Tag Archives: Government spending

Kansas state government

Kansas historic preservation tax credits: the hearing

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On Wednesday, the Taxation Committee of the Kansas House of Representatives heard testimony on HB 2496, which would expand the historic preservation tax credit program. This program provides tax credits to qualified historic preservation projects. I testified at the hearing, and my written testimony is at Kansas historic preservation tax credits should not be expanded.

The idea of tax credits confuses some people. Some may confuse credits with a tax deduction. Some may believe that tax credits are given out at no cost to the state. But in fact, the tax credits are quite costly. As I told the committee members, if the state grants a tax credit, and then does not reduce state spending by the amount of the tax credit, other taxpayers in Kansas have to make up the difference.

That’s one of my core reasons for opposing the tax credits. Since the state does not — and is not likely to — reduce spending by the amount of credits granted, the result is a transfer of money from Kansas taxpayers to the recipients of the credits. But even if the state did reduce its spending, the result would still be a implied decision by the state that it can better decide how to spend money than its citizens can.

Besides this, the arguments of those in favor of the historic preservation tax credits are self-serving and in some cases misleading. Some of the conferees are involved in projects that were to receive tax credits. They are not happy now that they may not get them.

Other conferees were local units of government such as Dale Goter, lobbyist for the City of Wichita. Wichita has a big stake in the tax credits, as the renovation of the Broadview Hotel is on hold because the developers may not receive the tax credits. The developers and the city claim that the project is not economically feasible without the tax credits. We don’t really know whether this is true. When government subsidy is available, people have a way of designing project budgets in a way the requires the subsidy. Why would someone turn down free money?

It should also be noted that the tax credits the Broadview developers are seeking — perhaps $3 million to $4 million — are on top of many millions in subsidy the city has already approved.

The arguments of other conferees must be questioned. Brenda Spencer of Wamego, who owns a preservation consulting business, told of a project in Leavenworth that will house a company employing 400 people. This results, she said, in an annual payroll of $26 million, with resultant tax dollars flowing to the state and local government.

The problems with this illustration of the purported success of the historic preservation tax credit program are these: Would the jobs not have been created unless there was a historic property to house the workers? Could the workers work somewhere that wouldn’t require tax credits? These jobs: are they new jobs? Were the workers formerly unemployed, or did they leave other jobs to work in the historic building? To the extent that happened, the jobs, with their tax payments to the state, can’t be counted as new.

Christy Davis, owner of another preservation consulting firm, testified that since 2001, the tax credit program has leveraged $264 million in private dollars, which she said is a 400% return on investment for the state. The problem with this analysis (it was made by others, too) is that it assumes that none of the projects would have proceeded if not for the tax credits. It credits the program as being the only reason why this activity took place. This is undoubtedly false.

Further, this analysis treats the state as though it were the owner of these properties. That isn’t true, either.

Davis also testified that since work on historic buildings is 50% more labor intensive than new construction, the tax credit program has the effect of a jobs creation program. I doubt that the developers of historic preservation projects see creating a lot of jobs as a benefit. To business, workers are a cost to be controlled, not a benefit to be expanded. If the state wants to view historic preservation as a jobs creation program — meaning that more jobs are better than fewer jobs — let the state mandate that, say, power tools can’t be used on these projects. Then even more workers will be needed.

Can we also agree that owners of firms that profit from a government program qualify as a special interest?

Goter, Wichita’s lobbyist, also stated in his written testimony: “The return on investment for the public dollar spent on historic renovation is totally recovered in a 10 year span from increased property taxes alone. That return is shared by local and state governments through their respective mill levies.”

This statement reveals the flaw in the reckoning used by government in making economic development calculations. To government, the return is in the form of increased tax revenue. Many citizens don’t view things the same way. For government to make an investment of taxpayer funds just so it can receive even more tax revenue is appealing to government bureaucrats and politicians who want to expand their sphere of influence and control. But not so much for everyone else.

For me a lesson I learned from the hearing is how easily those who consider themselves fiscal conservatives can become derailed by programs like this. Olathe Representative Arlen Siegfreid, a member of the Taxation Committee as well as Speaker Pro Tem of the Kansas House of Representatives, offered written and oral testimony in favor of this bill.

Support of this bill is at odds with his stated positions. On his personal website, under the heading “Fiscal Responsibility” appears this sentence: “However, particularly in times of economic peril, sometimes the ‘wants’ we’ve fertilized with ample resources grow to become ‘needs’ and our well intentioned investments in promising ideas and programs become the dangerous government growth that each candidate swears to defend against at all costs on the campaign trail.”

The historic preservation tax credit program, as reported in an audit recently completed by the Legislative Division of Post Audit, has grown tremendously from its initial cost. The audit, titled Kansas Tax Revenues, Part I: Reviewing Tax Credits, identifies the historic preservation tax credit as a program that the legislature may want to re-evaluate, as the program is significantly more expensive than originally planned. The fiscal note that accompanied the tax credit legislation when passed in 2001 and revised in 2002 reported an estimated annual cost of $1 million. In 2007, the actual cost was $8.5 million.

