Voice For Liberty

Tag: Government spending

  • State budget ‘gap’ is all about perspective

    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.

  • Government spending does not create prosperity

    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.

  • Don’t buy canard about spending

    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 budget crisis largely self-inflicted

    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 information@kansaspolicy.org.

  • Public sector employees doing well

    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.

  • Obama faces earmark test

    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.

  • Rep. Steve Brunk on Kansas taxes and spending

    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.

  • Myths of Roosevelt and the New Deal presented in Wichita

    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 on Tax Day Flyer

    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.