The Twenty Percent Factoid

One thing you can count on with an election around the corner is that  Republican politicians will trot out a bunch of numbers that supposedly demonstrate that growth of government is “out of control.” And the other thing you can count on when you hear those numbers bandied about is that they will be a bunch of hooey. Consider, if you will, the Twenty Percent Factoid.

Back in March, Tom Burnett, a Bozeman legislator whose antipathy to government is always on display, produced a calculation in a letter to the Bozeman Chronicle that purported to show that total state spending had increased by 20.6% between this biennium and the last. Now that number is big and scary (but not at all consistent with the facts, which I’ll get to in a moment), and it appeared to go viral among other Republicans, particularly those on the right. Soon enough, Greg Gianforte was claiming that “We have had massive growth in state spending; up over 20 percent in the past three years.” Gianforte assured us that, as part of a bizarre budget plan based on the fact that our area code happens to be 406, he was going to bring that growth down to zero. And hard on the heels of that announcement, the Beaverhead County Republican Central Committee censured Reps. Jeff Welborn and Ray Shaw, on the grounds that they had voted for bills that “increased state spending over 20 percent for the biennium,” thereby flunking the Central Committee’s test of Republican purity. And so the Factoid took on a life of its own.

Unfortunately, because it should have died a quiet death months ago.

Since the numbers are not in yet for the current, 2016, fiscal year, it really isn’t possible to compare this biennium to the last one. But we do know that in fiscal year 2015, the first year of this biennium, total state spending – including Federal dollars appropriated by the state for programs such as Medicaid – was $5.521 billion, and that back in 2013 it was $5.182 billion.* So over the two year period it increased by 6.5%. Not 20% or anything like it. And in fiscal year 2012 total spending was $5.092, so over the three year period between 2012 and 2015, which seems to be what Gianforte’s talking about, spending rose by 8.4%; again, not even close to 20%.

Okay, so 20% is a monumental error, but still: Are we looking at excessive growth of government? Is a 6.5% increase in spending from one biennium to the next a lot or a little? Compared to what? Should we be worried? Well, enter Art Wittich. Wittich, in a letter to the Belgrade News, doubled down on the Twenty Percent Factoid by claiming that “During the last three legislative sessions, the state budget increased three times faster than inflation, population, or the private economy.” Now that sounds pretty bad, but again, it’s not true.

It’s not completely clear what time period Wittich is talking about here, but let’s go back to fiscal year 2010, the last year before the 2011 Legislature’s budget went into effect. From 2010 to 2015, the price level rose 9.7%, population rose 4.2%, the state budget (including, again, the Federal component) rose 9.1% and total state personal income, which is as good a measure of the size of the private economy as we have, rose 26.3%. So over this period, the state budget did not expand “three times faster” than anything; in fact, it did not even keep up with the growth of prices or personal income.

The point Wittich is trying to make but badly mangling here is that the growth of government spending should be considered in relation to the prices of the things that government buys, the number of people it serves, and the amount of income those people earn. The right way to do that is to compare the growth of real (inflation adjusted) per capita spending to real (inflation adjusted) per capita personal income. When you do that, here’s the picture you get:

Over the long haul since 2002, the economy has grown faster than state spending, rather than the other way around. There's no "massive" growth going on here. Nothing is out of control. There was a time, during the Great Recession, when state spending grew rapidly while the economy was contracting. That was because the state spent a bunch of federal Recovery Act dollars. And that was not a problem: On the contrary, without that infusion of Federal money, the recession would have been a lot worse.

* The issue of expenditure growth is a perennial favorite, and it produces lots of arguments among legislators, and Amy Carlson, the Legislative Fiscal Analyst, published a report in 2014 intended to sort the whole mess out. You can access that report here. The numbers I cite in this post were used in the preparation of that report, and I thank Ms. Carlson and her staff for providing them, updated to 2015, to me. 

The Gun Nut

Donald Trump’s appearance before the NRA last week was a perfectly predictable olio of bloviation, narcissism, incivility and misrepresentation. It also revealed, although you probably knew this already, that the guy is a little nuts.

Trump told the NRA faithful assembled in Louisville exactly what they wanted to hear: that he was in favor of more guns everywhere. In schools. In high crime neighborhoods. In Paris night clubs. Everywhere.  Gun-free zones would become a thing of the past.

The reason for this frenzy is, of course, “self defense.” For Trump, and for the NRA, we live in a dangerous world surrounded by people who are out to get us. And the only way we can stop them in their tracks is to have guns; either, one hopes, to deter attacks in the first place or, if worse comes to worst, to shoot back. And for Trump, Hilary Clinton becomes “Heartless Hilary” because she would take people’s guns away from them and deprive them of their one opportunity to defend themselves. This is Trump at his adolescent best, lying and name calling in one fell swoop.

Of course it doesn’t bother Trump in the slightest that there is no evidence that having lots of guns around will deter gun violence. On the contrary: anyone paying attention knows that gun ownership is much higher in the United States than it is in other high income countries. And so is the probability that somebody will shoot you to death. The extent to which the United States is an outlier in both these regards is truly stunning. Take a look at this chart.*

What you’re seeing here is that in 2007, there were about 15 guns present for every 100 members of the population in 21 high income countries other than the United States. For the US, the comparable number was 113. In 2010 in those same 21 countries, there were a little more than .1 gun homicides per 100,000 members of the population; in the US there were 3.6. The probability of being murdered with a gun in the United States was 25.2 times as high as in other high income countries. Is it really possible to look at that number and conclude that having lots and lots of guns around is making us safer?**

Here’s where the question of Trump’s sanity rears its ugly head. In the face of overwhelming evidence that the accumulation of guns has not made us a whit safer in the past, Trump believes that more guns will make us safer in the future. And that, as a wise man once told us, albeit in more polite terms, is nuts.