This is an example of a government spending program growing out of control — the type of “dangerous government growth” Siegfreid mentioned above.

Siegfreid’s website also states: “My subsequent re-elections affirm that notion, and I’m now more committed than ever to reducing the strain government and it’s [sic] failed policies are placing on individual taxpayers — and our local businesses.”

As mentioned above, when the state grants tax credits, other Kansas taxpayers have to pay more taxes to make up the shortfall in revenue. This is an example of the type of strain Siegfreid says he is against.

Finally, Siegfreid has authored a tax simplification bill, stating that “Kansas tax policy is too complicated.” Tax credits are an example of increasing complexity of the state’s tax code.

Economics

The stimulus evidence one year on

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Last week the Wall Street Journal reported a piece that analyzes whether the Obama stimulus plan, after one year’s time, can be judged a success. (See The Stimulus Evidence One Year On)

Robert J. Barro, who is professor of economics at Harvard University and a senior fellow at Stanford University’s Hoover Institution, writes that the stimulus may be a good deal in the short run — if the government spends on things that are truly worthwhile. As we’ve seen, that is not always the case.

But Barro says, correctly, that this spending, paid for with borrowed money as it is, generates debt that must be repaid at some time. This is something that government spending advocates seem to conveniently forget.

Barro comes to this conclusion:

We can now put the elements together to form a “five-year plan” from 2009 to 2013. The path of incremental government outlays over the five years in billions of dollars is +300, +300, 0, 0, 0, which adds up to +600. The path for GDP is +120, +180, +60, minus 330, minus 330, adding up to minus 300. GDP falls overall because the famous “balanced-budget multiplier” — the response of GDP when government spending and taxes rise together — is negative. This result accords with the familiar pattern whereby countries with larger public sectors tend to grow slower over the long term.

The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

Economics

Importance of economic freedom explained in Wichita

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Yesterday Robert Lawson appeared in Wichita to deliver a lecture titled “Economic Freedom and the Wealth and Health of Nations.” The lecture explained how Lawson and his colleagues calculate the annual “Economic Freedom of the World” index, which ranks most of the countries of the world in how the “policies and institutions of countries are supportive of economic freedom.” The conclusion is that economic freedom is a vital component of well-being, income, health, and both personal and political freedom.

Robert LawsonRobert Lawson

The Economic Freedom of the World annual report is available in its entirety at FreeTheWorld.com.

Lawson started his lecture by noting two methods of organizing an economy. There’s the way of Adam Smith, in which liberty, private property, and free trade are paramount, and government is to have a limited role. The other way is that of Karl Marx, where society would be planned and controlled by a central authority according to a national strategy.

Lawson said he became interested in measuring freedom as a way to investigate the truth of the claims of Smith and Marx. By collecting data about economic freedom, we could learn more about which system — economic freedom or planned economies — works best.

Lawson defined economic freedom as consisting of free markets, private property and personal choice; freedom to trade both within a country and foreign trade; freedom to enter markets; and security of property and the rule of law. He said that there is a role for government in this system to protect property rights and provide basic infrastructure, but the role of government is limited.

Measuring economic freedom is complex and multidimensional. Data comes from 141 countries using 42 components that are grouped into five broad areas: size of government, including expenditures, taxes, and enterprises; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business. Ratings are on a scale from zero to ten, with ten representing the most freedom.

Some of the components of the ranking are based on objective data, while some are subjective, perhaps from a survey. Lawson said that the report and book detail the methodology used in creating the index.

The result is that Hong Kong ranks as most economically free country. Singapore is second, which Lawson said poses a problem. Singapore is economically free, but it is not politically liberal in terms of civil liberties. There is a strong positive relationship between political freedom and economic freedom, but there are exceptions like Singapore.

The United States ranks sixth. Sweden is ranked fortieth, which is still in the upper quartile of countries. Lawson said that while Sweden has a reputation as a welfare state, the U.S. and Sweden are not all that different. Taxes in Sweden are about 50 perfect higher than ours, and Sweden has many more labor regulations, but otherwise the countries are similar.

The big differences in the world, Lawson said, are between countries like the U.S. and countries like Venezuela and Zimbabwe.

China is ranked eighty-second, below the midpoint. Lawson said that China is a problem to rank, having Shanghai which is relatively free, and then outer provinces which are still tightly controlled and repressive.

Russia ranks eighty-third, right below China. Some of the former Soviet republics like Estonia are doing well, but the Ukraine has made little progress towards freedom.

India ranks eighty-sixth. It is not an economically free county, but is more free now than in the past, Lawson said.

To show how economic freedom impacts the lives of people, Lawson used a series of charts that showed the impact of economic freedom on various measures.

Economic freedom is very important in determining the incomes of people. The countries in the highest-ranking quartile of the economic freedom index have a per-capita income of $32,443. For countries in the lowest quartile the income is only $3,802. Economic growth rates are higher in the freer countries, too, although the difference is not as great as with income.

