pass because it simply hasn’t been possible to elect at large enough like-minded justices to make the Montana Supreme Court as conservative as that other one in Washington, D.C. On the contrary: our court seems bent on protecting our right to a clean and healthy environment, or to privacy, or to keeping big corporate spending out of our elections. So what are the Republicans trying to do? In a word, they want to gerrymander the election of the Montana Supreme Court by carving out a few conservative districts. That way they can be sure that there will be a few would-be Alitos or Thomases or Scalias on the bench in Helena, even if a majority of Montanans don’t want them there.

Deceitful Job Claims

In a recent guest column that appeared in the Missoulian and the Billings Gazette, PPL Montana spokesman Gordon Criswell claimed that his company’s coal fired power plants in Colstrip have a very small negative impact on Montana’s environment and a very big positive impact on its economy.  To some of us, these claims sounded pretty outlandish. Writing in response to Criswell, Wade Hill, a Bozeman nurse, described the severe threat to public health posed by the Colstrip plants, and UM economist (and my former colleague) Tom Power and I questioned both the size and significance of the economic impacts that Criswell described. (Here are links to the three pieces: Criswell, Hill, and Barrett and Power).

Reading all the competing numbers and claims in these columns, you might be tempted to conclude that all they amount to is a large and messy academic dispute of no real consequence. When Tom and I said in our column that Criswell had exaggerated the importance of the jobs supported by the Colstrip plants, a Missoulian reader sent us a long and thoughtful email arguing that we had missed the real point: in this economy, we should realize that every job is needed and important.  We certainly agree with that, but there’s more to it.

All sorts of interests (businesses, non-profits, trade associations, schools and universities, developers, etc.) regularly use economic impact analysis to bolster the claim that unless they receive some kind of preferential treatment from the public, many, many jobs will be lost. That’s something that of course nobody wants, especially right now, and the public and policy makers need to take a threat of job loss seriously. On the other hand, preferential treatment can come at very high cost, in the form of weak environmental regulation (that seems to be what PPL is after) or selective subsidies and tax cuts that compromise important programs and reduce public sector employment.

Policy makers need to be very, very careful when weighing claims of job loss against the cost of preferential treatment, because the sad fact is that the losses are almost always overstated. Claiming to be important and to create a lot more  jobs than you really do in order to wrest concessions from the public is, frankly, deceitful and does us all a profound disservice.