Goldy recently posted some analysis of the state budget worth reading, here and here. The crux of his complaint is Governor Gregoire's budgets are being measured in absolute dollars (with related percentage increases) rather than being measured as percentage of the state's economy.
As far as it goes, the argument has some merit in the abstract. In reality though, there isn't much that can be done about it in the near-term without a radical restructuring of our state's tax system. It's not as if our current tax system, which regressively affects low-income individuals and small, less profitable businesses, can be realistically scaled up to provide the spending Goldy desires.
In the big picture, I'm open to a serious debate about our state's tax system. In the near future, however, I'd be even more interested in Goldy being consistent. If he is going to say the state budget should be viewed through the lens of the size of the state economy, he should also acknowledge the federal budget - and deficit - should be viewed through the lens of the national economy.
If Goldy were to be consistent in that manner, his ongoing complaints about the federal budget (recently exhibited here) would acknowledge the importance of measuring the federal deficit as percentage of GDP, not in the less relevant raw dollars.
Critics of the recent Republican Congress and President Bush have attempted to claim the high road of fiscal responsibility in recent years. Big picture this is an interesting conundrum given the fact Congress controls the purse strings, Presidents can only hope to influence their behavior. The Reagan-era deficits of liberal fame were passed by Democratic Congresses; the Clinton-era budgets Bush critics crow about were passed by Republican Congresses.
Democrats make too much of their own fiscal shortcomings when they controlled Congress, and too little of the Republican successes working with Bill Clinton to improve federal finances. Meanwhile, Congressional Republicans obviously have some work to do in reclaiming the mantra of fiscal responsibility in the eyes of voters. In fairness, I think both sides make too much of the performance of their opponents on the federal budget, since much of the macro-level budget picture is affected by economic cycles the federal government can normally only influence on the margins. The policies enacted by Congress and approved by a President are important, but they cannot create economic trends and related tax revenue swings, they can only hope to accelerate or decelerate them as the case may be.
Currently, even with appropriate critiques of recent Congressional performance on spending, the budget situation is not bad (until the baby boomers retire of course). Lost in the shuffle of the recent election cycle was the news that last year's incredibly shrinking deficit was only 1.9% of GDP, notably below the 40 year historical average of 2.3%. Note why the deficit is declining: it's not because of outstanding spending restraint, it's because of soaring tax revenues fostered by pro-growth policies (see a nice summary of the matter here, and a specific meme on the pro-growth aspect here).
With a Congress now at least rhetorically in favor of more prudent budgeting, and a President likely more apt to veto appropriations bills not from his own party, the outlook for the overall budget and deficit in the next few years, particularly as a percentage of GDP, is good in a historical sense.
So, will Goldy acknowledge the importance of measuring the federal deficit in the same terms as he would prefer to measure the state budget?
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UPDATE: Goldy has joined in via the comments, and nobly accepted the notion that indeed, the federal deficit should likewise be viewed in terms of percentage of GDP rather than merely in the less relevant statistic of raw dollars.
He also asks if I'm willing to consider an income tax as part of the "radical restructuring" of the state tax system I noted above. Yes, I'm game. It wouldn't be an easy sell politically, but depending on the totality of the reform involved I can live with an income tax if it's part of totally new tax structure.
In fairness, the state is unable to pay for the spending on education and transportation its citizens are demanding without causing serious budget problems under our current structure. Something has to change in how the state taxes and spends, that and a return to Priorities Based Budgeting as Locke & Rossi successfully implemented would be nice too.
Posted by Eric Earling at January 09, 2007 08:31 AM | Email ThisI am sure Goldy will... in 2009 when Hillary is President and the Dems control Congress. But not before then. His analysis of economics is totally biased by his "I hate Republicans" outlook. He blames the tax cuts for the deficit, totally ignoring the easily looked up fact that Federal tax revenues are soaring and the deficit only exists because spending is also soaring (although, as you point out, as a percentage of GDP, spending isn't out of line).
Posted by: Truth_Teller on January 9, 2007 08:55 AM-Christine Gregoire
ok so I added the last part. None the less- free tickets to Disneyland for everyone not over this tall ->
Posted by: Andy on January 9, 2007 08:58 AMAs a matter of fact, I had an offline discussion the other day with co-blogger Darryl along these very same lines. I'm not generally a deficit hawk, and recognize the many benefits of responsible deficit spending; Keynsian fiscal policy aside, governments invest in infrastructure that pays off economic dividends down the road. So yes, the federal government and its deficits should be measured relative to the overall size of the national economy.
But I can't say the recent federal deficits have been responsible. (I could think of better uses for the half-trillion dollars we've spent in Iraq) Still, this is a complex issue. There are, for example, advantages and dangers to largely taking the federal government out of the capital markets as we did towards the end of the Clinton administration.