Lawson said that a frequent criticism of free economies is income inequality. He showed a chart presenting the share of income earned by the poorest ten percent in each country, grouped by quartile. There is very little difference between the groups. “It doesn’t really matter what kind of economic system you have — free market or not — it does not correlate in any way with income inequality. It’s simply not true that market economies, in general, are more unequal.”

A follow-up, Lawson said, is that if you are poor, where do you want to be? The answer is in the economically free countries. The per-capita income of the poorest ten percent in the least economically free countries is $896, while in the most economically free it is $9,105.

Life expectancy is also positively correlated with economic freedom, ranging from 59.40 years in the least-free countries to 79.12 in the most-free countries.

Is there a relationship between economic systems and the environment? Lawson showed a chart showing that the free countries do better in a measure of environmental performance.

Lawson said that political rights and civil liberties are also strongly associated with economic freedom, the example of Singapore notwithstanding. India is another exception, being a fairly liberal democracy but ranking low in economic freedom.

Speaking about the United States, Lawson said that the numbers are likely to go down in the future. While the U.S. ranks above the world average, its measurement of freedom has been declining since 2000. At the same time, the rest of the world is on an upward trend. “It’s no longer accurate to say the United States is among the very top tier in the economic freedom index,” Lawson said, adding that he blames George Bush for this. The decline is partly due to the increasing size of government, but the largest cause of the decline is in the area of property rights. This area is measured largely by surveys asking people how they feel about property rights in America. The perception, Lawson, said, is that the security of property rights are on the decline.

A question from the audience asked about reliance on foreign aid. Lawson replied that the economic freedom index methodology doesn’t include foreign aid. But there has been research done using the index and foreign aid, which concluded that countries get more foreign aid when they do worse on the index. Furthermore, after receiving more foreign aid, countries do worse in the index.

A question about the cost of living in countries was answered by the use of purchasing power parity.

Responding to a question about deficits, Lawson said that the size of government deficits doesn’t enter into the index calculations. The amount of government spending is part of the index, however. Lawson said that Milton Friedman argued that it wasn’t very important to freedom whether the government runs deficits. The size of government spending is important, Friedman said, with the method of financing the spending much less important.

A question revealed that health care doesn’t play a part in the index calculations, as the composition of spending is not a factor. If the U.S. government decides to spend more on health care, its rating will probably decline, as government spending is in the index.

A question asked how it can be that China and India are growing very rapidly, but still rank low in the index. Lawson answered that it’s the change or increase in the index that has been important for these two countries. There has been great change in both countries. “It takes only a tiny bit of relaxation to see a flourishing of growth in both China and India.” He added that both countries need to continue their reforms in order to maintain their rates of economic growth.

Lawson added that regulation, not taxation, is the biggest threat to prosperity and economic freedom in America.

Lawson’s lecture was sponsored by the Gilder Lehrman Institute of American History and underwritten by The Fred C. and Mary R. Koch Foundation.

Kansas state government

State budget ‘gap’ is all about perspective

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By Dave Trabert, Kansas Policy Institute

When businesses or individuals talk about cutting their expenses, it means they are going to spend less money that they did in the past. But when governments talk about budget cuts they often have a different perspective: they are spending less than they had hoped to but not necessarily less than the year before. For example, we often heard how Kansas schools had to cut their budgets last year but they still spent $12,660 per pupil, or 3.9% more than the previous year.

“Gap” is another example of how the meaning of words differs depending upon one’s perspective. When it’s said that a tax increase is needed to close a $400 million budget “gap” in the 2011 state budget, one might reasonably assume that that means recession-driven revenue declines have created a “gap” that needs to be filled to maintain the same level of spending.

But that is not the case. The Consensus Revenue Estimate calls for general fund revenues to decline by $122.2 million. Governor Parkinson’s budget proposal calls for spending to increase $380 million; that’s 7% more than we’ll spend this year and $1.1 billion more than we spent in FY 2005. From a revenue, or taxpayer, perspective, the gap is $122.2 million — not $400 million.

It really does come down to perspective. Most of the proposed expenditure increase is to replace declines in federal stimulus money, so from the government’s perspective there is less money to spend unless taxes are increased. (Another way to replace those federal tax dollars is to become more efficient and reduce spending without cutting services, but the bureaucracy doesn’t seem interested in that option.)

Governor Parkinson is proposing a significant spending increase but he deserves no blame for redefining the meaning of “gap;” his budget proposal was very forthright in explaining his rationale for spending more money. (OK, maybe he could have corrected those who are overstating the amount of the “gap” but at least he didn’t start it.)

Whether we should raise taxes to increase spending as the governor and others are proposing is a legitimate topic of debate that needs to be held out in the open, but taxpayers need to know the truth about the details in order to make informed decisions.

You can download more commentaries, news and publications at www.kansaspolicy.org.

Free markets

Government spending does not create prosperity

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In his op-ed Don’t buy canard about spending, Alan Cobb of Americans for Prosperity writes about the illusion that government spending creates economic growth.

