Walker: Right on Supermajorities and Regulatory Reform

A bill requiring a supermajority vote in the legislature for any tax increases has been included in Governor Scott Walker's early legislative agenda aimed at improving Wisconsin's economy.

I believe that if legislators want to show they are serious about not raising taxes, they should, you know, just not raise taxes. That being said, signals are important in politics and in life and if this is intended as a signal then this approach is perferable to the alternative that some members of the GOP would prefer, a constitutional amendment requiring the supermajority vote.

Here's Mike H. at Letters in Bottles:

That said, I think he needs to be careful with legislation like this. While I think it's an excellent idea to require a supermajority for tax increases - or a statewide referendum - this particular legislation isn't the way to go. This really is a watered down version of TABOR or the TPA and anything that would require a supermajority of either house of the legislature should be done as a constitutional amendment. Doing this through an ordinary bill could be portrayed as an end run around the constitution and the citizens of the state.

There are more than enough votes to get this passed as a constitutional amendment and I think we would be much further ahead as a state if we went that route.

My objection to the constitutional amendment route is that it places limits on the actions of legislators, the people most directly responsible to the voters. To my mind, this is exactly backwards of the way things ought to be.

In a government of, by, and for the people our elected representatives should have reasonably wide latitude to govern as they see fit. This latitude will naturally be checked the regular elections as set forth in our founding documents.

The modern administrative state that is government in so much of America functions exactly opposite of this. While we seek to constrain our elected officials, unelected officials at the myriad regulatory agencies are tasked with creating and enforcing rules that may or may not have been part of, or intended by, the original legislation actually voted upon. This backdoor method of lawmaking also allows less courageous elected officials to achieve a desired legislative outcome without having to actually vote on the specific language that will become the law of the land. How many times in the debate surrounding health care have we heard that so much of the law remains to be written?

Governor Walker, however, has already taken steps to address this. From the Governor's Office website:

Madison—Today Governor-elect Walker announced the second piece of legislation for the Wisconsin is Open for Business Special Session, which contains an overhaul of Wisconsin’s overall regulatory process....

Walker’s legislation will take a multi-pronged approach to improve Wisconsin’s regulatory climate. First, it will state that an agency may not create rules more restrictive than the regulatory standards or thresholds provided by the Legislature. Second, it will allow rules to be challenged in the county circuit court where the plaintiff resides. Third, this legislation will require the Governor to approve proposed rules. Additional regulatory reforms will be included in the final version of the special session legislation.

Opponents can call this a power grab, but I'd call it making sure that laws are made by lawmakers. The fact that citizens can challenge rules in a manner more convenient for them is just a bonus.

On the question of a supermajority requirement to raise taxes Walker's approach is preferable to a constitutional amendment. His proposal for improving agency rule making has the potential to shift governance away from unelected regulators and back toward elected officials where it belongs.

Governor Doyle Good For One Last Laffer

From the Journal Sentinel (my bold):

Madison — The state's bleak budget outlook brightened a bit Monday, as state officials projected that Wisconsin will take in $57 million more in taxes this year than previously expected and $235 million more over the following two years...

Gov. Jim Doyle's administration said the higher projected tax revenues were largely the result of the recently announced tax bill compromise between President Barack Obama and Congress.

"These projected revenue increases are a direct result of President Barack Obama's recently enacted tax cut bill and additional (state) personal income data showing continued growth in Wisconsin's economy," Administration Secretary Dan Schooff said in a statement.

Got that? The Bush/Obama tax rates are responsible for increasing WI tax collections. At least according to Democratic Governor Jim Doyle.

I found this a little amusing, since just other day, Capper linked to an article that said this was one of the myths only conservatives believe:

1. Cutting Taxes Leads to More Money for the Government

Conservatives can't say they oppose popular programs on ideological grounds, and they can't admit they're happy to run up huge budget deficits, so they've come up with the fiction that cutting taxes actually brings in more revenues to finance the public sector....

It's also complete nonsense, and it's worth noting that only conservative politicians and pundits make the claim -- economists across the ideological spectrum agree that the argument is cursed by voodoo math.

Guess we'll have to change this one to a myth that only conservatives and Governor Doyle believes.

The fine print:

A good partisan blogger would just stop there and people from both sides would leave this post just having their previously held beliefs reinforced. Since one of my goals with this blog is to actually inform and persuade, let me throw in a few disclaimers.

Conservatives - It's clear that tax cuts do not pay for themselves over the long run. They don't. Stop repeating this like a mantra. They also don't reduce the size of government, you shouldn't need any bigger proof than the current national debt. Focus on the spending and the taxes will sort themselves out.

