It’s Voodoo Economics Time

Yes, it’s once again that time in the election cycle when Republican presidential candidates tell the voters that they can cut taxes (usually on the rich), balance the budget, eliminate the deficit, and reduce the national debt, all in one fell swoop. 

Ronald Reagan was the first Republican president to embrace this curious notion, which according to legend was first introduced to a group of GOP savants by economist Art Laffer, scribbling on the back of a cocktail napkin in a Washington, D.C. watering hole.

 

Funny how those boozy ideas that seem so enchanting the night before can turn out to be such disasters the next morning.  

In the entire postwar period, under Truman, Ike, JFK, LBJ, Nixon, and Carter, the national debt fell consistently as a percentage of GDP, from 120% in 1945 to 30% in 1980, when Reagan took office. But under Reagan and then Bush senior, deficits mushroomed and the debt grew; by 1992 it stood at about 65% of GDP.  It fell under Clinton, and then popped back up again when Bush junior took charge.  When Barak Obama took office, it was up to about 85% and the economy, of course, was in free fall.

You might think GOP presidential hopefuls would have learned something from all this, but here we have Mitt Romney, the “presumptive frontrunner,” telling us he’s going to cut taxes, increase defense spending and put us on a path to a balanced budget during his first term. To his credit, he breaks with the voodoo tradition of assuming that tax cuts will stimulate enough growth to more than pay for themselves.  No; he knows that he can’t pull off a balanced budget unless he cuts spending somewhere.

And the size of these cuts is stunning. According to an analysis of Romney’s proposal by the Center for Budget and Policy Priorities, to balance the budget by 2016, non-defense spending would have to be cut by 17%. If Social Security were spared, all other programs would have to be cut by 24%. If Social Security and Medicare were spared, all other programs would have to be cut by 34%. So unless you believe we can get along without Federal support for roads and education and medical care for poor kids and other little items like that, you are again looking at voodoo: somebody, somewhere is going to have to pick up the tab, and it’s probably going to be taxpayers in the states.

And speaking of the states, we have a few witch doctors of our own running around Montana.  Last week, five of the GOP candidates for governor told the Montana Economic Developers Association  that if elected they would eliminate the property tax on business equipment and the corporate income tax. Some even said they would get rid of the 95 mills of statewide property taxes that go to pay for K-12 education.  And just so you know, large corporations that operate across the state are also agitating for a property tax break.

All together the cuts proposed by the GOP candidates mount up to about $400 million. And since the Montana Constitution requires the budget to be balanced right now and not in the sweet bye and bye, you’ve got to wonder how those cuts will be paid for.

Well, we can always shift some of those property taxes onto homeowners.

Or we can cut spending. No, wait!  Mitt’s going to be kicking more spending downstairs to the states.

What our would-be governors are apparently counting on is an oil and gas boom - and the taxes that come with it. But as Brian Schweitzer has pointed out, that simply doesn’t compute.  Right now oil and gas revenue is running about $100 million a year, so the value of production would have to quadruple to make up for $400 million of tax cuts elsewhere. And that’s not going to happen any time soon, if at all.

Right now you can just hear the beating of drums and the muttering of dark incantations. But just you wait: by November it's going to be deafening.

More Gerrymandering! (This Time It's the Legislature)

Apparently taking their lead from a Missoulian column by Will Deschamps,  Republicans at a hearing  of the Districting and Apportionment Commission  in Missoula last night went all out attacking the Community redistricting plan proposed by Commissioners Joe Lamson and Pat Smith. That plan, they said, was gerrymandered! Of dubious constitutionality!  Of all things, political! And, worst of all, Democrat!

Now it’s true that Joe and Pat are the Democratic members of the Commission, and they did prepare and submit the Community plan. And it’s also true that the Republican members didn’t submit a plan of their own.  All they did is ask the legislative staff to prepare plans based on particular basic principles, such as, for example, making districts either urban or rural, but not a mix of the two. So now they are congratulating themselves on their apolitical objectivity and the purity of their intentions, and casting Joe and Pat as devious political operators.

Don’t be fooled.  Republicans aren’t stupid. They certainly were able to anticipate that when they asked the staff to prepare a plan that would cram voters into a few dense city districts, those voters would be most of the Democrats, leaving the non-urban districts theirs for the taking.  

As long as it breaks their way, Republicans have no objection to gerrymandering; they just don’t want you to know it.  But in an ironic moment last night, Deschamps, who is chairman of  the Montana Republican Party, let the cat out of the bag. Noting that 40 percent of Missoula County voters are Republican, he concluded that the county should be districted in such a way that 40 percent of our legislative delegation should be Republican as well.   Let’s set aside the vexing problem of how that dubious principle could be applied in small counties with a single legislator.  What Deschamps was asking for was to draw district lines in the county so that 4 (out of 10) districts have solid Republican majorities. And what do you call it when you draw district lines to assure that you have solid majorities? Gerrymandering!

Redistricting is an inherently political process. That’s why the Legislature made sure that Republicans and Democrats were equally represented on the Commission. They are there to protect political interests – their own and ultimately those of their constituents. There’s nothing wrong with that.

But it’s true that we don’t want gerrymandering. On the contrary: we want as many districts as possible to be competitive.  Competition fosters better, more informative campaigns, with stronger candidates. It means a more engaged and enfranchised electorate. And it makes legislators more responsive to voters. But let’s not judge which plan most avoids gerrymandering and most promotes competition with a lot a finger pointing about how the plans were prepared or who asked for them. The proof is in the pudding. The Commission should look closely at how each plan will actually affect the competitiveness of Montana elections, and that, along with all the other criteria it has to juggle, should help it decide which plan to endorse.

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.