It’s an important topic, as we’ve just been through nearly a year of Obama stimulus spending, and people are wondering if the effort has paid off. Locally in Kansas, spending advocates argue that reducing Kansas state spending will cause economic growth to suffer. Even more locally in Wichita, city council members and city hall bureaucrats argue that government is responsible for managing economic development in Wichita, some going so far to proclaim that free people and free markets have failed and can’t be trusted.

In yesterday’s Wichita Eagle, Wichita businessman Fred Berry takes issue with Cobb, and this disagreement provides a useful illustration of the difference between government and private action.

Cobb wrote this: “If I take $20,000 from my neighbor and hire a gardener, the economy certainly hasn’t grown by $20,000. It’s simply been a shift of money.” Cobb is illustrating the effect of government spending.

Berry wrote: “But let me use Cobb’s example in a different way. Suppose he and his neighbor decided to share a gardener, because neither needed one full time. Because Cobb’s garden was twice as large as his neighbor’s, he agreed to pay two-thirds of the cost.”

What’s the difference between the two examples? It’s simple: Cobb is illustrating a government-coerced transaction, while Berry uses a voluntary transaction.

There’s a world of difference between the two. Voluntary transactions are the way that wealth and prosperity are generated. These transactions happen because both parties believe they will be better off if the transaction takes place.

This leads to what John Stossel has termed the “weird double thank you moment” when people engage in voluntary trade: One party says “thank you,” and so does the other. This happens at the grocery store and nearly everywhere people are making voluntary exchanges that benefit both parties.

But when you pay your taxes, do you say “thank you?”

Milton Friedman has written and lectured extensively on the topic of free markets. Here’s an example from his monumental work Capitalism and Freedom:

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion — the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals — the technique of the market place.

The possibility of co-ordination through voluntary co-operation rests on the elementary — yet frequently denied — proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.

Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy — what we have been calling competitive capitalism.

It’s surprising to me that a businessman — here I specifically do not use the word “capitalist” — like Fred Berry would fail to recognize the distinction between free markets and government coercion. I guess I should not be surprised, as Berry made large campaign contributions to the Wichita school bond campaign in 2008, and the public schools are definitely unfriendly to capitalism. In addition, he has made contributions to enemies of capitalism like Wichita Mayor Carl Brewer and city council member Janet Miller.

For more explanation of how free markets work from Milton Friedman, view the video below.

Free markets

Don’t buy canard about spending

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By Alan Cobb

“Canard” is a funny word.

It keeps popping into my head anytime I read another self-anointed do-gooder who claims that government spending leads to economic growth.

“Canard” means a false report — and we’ve got lots and lots of them about these claims.

If I take $20,000 from my neighbor and hire a gardener, the economy certainly hasn’t grown by $20,000. It’s simply been a shift of money. Rearranging the furniture in your living room doesn’t increase the number of easy chairs or TVs.

That’s what happens when your taxes pay for someone else’s salary, build a government building or pave a road.

We value good roads and good government. But that doesn’t mean those things cause economic growth. Arguments otherwise are either deceitful or horribly misinformed.

Many say that we don’t need to do anything but spend more government money and — voila — a land of milk and honey.

Given the Kansas highway lobby’s assertions, Kansas should do nothing but build roads and the Sunflower State will become the promised land.

Oh, if it were so.

As Margaret Thatcher said, big government doesn’t work because eventually you run out of other people’s money.

There’s also something never discussed by those wanting to line their pockets with what used to be in your pocket. The money doesn’t drop from the sky and it isn’t in your grandmother’s basement. It’s our money, and we taxpayers might do something more productive with it — though that is never measured. The citizens of Kansas might spend the billions the road lobby wants to spend on more roads (in a slow-growing state with great roads already) on something else, like starting new businesses, which would lead to growth.

The multipliers used by those pushing the canard, cooked up in a fantasy lab, make it look even better. Multiply the $20,000 gardener salary by three — sprinkled with fairy dust — and all of the sudden the transfer of $20,000 magically becomes $60,000. So anything is justified. Want $3 million in economic growth? Just raise taxes by $1 million. You don’t need Billy Mays to sell this stuff.

Add up all the multiplier studies and poof! Kansas’ economy is the size of Texas’.

In a recent Wall Street Journal commentary, a Stanford University economics professor dismissed this notion and said the government-spending multipliers are actually negative. Outlays by the government crowd out private spending and require future taxes.

Measuring the economic value of shorter commutes and fewer car repairs, accidents and fatalities is doable, but never done. Similarly measurable are the benefits of an educated populace, but the benefit is not the sum of teachers’ salaries plus the cost of the bricks in a school addition. Taking the input (tax dollars) and applying a castle-in-the-sky multiplier is not magical; it’s wrong.

Saying the Pizza Hut that moved from downtown to the new bypass outside town is “growth” is equally wrong — and dishonest. But that’s what we hear from those pushing the canard that government spending is growth.

There’s that word again.