Liberals - High marginal tax rates have a disincentive effect on work. When you frame this entirely as the ultra-rich giving up some conspicuous consumption, you are kidding yourself if you think this doesn't affect the rest of us. When Donald Trump doesn't do a deal and decides instead to cut expenses, you may cry crocodile tears over the fact that he cancels his dog's yoga class. If you want to see some real tears, talk to the canine yoga instructor who was living her dream and making $50k a year. Making everyone poorer, doesn't make the poor better off.

Dude, where's my utopia?

It's true that as a percentage of GDP the U.S. tax burden is small relative to other wealthy nations, like those in Western Europe. This fact leads many on the left to two incorrect conculsions. One, our looming fiscal problems can be fixed by raising taxes, after all we've got relatively low taxes now, so raising them moderately can't hurt. And two, that we can increase taxes and increase government spending until the U.S. is transformed into a paradise of government provided services.

With respect to the first conclusion, The Armchair Economist warns that fixing your fiscal problems by increasing taxes is like paying off your credit card bills by going to the ATM more often, and is not a recipe for success.

And as far as the second goes, holding on to this vision of a high-service utopia is at best foolish and at worst dangerous. It's as if these folks have never heard of the Soviet Union, or read Brave New World, or recognized the fact that Western Europe's combination of high-immigration and low birth rate is a path to extinction.

Quite apart from these criticisms though, is the question of whether or not we really are a low-tax state.

Economist Greg Mankiw offers an alternatvie persepctive of our tax burden by taking a look at taxes per person, rather than as a percentage of GDP. He finds that on this basis the U.S. falls between.........Canada and the U.K. Not exactly tax-haven territory. He notes:

The bottom line: The United States is indeed a low-tax country as judged by taxes as a percentage of GDP, but as judged by taxes per person, the United States is in the middle of the pack.

So maybe our tax burden isn't really light enough to fully transform the United States into a government catered paradise, even if such a thing were possible.

Yglesias offers a criticism, but he loves the idea of a high tax/high service state, and thinks it's a real possibility.

Ryan's Road Map & Revenues

Reihan Salam (one of my favorite bloggers) notes a criticism of Paul Ryan's Roadmap when it comes to revenues:

I've been heaping praise on the Ryan Roadmap because it strikes me as a serious, thoughtful response to our long-term, slow-burning fiscal crisis. But it suffers from a glaring flaw, namely it's too-rosy revenue projections. Howard Gleckman has offered a smart critique that deserves Ryan's attention.

But, and this caveat is a whopper, CBO assumed this wonderful outcome would occur only if the revenue portion of Ryan’s plan generated 19 percent of GDP in taxes. And there is not the slightest evidence that would happen. Even though Ryan’s plan has a detailed tax component, his staff asked CBO to ignore it. Rather than estimate the true revenue effects of the Ryan plan, CBO simply assumed, as the lawmaker requested, that it would generate revenues of 19 percent of GDP.

It does seem to be a legitimate criticism that Ryan has decided to pick the revenue level rather than subject his own revenue plan to scrutiny at this time. Having said that, it's important to consider the number that he settled on.

Using CBO and OMB figures, The Heritage Foundation reports that the 30-year average historical tax burden is 18.4% of GDP. In other words, this average is very close to the 19% that Ryan chose for the CBO analysis.

Ryan could have chosen a number lower than this average in some attempt to score points with the hardcore anti-tax faction, or he could have chosen a much higher number which would have allowed him to spend even more on his Medicare vouchers and deflect at least some of the criticism he has faced. That he chose to do neither of these and instead went with an utterly reasonable assumption is certainly to Ryan's credit.

Ryan's Road Map on Taxes

Congressman Paul Ryan has shown leadership on a national level and is a source of many great ideas. His Road Map for America's Future has some appeal, but I am less than enthusiastic when it comes to the income tax provisions:

This highly simplified code fits on a postcard. It has just two rates: 10% on income up to $100,000 for joint filers and $50,000 for single filers, and 25% on taxable income above these amounts. It also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four), and no tax loopholes, deductions, credits or exclusions (except the health-care tax credit).

While I wholeheartedly support tax code simplification, this proposal seems to have two shortcomings.

First, a continuation of the tax credit for health insurance. I think many people would agree that the preferential tax treatment of health insurance premiums is a factor in their high rates of inflation. Continuing this practice is not a step in the right direction for tax simplification or health insurance reform.

Second, elimination of the Child Tax Credit and the Additional Child Tax Credit, which is a refundable credit. I know, spoken like somebody with six kids and one income. Dad29 recently highlighted the idea that we ought to be expanding the child tax credit.