That said, my public consistency has nothing to do with the issue of the state budget, which by constitutional mandate must be balanced.
What I'm asking for is an honest debate on what kind of state we want, and what kind of government. And my main point, which I believe you acknowledge, is that the long term issue isn't out-of-control spending, but rather an inadequate and unfair tax structure.
Let's not beat around the bush. When we talk about a "radical restructuring" we're talking about an income tax (or even less likely, perhaps a value added tax that includes a wage component.)
Are you willing to consider such an option?
Our respective blogs largely focus on state and local issues. Let's put aside the national deficit blame game for a moment and focus on the issue where we can have the most impact.
Posted by: Goldy on January 9, 2007 09:40 AMSales taxes are more immune to this effect.
This kills oregon everytime. Oregon residents have shot down a sales tax every time the issue comes up. Mostly because they have little faith in the government capping income and property taxes.
That said- the biggest raise I ever got was moving out of Oregon for the same pay up here.
The reason why an income tax will (should) not be accepted is that it will be raised at a whim, the same way as the the peoples' will is ignored when taxes are increased. The Gov stepped on the people and pushed through tax increases with a simple majority instead of the 60%.
Posted by: Right said Fred on January 9, 2007 10:33 AMFred @7... I'd suggest reading the Gates Commission report for an explanation of how a VAT works.
As to your other point, I'm not really sure what you're getting at. The gas tax increase? There is no 60 percent requirement. Furthermore, the people had the opportunity to overturn it with I-912, which was rejected in a landslide.
Posted by: Goldy on January 9, 2007 11:43 AMAnd the fact that the VAT is charged at the end to the consumer it is identical to the sales tax, and just as regressive. Couched in any other terms is fine, but if you buy a hamburger there is an 8.9% tax on it. No one really cares, nor does your wallet, if you put 'sales' or 'value added' in front of the name.
Posted by: Right said Fred on January 9, 2007 12:03 PMfine- but this is the real world. Sales tax is actually more fair than income tax- it sets a base that everyone has to pay into.
Suppose we didn't have that tax on tobacco- do you want your income tax paying for free health insurance for the bottom 5% of society who won't pay for health insurance, but will gladly pay 10 bucks a day for a pack of marlboros and cable TV?
Lastly- a lot of our federal tax dollars from federal income tax DO come back our state...as I said yesterday DSHS gets 30 cents from the fed for every dollar spent 'managing' child support.
It'd be nice if Patty/Maria and gang could bring some of those dollars back for transportation.
Fact being- a personal income tax would be an extremely bad thing simply because it's not reliable as a revenue source. Instead of budget surplus- you'd be looking at budget deficits...and our fiscally inept state government is not capable of such a thing- though it would be fun to watch.
Posted by: Andy on January 9, 2007 12:37 PMThought so!
Just askin!
Posted by: GS on January 9, 2007 03:43 PMSo with an income tax, who wants to go first?
I propose that we keep egging Goldstein on until his career blooms to the point that he is one of the "rich" that he loves to encourage to donate their estate tax, and to succumb to other higher percentage taxes, because after all, who cares about the rich! Then, we'll start with rich Goldstein, and take a significant portion of his wealth to fund the drunken spending binge of the WA legislature and see if he still finds it agreeable. Once he tells his other rich progressives followers that their income taxation is all for the good cause of government, they'll be plenty to go around.
Perhaps it could even be elective. Progressives believe in taxation and government, so they can voluntarily submit a greater portion of their income than those of us who would like to see a more limited and responsible government. It will average out, and everyone will be happy.
Posted by: Jeff B. on January 9, 2007 03:54 PMThat's nonsense, Eric. Our state tax structure is not suffering from a lack of productivity. In fact we weathered the economic slowdown of 2000-02 much better than did states dependent on an income tax.
And who says the state is unable to pay for the spending on education its citizens demand? Where is that from? I seem to recall that we had a measure put on the ballot by education advocacy groups just a few years that would have raised taxes for more spending on education, and it went down in flames. And polling -- including Gregoire's own for her "Washington Learns" study, does not support the idea that Washington's citizens are demanding a lot more education spending. The Times and P-I ed boards, sure. But I hope you're not mistaking them for the citizens of Washington.
The second part of your proposition makes no sense at all. How would income tax help with transportation funding? An income tax, were one enacted, would not go to the transportation budget, anyway. It would go to the operating budget. If there is an example of a state that funds transportation with an income tax, I'm not aware of it.
Posted by: stu on January 9, 2007 09:28 PMOnce we have a state income tax, we'll later have state sales tax and eventually city income tax as well.
Think I'm nut's? It's already a reality. Live in Philadelphia, a Dem's haven. They have State & City income tax as well as state sales tax.
WA State income tax?
JUST SAY NO !
Posted by: Jack Burton on January 10, 2007 10:45 AM