Kansas state government

Kansas state budget crisis largely self-inflicted

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Kansas Policy Institute commentary

What should citizens do when they feel that local news media is not covering issues as they should be covered? You could do as I did, starting Voice For Liberty in Wichita. Others start think tanks like the Kansas Policy Institute and its featured projects Kansas Watchdog and Kansas Reporter.

Now the Kansas Policy Institute has placed some of its research into our state’s largest newspaper by way of paying for advertisements. Following is the text of an an to appear on Sunday. The ad as it will appear is available at State Budget Crisis Largely Self-Inflicted.

More information about the data presented in the research is available at KansasOpenGov.org’s data warehouse and KPI’s data warehouse.

Following is the text of the commentary. The chart doesn’t appear — click on the ad for that.

State Budget Crisis Largely Self-Inflicted
Tax Increases and Service Cuts Not Necessary

Declining revenues have forced dramatic changes in the state budget and prompted calls for tax increases. The revenue declines may be recession-driven but the budget crisis is largely self-inflicted. Recessions are not a matter of ‘if’ but ‘when’ and their inevitable appearance should be part of every government financial plan.

Responsible budgeting prepares for periodic revenue declines by setting money aside in good years. When downturns in the economy cause revenue declines, you can draw down some reserves to weather the storm without having to dramatically cut services or prolong the recession with tax increases. Crisis is avoided by prudent financial planning.

Crisis is invited, however, when you allow expenses to grow faster than your income and that is exactly what the State of Kansas has done over four of the last five years.

Even though total State General Fund (SGF) revenues declined the last two years, FY 2009 SGF revenues were still 23.7% higher than five years prior. Spending, however, was 40.5% higher.

Imagine how different things would be today if state government had kept spending in check. In fact, had we limited spending to 4.5% annual increases (well above inflation) we would have finished FY 2009 with a $3.0 billion surplus.

Instead, reminiscent of requests for taxpayer bailouts from irresponsible Wall Street firms, some government officials and others are calling for tax increases.

Governor Parkinson says further spending reductions simply are not possible. With all due respect, such claims are hard to believe absent confirmation by truly independent analysis. (If you would like to do your own analysis, the complete state check register, state payroll information and retiree benefits are now online at www.KansasOpenGov.org.)

Regardless, we can work through the existing crisis without cutting essential services or increasing taxes. This fiscal year began with over a billion dollars in unencumbered carryover cash reserves in state agency accounts. Some of that money might not be available but we only need a portion of it right now. Since most balances have been growing annually and the necessary ending balances have not been determined, we can probably find what we need to avoid tax increases or service cuts.

Excessive spending is to blame for the current budget crisis and it is wrong to ask taxpayers for a bailout. It’s also unnecessary; the state should use a portion of the carryover cash reserves being held by state agencies to get through the immediate problem and implement a full independent review of state spending in search of ways to provide good services at lower costs.

Now tell us what you think. Send your comments to [email protected].

Politics

Public sector employees doing well

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Below, Steven M. Greenhut tells how — despite a poor economy — public sector employees are doing quite well. I don’t think the problem is quite as bad here as it is in Greenhut’s home state of California. But just this week the Wichita City Council voted, in spite of a tight budget that has produced layoffs and outsourcing of city employees, a one-time payment of two percent of their annual salary to Wichita municipal court judges. This was made in lieu of merit pay.

Greenhut’s recent book is Plunder!: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation. I’m looking forward to reading it.

The economy is struggling, the unemployment rate is high, and many Americans are struggling to pay the bills. But one class of Americans is doing quite well: government workers. Their pay levels are soaring, they enjoy unmatched benefits, and they remain largely immune from layoffs, except for some overly publicized cutbacks around the margins.

As I document in my new book, Plunder!, government employees of all stripes have manipulated the system to spike their pensions. The old deal seemed fair: public employees would earn lower salaries than Americans working in the private sector, but would receive a somewhat better retirement and more days off. Now, public employees get higher average pay, far higher benefits, and many more days off and other fringe benefits. They have also obtained greatly reduced work schedules, thus limiting public services even as pay and benefits shoot ever higher. The new deal is starting to raise eyebrows, thanks to efforts by groups such as the California Foundation for Fiscal Responsibility, which publishes the $100,000 Club, a list of thousands of California government retirees with six-figure, taxpayer-guaranteed incomes.

The story doesn’t end with the imbalance in pay and benefits. Government workers also enjoy absurd protections. The Los Angeles Times published a recent series about the city’s public school district, which doesn’t even try to fire incompetent teachers and is seldom able to get rid of those credibly accused of misconduct or abuse.
The real scandal is a two-tier society where government workers enjoy benefits far in excess of those for whom they supposedly work. It’s past time to start cleaning up the mess by reforming retirement systems and limiting the public unions’ power.

Steven M. Greenhut is director of the Investigative Journalism Center and News Bureau at the Pacific Research Institute. He is also a Goldwater Institute Senior Fellow.

United States government

Obama faces earmark test

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A test for President Barack Obama is coming up soon.

