Wednesday, January 26, 2005

Data Are For Weenies

I'm two days late in sending out last Sunday's column because I spent three days in Kokomo, Indiana, as this year's contribution to the Congress to Campus program sponsored by the U.S. Association of Former Members and the Stennis Center for Public Service at Mississippi State University (major funding provided by Boeing and AARP). I now know much more about Indiana University at Kokomo, and hope that my GOP partner, former Rep. Steve Kuykendall of California, and I maybe inspired a student or two to consider a career in public service. At IUK, however, we started small, in trying to convince students at this rural, all-commuter branch campus (there are no residential dorms or athletic facilities; no fraternities, and one brand-new sorority) that they maybe should think about a 2-week program, because a semester away seems too long to contemplate.

The coolest thing in Kokomo is that the IUK Chancellor, Ruth Person, not only spent a year during her time with the American Council of Higher Education in Phoenix as a Fellow with the Arizona Board of Regents, but she's also a member of the Board of Directors of Steak N Shake Corporation. (The second coolest, and most enthusiastic, was our visit coordinator, the ruthlessly efficient and relentlessly positive Aimee Sadler, the most organized Hoosier I know.) Chancellor Person gave me a Steak N Shake mug as a memento, but I'll have to give it to Sarah, to whom it will mean more in St. Louis.

For those of you not familiar with Midwestern mores, Steak N Shake is the In-N-Out Burger of the Central Time Zone. (Special bonus link: The unposted In-N-Out menu!)

East Valley Tribune, Jan. 23, 2005

Next time you hear one of these "eat-our-seed-corn conservatives" (or the page to my left) say that state tax cuts will boost economic growth, ask them to prove it. They can’t. And now there’s new research showing that states that cut taxes the most during the 1990’s actually did worse economically during this decade.

The nonpartisan Center on Budget and Policy Priorities just compared economic performance of the 16 states that cut taxes the most (over 7 percent of overall revenues) with the 34 states that cut taxes less, or not at all. Guess what? The states that cut taxes the most had bigger budget problems, needed larger spending cuts and larger tax increases to fill the gaps, and were more likely to have their bonds downgraded by the rating agencies. The six states that cut taxes the most (more than 10 percent), including one of our local right-wing’s absolute favorites, Colorado, did even worse. (The full study is available here.)

The tax-cutting states also turned in worse economic performance during the 2001-04 recession-and-weak-recovery. They lost more jobs and had slower growth than the more “moderate” states -- three times greater job losses than the average of the other 34 states. They saw slower growth, larger increases in unemployment, and smaller increases in personal income. The six states with the biggest tax cuts had almost four times the payroll job losses in the other 44 states. In five of the six, constant-dollar total personal income has declined, despite increasing nationally.

Conservatives can’t blame the weaker economies on subsequent tax hikes when the fiscal crows came home to the budget roost. The job losses occurred at the beginning of the recession, during 2001, but most states deferred their fiscal medicine until 2002. (Most still had a few budget gimmicks left; the cupboard became bare in 2002.)

Conservatives also can’t say that tax cuts are good economically, but “other factors” overpowered any benefits. That’s sure not what they said going in -- and if these other factors are more important, shouldn’t we do the more important stuff first?

The tax cuts didn’t “pay for themselves.” Instead, states that cut taxes more aggressively found that they had (imagine that!) less money for public services, like schools and transportation. They also had less money when demand increased during the recession for healthcare, job training, and emergency assistance.

Other research, including a major 2002 study by Robert Lynch of the Economic Policy Institute, found that state tax rates have little or no impact on economic growth. Numerous academic studies confirm that state tax burdens matter less than finding qualified workers, proximity to key customers, and quality public services. Tax cuts that reduce the quantity and quality of public services actually can hurt economic growth and lose jobs. It takes so much in tax cuts and economic incentives to impact economic development that the lost revenue may mean more public sector layoffs than any new jobs created.

Such a deal the conservatives offer: You get bigger job losses, worse public services, slower income growth, and lower bond ratings. Eventually, you get bigger tax hikes. Wow.

Watch conservatives fret about the state’s fiscal “structural deficit,” the mismatch between revenues and spending increases required by federal programs, population growth, and voter-approved initiatives. These same conservatives created the structural deficit, by passing wave after wave of tax cuts with claims they would spur the economy and pay for themselves. Well, they didn’t -- and they won’t.

Arizona managed to avoid the fiscal train wreck now afflicting Colorado mainly because of those voter-approved initiatives and an already-antiquated tax system stopped our legislators from being as stupid as they truly wanted to be. But now that our economy is improving, those legislators want another drink of the same fiscal Kool-Aid that has led to lower growth and worse services elsewhere.

The way to cure our structural deficit isn’t with worse schools, roads, healthcare, and public safety. Businesses and new jobs aren’t attracted by policies that lead to bigger deficits, worse services, and lower bond ratings. And if anyone says otherwise, ask ‘em for proof.

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