* To prepare this chart I used data from two sources: the Small Arms Survey 2007 and “Violent Death Rates: The US Compared with Other High-income OECD Countries, 2010,” in the American Journal of Medicine, 2015.

** Don't be thinking that "Well sure, as long as we've got these guns around, we''ll use them when we want to kill somebody. Folks in all those other countries are going to use knives, or poison, or cricket bats or something." It doesn't work that way. Regardless of method, people in other countries murder each other at much lower rates. It's harder to get the job done if you don't have a gun to do it with.

Paying a Fair Share

One of great mysteries of Greg Gianforte’s gubernatorial campaign is how on earth he thinks he’s

going to get elected by promising to get rid of the business equipment tax. After all, every voter in Montana who owns property   - a home, a commercial building, farm or ranch land, a forest tract – pays property taxes. And while we may not be particularly happy about it when we’re writing the check, most of us recognize that property taxes go to pay for essential local services like schools, or the fire and police departments, or the upkeep on parks, or street maintenance.  We all know we benefit from those services and we all have to pay our fair share of the cost of providing them. But now along comes Gianforte saying, “Hold on a second: It’s all right for all you other suckers to pick up the tab, but when it comes to big companies with a pile of business equipment, well, that’s a different matter.”

Of course Gianforte doesn’t enunciate his position in quite those terms. On the contrary, he needs to convince us that we all have a stake in letting those big companies off the hook. Here, from his website, is the argument, such as it is:

One Montana business person told me that he invested in a single piece of equipment that created 20 high wage jobs.  His reward?  A $300,000 business equipment tax bill over 10 years.  If we want Montana small businesses to grow and succeed, why would we punish job creators for purchasing more equipment to hire more Montanans?

The Business Equipment Tax is one of the most regressive taxes on the books in Montana.  It is an annual tax on all the equipment job creators own.  Hotel owners even have to pay it on every fork and spoon they own—EVERY YEAR!  It hits farmers, manufacturers, construction, oil/gas and high tech hard; basically any business that invests to create jobs is currently incentivized to invest elsewhere.  It chases off investment and jobs.  Most states don’t have a tax like this.  Also, because equipment value is self-reported, the tax is prone to being under-reported.  I am committed to eliminating the business equipment tax over 4 years as revenue from other sources grows.  Any reduction in the business equipment tax must also provide relief to counties that depend on these tax revenues today.

So there you have it: The reason we should give large corporations a pass on the taxes all the rest of us have to pay is that if we don’t, they’ll take their business elsewhere. Republicans have been saying this kind of thing since Reagan was president, and it’s weird that Gianforte, who’s supposed to be an outsider who knows how to get things done, can’t come up with a fresher idea. What’s even weirder is that he doesn’t seem to realize that in recent legislative sessions the business equipment tax has already been hacked to bits. Sixty percent of Montana businesses – the small guys – don’t pay it all. And for the somewhat larger guys, the rate has been cut in half.* We even have – get this! – the sixth best business tax climate of any state in the country. And so while Gianforte constantly bemoans the current state of Montana’s economy, his prescription for fixing it is to do even more of what we have already been doing for the past decade.**

Gianforte has a prodigious capacity to overlook evidence and rely instead on a choice anecdote, no matter how implausible, fabricated or inapt it may be. After all, this is a guy who ignores everything known about human life expectancy and forms his notions about when you should be able to retire based on the ancient myth of a 600 year old boat builder. He says he knows that the business equipment tax is keeping companies out of Montana because somebody at Facebook told him so, but the narrative is made up out of whole cloth. And now he cites, as evidence of the tax’s destructive impact on investment, the story of a company that invested and payed the tax!

Gianforte wants you to believe that when companies invest in new plant and equipment, they invariably create more jobs. That’s why you should pay property taxes and big companies shouldn’t have to – one of those new jobs may be yours, or your neighbor's, or your kid's. He trades here on the misconception that businesses are always “job creators.” They are, of course, but if hiring people is creating jobs, then laying people off is destroying jobs, and that happens all the time. The fact is that hundreds of thousands of people lose jobs every week; here's the chart showing weekly new unemployment claims since 2000:

Properly managed businesses eliminate jobs all the time; indeed, reducing labor costs (which is a more attractive way of saying laying people off) is often taken to be a sign of efficient management. And while lowering the cost of capital, which is what happens when the business equipment tax is cut, may well encourage investment, new plant and equipment coming on line can displace workers rather than leading to new hiring. Consider the mechanization of agriculture: When farmers replaced steam threshers and mule teams with combines and tractors, thousands of people lost their jobs.

Now obviously, all those combines crawling across the land were a good thing, even if they did put a lot of people out of work. They dramatically increased agricultural productivity and output. Investment in plant and equipment contributes importantly to the growth of employment and economic activity, but firms do not build new factories or buy new machines and computers because they are itching to create jobs. They buy that stuff in order to produce more efficiently, lower costs, improve product quality and ultimately make more money.  Business equipment is not being taxed to “punish job creators.” It’s being taxed, like all other property, because is enhances the ability of its owners to generate income and pay a fair share of the costs of government services from which they benefit.

* Given these changes in its structure, it’s a mystery how Gianforte concludes that the business equipment tax is “one of the most regressive on the books in Montana.” A regressive tax is one that falls disproportionately on low income individuals and households, and it’s hard to imagine that those are the folks that own the large businesses paying the business equipment tax.

** The problem here is not just with the logic. Montana’s economy, and the state’s budget, are actually performing well. But as Dave Parker, at the Big Sky Political Analysis blog, points out, Gianforte is relying on the wrong data to get to the opposite conclusion. He’s got to do that, of course; otherwise, what would he run on?