When campaigning for the presidency, Obama pledged to end earmark spending. As reported earlier this year in Time Magazine: “… both Obama and Republican nominee John McCain tried to outdo each other with their pledges to rid Washington of the notorious pet projects that legislators slip into spending bills. Obama, who authored 2007 legislation to overhaul congressional ethics rules governing lobbying and earmarks, runs a real credibility risk when he makes exceptions to his own rules.”

But did he make a pledge to end earmarks? MediaMatters says he didn’t make a specific pledge. But he certainly criticized the earmark process.

At any rate, a bill loaded with earmarks is heading to the president for his signature. As reported in the New York Times: “The bill includes 1,720 earmarks costing $4.2 billion for lawmakers’ pet projects, according to the watchdog group Taxpayers for Common Sense.”

Earlier this year, Obama signed a spending bill that contained earmarks. His defenders said that it was “last year’s business.”

Fair enough. Obama inherited certain conditions upon assuming office. But now — at least as far as this spending bill is concerned — it’s all his own doing.

We’ll know soon how Obama really feels about earmark spending.

Kansas state government

Rep. Steve Brunk on Kansas taxes and spending

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Speaking to the Wichita Pachyderm Club on Friday, Kansas Representative Steve Brunk (Republican from Bel Aire) addressed taxation and spending in Kansas government.

Brunk said “We need more taxpayers, not more and higher taxes.” In evaluating legislation, he said he asks these questions: Does this help the state of Kansas bring companies to the state, and does it offer encouragement to companies already here?

Kansas is usually just about in the middle of all states in ability to attract companies to the state. We should be able to better than that, and a way to do better is to reform our taxing environment.

Some of our taxes should go away. The franchise tax is in the process of being phased out. That money is now available to make capital investment and create more jobs.

The corporate income tax should be eliminated, he said. The death tax or inheritance tax is inherently unfair, as people should be able to pass their estates to heirs without being tax.

Also, the capital gains tax is punitive, he said. It should be reduced or eliminated.

“We need a low and predictable tax base, so that we can attract businesses to Kansas to provide jobs without having to offer special and unique incentives.”

When revenues have increased in Kansas, we spent it rather than setting some aside in a rainy day fund. When revenues have not increased as quickly, it causes problems with the budget. Today, we’re probably facing a period of slow growth.

Brunk showed a chart of Kansas spending as compared to the inflation rate. Spending increased much faster, almost four times faster, he said, adding that this is unsustainable.

So Brunk has proposed what he termed a “speed limit.”

The spending problem is due to Republicans and Democrats alike, although Brunk said Republicans are amateurs at spending compared to Democrats. Without Republican help, budgets could be passed. There is a core of about 55 or so conservatives in the Kansas House of Representatives. The rest of the House Republicans are willing to spend along with the Democrats.

To this end, Brunk has proposed a constitutional amendment that he calls the REAL Act: Revenue and Expenditure and Assessment Limitations.

One thing this act does, he says, is to limit the rate of growth of spending to the rate of inflation. This would force the state to prioritize what it spends on, and to take a look at finding excess spending. Existing programs would be reviewed.

The REAL act would also limit the ability to increase taxes or start new taxes by requiring a two-thirds majority in the legislature.

The REAL act also provides for a rainy day fund, sometimes called a budget stabilization fund. The money in this fund could be used only to stabilize the budget when revenue drops below the rate of inflation growth. After this fund is full, an emergency fund would be created and funded for dealing with disasters such as the Greensburg tornado or the southeast Kansas floods.

We also need to avoid download state spending to counties, he said. There could be no mandates with accompanying funding.

Turning to property taxes, Brunk mentioned Proposition K, an effort to stabilize property taxes. Introduced in this year’s legislative session, the measure was referred to a tax subcommittee that didn’t do much to advance the proposal. Based on feedback and concerns, he’s going to adjust Proposition K and introduce it again.

Responding to a question from the audience, Brunk said that he conceptually likes the idea of a Fair Tax, a tax based on consumption rather than income or property ownership. Later, someone else asked, in jest, if an exemption for cigars could be part of a consumption tax law.

Answering another question, Brunk said that a problem with Kansas budgeting is that we have “add-on” budgeting instead of zero-based budgeting. Each year agencies must justify not their entire budget, but only the additional amount that they’re asking for this year.

Analysis

The REAL Act, as described on The Kansas Real Act page, is much like the Taxpayer Bill of Rights proposals, in that it limits spending to inflation plus population growth. These measures are universally and vigorously attacked by government spending advocates such as teachers unions and public employee unions, as they, amongst others, live off of ever-increasing government spending.

In my opinion, the components of the REAL act — limits on tax increases, the requirement of a supermajority to increase taxes, and a rainy day fund — are eminently sensible. Whether these measures can be passed as a package as a constitutional amendment is difficult to answer. In Kansas, such amendments require passage by two-thirds of the Kansas House and Senate, and then by a majority vote of the people. Action by the governor is not required, not can the governor block an amendment, except through persuasion of the legislature or the people.

