"Free Lunch" and "Magic Beans"
Interesting Op-Ed in the Washington Post today ("Kilgore's Free Lunch") regarding Republican gubernatorial candidate Jerry Kilgore's plans for spending increases on health care, education, and transportation--all things any Virginian could get behind. The trouble is he has no plans for how to pay for it all. In fact, Kilgore would roll back Gov. Warner's tax hike (which generates about $700 million/year), he'd phase out the car tax (costing the state about $500 million/year), and he'd cap real estate assessment increases at 5%--cutting off a major source of school funding for communities across the commonwealth. Instead, Kilgore seems to think that he can pay for everything with the state's economic surplus--generated in part by Warner's tax increase. But, as is noted in the Post's editorial, this is presupposing we're going to continue having a surplus--a dangerous assumption, just ask Jim Gilmore.
Democratic candidate Tim Kaine has been trying his best to point out the holes in Kilgore's proposed fiscal policies:
"There's no such thing as magic beans," he said. "We are not going to strike gold or strike an oil well." He demanded to know how the Republican would compensate for the $700 million a year he would slash by eliminating Warner's tax increase. Would he cut deputy sheriffs' positions? Schools? Health care?Unfortunately for Kaine, it's awfully hard to get people to look past the smoke and mirrors of Kilgore's plans and get behind someone who wants to keep Warner's tax increases. Even if he has no way to pay for everything, Kilgore's platform is a lot more inviting and poses a formidable obstacle for Kaine to overcome this November.
Kilgore was mum. He opposed Warner's tax increase, but he loves spending the money it's produced.
posted by ze roberto @ 7/25/2005 10:16:00 AM
6 comments
6 Comments:
You know what... I say bring it, Kilgore, and let's all watch what happens to the Commonwealth's fiscal health when you simultaneously axe taxes and increase spending across the board. You know what happens? A meltdown. It's an economy out of balance. Something has to give, and it's vital programs that go first. Or we have a huge budget deficit and scramble to cover our shortfalls. No thanks -- Gilmore's car tax repeal was a complete and utter failure. Warner has at least -- as a Democrat (!!!) -- restored some semblance of fiscal conservatism and health.
We're already watching what happens to a country when you simultaneously cut taxes and increase spending. We're living the consequences as a nation. Its because of our fiscally responsible governor that Virginia has remained relatively sheltered from the economic problems facing the rest of the nation. Hopefully, Virginians will remember that.
Perhaps Mr. Kilgore is taking his stump speeches from the editorial page of the WSJ...
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Disappearing Deficit
July 12, 2005; Page A16
Why is it that the dreaded federal budget deficit only commands screaming headlines when it's rising, not falling? And why is it that the deficit is portrayed as a fire-breathing, hydra-headed monster only when the press can portray the villain as "irresponsible tax cuts," not runaway federal spending?
We ask these questions in the wake of the great unreported fiscal story of 2005: the shrinking federal deficit. It's down by at least $100 billion because federal tax receipts have skyrocketed this year by 14.6% (or $204 billion) through June. Private economic forecasters now believe the budget deficit may come in at about 2.5% of GDP, which is in line with the historical average for the past 40 years. Given that we're fighting an expensive, must-win war on terror, these deficit numbers aren't too shabby.
Not even the most unbridled supply-sider predicted that President Bush's investment tax cuts would unleash such a spurt of tax receipts this year. But thanks to sustained economic growth, more Americans working and improved business profits, individual income tax receipts have shot up by 17.6%. Even more astonishing is the nearly 41% spike in corporate revenues. There's a fiscal lesson here that bears repeating: The best way to grow tax revenues is to grow the tax base, and that is what has happened this year.
Alas, what hasn't happened in Washington this year is federal spending restraint. Despite pious pledges from Mr. Bush and Republicans in Congress to trim spending growth to 4% this year, so far total nonmilitary spending is up 7.3%. Thanks to a 10% boost in Medicare (even before the prescription drug program hits next year), we now devote a larger share of the budget to health care than national defense -- notwithstanding that Congress has a clear Constitutional mandate to spend money on national security, but not so when it comes to funding gall bladder operations or Viagra.
During last year's Presidential campaign, Democrats ripped Mr. Bush for underfunding education -- which is incredible given that the Department of Education budget has jumped by a gravity-defying 20% this year and has more than doubled over Mr. Bush's tenure. One gets the sense that Republicans have thrown up their hands in despair and are pleading: Stop us before we spend again. All of this is to say that Washington doesn't have a budget deficit problem, it has a spending problem. Thank goodness for Mr. Bush's tax cuts or things would be much worse.
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I have to admit that I am none to thrilled with the spend, spend, spend mentality in Richmond. I can think of very few areas, save perhaps transportation, where dollars are better spent at the state level as opposed to the local level.
And by the way, there is a very simple way for a politician to increase spending, while cutting taxes. It is called the unfunded mandate. The federal government has become a master at it, and many states are learning by its example. Unfortunately there is no one else to whom the localities can pass the buck (other than the taxpayer). Does anyone else have a problem with this budgetary hocus pocus?
Maybe what I'm really saying is this: Jerry Kilgore, please don't promise spending hikes that we can't pay for now, much less AFTER you cut taxes (or, "don't spend what we don't have!") If he wants to say that growing the tax base is going to more than make up for the tax rate slashes that he has planned, he can say that, but the truth is he doesn't know that that will actually happen -- and I don't believe it's fiscally prudent to hang your hat on what *might* happen, if all goes swimmingly.
I’d just like to point out a couple of oversights in the WSJ editorial. Firs of all, this editorial fails to point out that an estimated $61 billion of the re-forecast was from the expiration of a depreciation tax break for businesses. This is a one-time tax generator. We still have $333 billion to go. It also does not take into account the Iraqi or Afghan campaigns. Kind of a big over-sight. BTW, there were headlines about the lowering of the deficit - in liberal rags like The New York Times and Boston Globe, no less.
Interesting piece in the RT-D re: Virginia's $544 Million surplus for this past fiscal year. Kilgore says it's proof that we didn't need Warner's tax increases--the economy as it was would have produced the necessary cash without raising taxes. Maybe... but maybe not. And, in the meantime, many important programs like education, health care, law enforcement, etc. would have gone unfunded. And, as Kaine points out, the increase saved VA's favorable bond rating. And, contributed to the recent lowering of the grocery tax. Anyway, what's more important, is that the Warner administration claims that 75% of this unexpected growth/surplus came from "volatile sources." So, in other words, there is absolutely no guarantee they're going to be there next year. Not something on which I'd really want to stake the economic health of our state.
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