An amendment to the constitution is required for any laws of this type to be truly effective. Kansas law already requires that the state hold ending balances of 7.5% in its funds. But each year the legislature decides to waive or ignore this law. That can’t be done, to my knowledge, to measures that exist in the constitution. Similarly, the Kansas Supreme Court can’t overrule the constitution and order the legislature to take action, as it has done with K-12 school spending.

The difficulty in passing clear and coherent laws was illustrated by the question about the exemption for cigars. Although proposed in jest, there will be constituencies that will be quite serious about exemptions to nearly any law that is passed.

Politics

Myths of Roosevelt and the New Deal presented in Wichita

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Yesterday Burton W. Folsom, professor of history at Hillsdale College spoke to a capacity crowd at a luncheon sponsored by Americans for Prosperity-Kansas and the Flint Hills Center for Public Policy.

His topic was three myths of the New Deal, based on his recent book
New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America.

The first myth is that the New Deal got us out of the Great Depression, or at least made good headway. Massive spending and a doubling of the public debt, however, didn’t do much to cure unemployment, as admitted by Roosevelt’s treasury secretary Henry Morgenthau, Jr.

Besides unemployment, other measures were bad. The arrest and murder rate was high throughout the 1930s. Life expectancy, which had increased rapidly in the decades before Roosevelt’s presidency, declined slightly during his first two terms.

Why didn’t spending solve the problem and lift us out of the Great Depression? The money to support government spending has to come from somewhere. Even if the money is well spent — and there’s ample evidence it isn’t — it would have been spent in the private sector when it was in the hands of taxpayers. Government spending only shifts jobs from the private sector to the public sector.

The second myth is that if the New Deal didn’t get us out of the Great Depression, it was at least a step in the right direction, a view commonly held today. A look at specific programs tells a different story.

The Agricultural Adjustment Act (AAA) paid farmers to leave some of their land vacant, thereby reducing their production. Prices for crops, then, should go up. Some farmers, however, took the money, and then planted on the land that was to remain vacant. So Roosevelt sent inspectors. Farmers bribed the inspectors, so Roosevelt had inspectors inspect the inspectors. Then aerial surveillance started.

Then, in 1935 there were shortages of farm products. We imported 11 million bushels of wheat, 34 million bushels of corn, and 36 million pounds of cotton — at the same time we were paying farmers to not produce these products.

The National Recovery Act (NRA), another of Roosevelt’s programs, lasted for 2.5 years before it was unanimously ruled unconstitutional by the Supreme Court.

Folsom told how Massachusetts — back then a conservative state with a free-market orientation — took care of their own hungry people. But after seeing what other states (Illinois in particular) did to get federal funds, Massachusetts decided to take federal money.

The third myth is that Roosevelt had good intentions. His actual goal was to put together a political coalition so he could remain in office. The WPA, in particular, served to reward loyal Democrats with jobs, and to do actual campaigning for Roosevelt. He was also the first to use the IRS as a weapon against his political opponents.

Concluding, Folsom gave his recommendation for today: “We need to remember that massive spending did not work well back then. It carries with it a host of unintended consequences. Cutting taxes can often liberate people, produce more freedom, and turning the American economy loose with lower tax rates and more individual liberty would provide more of an opportunity to get us out of the current recession.”

Wichita tea party

Wichita Tea Party on Tax Day Flyer

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Wichita Tea Party Protest: Flush Twice

Susan Estes has created a printable flyer to promote the Wichita tea party protest on tax day, April 15. Click on Wichita Tea Party Planned for Tax Day, April 15 to learn more about the event.

Thanks to Susan Estes for creating the flyer, and for the great imagery. It hints of one of the themes of the protest, which is “Flush twice, it’s a long way to Washington!”

Click on Wichita Tea Party Tax Day Flyer to download the printable flyer. It’s a pdf file.

Politics

Kansas blogger prone to exaggeration

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Jason Croucher, writing in the Kansas Jackass blog, says that we’re spending trillions on the Iraq war and little domestically. Is this really the case?

A running tally of the cost of the war from CostOfWar.com is at about $605 billion. That’s in line with other estimates. It’s true the war is going to continue to cost a lot for some time, and the cost may well exceed $1 trillion at some time in the future, but that’s a lot different from saying “all those trillions spent in Iraq.”

Then there’s this from Croucher: “Ah, but then, suddenly, the federal government did something they haven’t done in years — they actually spend [sic] some money domestically!”

I realize that Croucher is exaggerating a bit — okay, a lot — in order to be sensational and amuse his readers. But to say that federal domestic spending hasn’t been increasing is far from factual.

Croucher may have been relying on material such as that presented by the left-leaning Center on Budget and Policy Priorities. (This might be the case if he’s doing any actual research when forming his opinions instead of parroting leftist talking points.) Their analysis shows that federal domestic spending is growing less rapidly than defense and security spending for the period 2001 through 2008. Relative to this spending, domestic spending is shrinking, they say.

This analysis, however, ignores the fact that spending has been increasing, and rapidly, too. Numbers will illustrate this.

The Heritage Foundation has a series of charts prepared from the historical tables of the U.S. budget. One chart, titled Since 9/11, Federal Spending Has Increased Much Faster Than Inflation, contains this analysis: “Total nominal spending has increased 97.6 percent since 1992, while the Consumer Price Index has increased a relatively modest 47 percent, which means that government spending is growing much faster than inflation. Less than half of the increase in federal spending came from defense and homeland security spending.”

So federal spending is growing, and it’s not all on the war and homeland security.

While the Iraq was is expensive, it’s nowhere near the budget-buster that Croucher might have you believe. The chart titled Despite War Costs, Defense Spending Falls Below Historical Average tells the story that even though defense spending is rising, it is still below — way below — spending in recent periods (as a percent of GDP) .

The spending whose absence Croucher laments has, in fact, been increasing rapidly — even during the recent Bush presidency. The chart Mandatory Spending Has Increased Almost Five Times Faster Than Discretionary Spending illustrates. The mandatory spending shown in this charts is mostly social security, Medicare, and Medicaid spending. That’s all domestic.

Remember too that it was George W. Bush who started the prescription drug benefit program for seniors. That’s an expensive program.

Politics

Perhaps the greatest Wichita Eagle opinion line ever

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“It is a popular delusion that the government wastes vast amounts of money through inefficiency and sloth. Enormous effort and elaborate planning are required to waste this much money.”

This appeared in the Wichita Eagle on March 13, 2009. Originally, it appeared in Parliament of Whores: A Lone Humorist Attempts to Explain the Entire U.S. Government, a book written by the very funny P.J. O’Rourke.

Kansas state government

Kansas Fed-Up with High Taxes

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Here’s a press release from the Kansas chapter of Americans For Prosperity reporting on the results of a poll about taxes and spending in Kansas.

Interestingly, the poll found that a majority of lower-income Kansans are opposed to higher taxes on high income earners. This goes against the theme of some authors, including Thomas Frank, the author of the book “What’s the Matter with Kansas,” who argue that working-class people should vote their pocketbooks. Meaning, of course, soak the rich.

Study Finds Kansas Fed-Up with High Taxes and Wasteful State Spending

Lower-Income Residents Oppose Tax Hikes, Even if They Don’t Pay

TOPEKA — A new survey by the free-market grassroots group Americans for Prosperity finds that 57 percent of Kansans believe the state’s taxes are too high, with 51 percent disapproving of the way the state legislature handles budget and tax issues. When asked to identify the most important issue in state budgeting, 43 percent identified wasteful spending on programs that do not work.

“Kansas taxpayers have simply had enough,” said Derrick Sontag, state director of the Kansas chapter of Americans for Prosperity. “Legislators must work to address wasteful government spending before they even consider raising taxes on Kansas families and businesses.”

The survey also finds that lower-income Kansans oppose higher taxes, even if they are not forced to pay them. A solid 60.3 percent of respondents earning under $30,000 rejected the idea of raising taxes on others.

Respondents also rejected the idea of taxes that are paid for by working poor and lower income groups, with a decisive 91 percent opposing the taxes.

The survey was conducted by Voter/Consumer Research, and is based on the responses of 613 registered voters across the state, conducted by telephone Jan. 28- Feb. 2 of this year. The margin of error is +/- 4 percent.

The complete national and state results can be viewed at www.americansforprosperity.org/tax-survey.

Politics

Wichita Tea Party News Coverage on KSN Television

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The Wichita Tea Party protest as covered by KSN Television, February 27, 2009. A very good job by reporter Josh Witsman.

“Someone needs to go and cut up Congress and President Obama’s credit card, because it’s not their credit card — it’s our credit card.”

Politics

Wichita Tea Party Citizen Report

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A citizen report submitted by John Todd. Photos are available by clicking here. More coverage and video can be viewed by clicking here.

An estimated 100-plus citizen activists assembled today near Second and Waco Streets to participate in a protest of the federal stimulus package and bailouts. The event was billed as The Wichita Tea Party. Two men drove 200 miles from Garden City to attend. Other Kansans were here from Abilene, Hutchinson, Andover, and Augusta.

A gentleman from the Kansas City area came dressed in a pink pig suit with a sign denouncing “pork spending.” He delighted the crowd.

In addition to children, one lady brought her dog with a protest sign around his neck, reading “I didn’t read it either.”

A couple of middle-aged women from Wichita arrived early at the event indicating that this was their first involvement in citizen activism, and that they were hot about the stimulus spending that was emanating from Washington.

Staffers from Congressman Todd Tiahrt’s office participated along with dozens of like-minded citizens and several activist coalitions complaining about the stimulus.

The crowd carried signs, waved at passing cars whose drivers honked and gave thumbs-up signs marking their approval of the tax protest movement.

The event was a tremendous success and shows just what grassroots citizen activists can do to express their feelings of frustration towards a government that appear to have lost sight of the people who actually pay the bills. A general feeling among the crowd was that many of our leaders in Washington are moving our country towards an involuntary redistribution of wealth known as socialism.

They also appreciate the members of the Kansas congressional delegation who voted against the stimulus package.