The argument centers around the fact that we have a social insurance system (i.e. Social Security and Medicare) where current benefits are paid by current workers. Ryan's ideas for these programs may include some reforms that reduce this arrangement, but they do not eliminate it entirely. This means that future benefits require future workers, and producing future workers takes children, hence the enhanced credit.

Oregon Voters Want Someone Else to Pay

Via The Atlantic:

Oregon voters approved by a wide margin new taxes on wealthy families and corporations. For two decades, Oregon voters had mimicked California, freezing property taxes, rejecting sales taxes and demanding that any surpluses go back to the people in the form of rebates. No more! The two measures will raise income taxes for households making more than $250,000 a year and raise the state's corporate income tax.

On the one hand, it could be that these changes are overdue and a necessary modernization of an outdated tax code. The fact that many corporations are still subject to a tax enacted in 1931 argues for such an interpretation.

On the other hand, this could be the latest manifestation of the dangerous disconnect between the level of services Americans expect to receive from their governments and the amount of taxes they are willing to pay.

Draw your own conclusion. As you do, please keep this quote from Benjamin Franklin in mind:

When the people find they can vote themselves money,
that will herald the end of the republic.

Consider the Levy

Jo Egelhoff writing at Fox Politics reminds us that at budget time you should always remember the levy:

If there’s nothing else you remember about your property taxes, remember this: It’s the tax levy, friend, the tax levy. (“Stupid” is memorable, but perhaps a little too harsh and Clinton-esque.)

An individual’s tax payments, are ultimately determined by two things:

1. Total tax levy required by the community
2. A property’s value, relative to the rest of the property in your community.

Given even these couple of numbers, the very best way to judge a community’s budget is to look at the increase in the TOTAL TAX LEVY. (well, I suppose in the history of the world, a decrease has been registered - somewhere!)...

At budget time, look for information about the increase in new construction in your community. This is really important and often a hard number to find in print.

Because unlike increases in value from reassessment of existing properties, new construction is real growth in a community. And if the TAX LEVY rises by less than the increase in new construction, then on average, an individual property owner’s taxes really are going down.

So remember the levy compare it to new construction.  Got it.  So how does my city, De Pere, stack up?

De Pere Unified School District passed a levy increase of 3.36%.
The City of De Pere passed a levy increase of 2.49%.
Brown County passed a levy increase of 2.5%.

OK, so what about new construction?  The Wisconsin Department of Revenue provides Net New Constrution figures for 2008-2009.  The report dated 8/14/09 shows that net new construction added 1.133% in De Pere.  For Brown County the number was 1.469%.

Seen in light of those net new construction numbers, the levy increases passed by De Pere City and Unified School District and by Brown County are even more disheartening.  And by Jo's rule of thumb above, taxes are increasing even faster than the levy percentages seem to indicate.

Hey! I don't make over $250K

Speaker Pelosi has suggested that the enactment of a Value Added Tax (VAT) be considered. From The Hill:

A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night.

Pelosi, appearing on PBS's "The Charlie Rose Show" asserted that "it's fair to look at" the VAT as part of an overhaul of the nation's tax code.

"I would say, Put everything on the table and subject it to the scrutiny that it deserves," Pelosi told Rose when asked if the VAT has any appeal to her.

The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.

Now I'm not one of these absolute anti-tax zealots. I believe there are legitimate functions of government at many different levels and carrying out those functions require revenue. I do believe, though, that the revenue ought to be generated in the most open and forthright manner; with full acknowledgement by our elected officials that what they are doing is confiscating money for the purpose of providing government services. Pelosi seems to agree, based on her, "scrutiny it deserves," comment.

Not so fast. The Hill ends its report with this:

The Speaker also emphasized that any reworking of the tax code would not result in an increase in taxes on middle-class Americans.

To think that a tax on manufacturers at each stage of production wouldn't ultimately be passed on to consumers, including middle-class Americans, strains credulity to the breaking point.

We may not call it a tax, which would allow President Obama to live up to his campaign promise not to increase taxes on those making less than 250 thousand dollars a year, but people will see increased costs of goods nonetheless.

This inability to trace out the consequences of legislation is an epidemic among our lawmakers and is one of the major reasons for our chronic crises, which inevitably lead to another round of legislative "fixes".

In the case of a VAT, the consequences seem so obvious that for someone of Pelosi's stature not to recognize them is frightening.

*******************************
For a WI version of stealth taxation, see Dad29 on Doyle's Deceptions.

Mad Deficits & Debt

Econbrowser has a post that caught my eye with its reference to an old favorite of mine, Mad Magazine.

In $9 trillion-- what, me worry? James Hamilton writes:

I also believe it is relevant to compare these deficits not just with GDP but also with current federal tax revenues. $1 trillion is approximately the total personal income tax receipts of the federal government in 2006. My preferred metric for what each additional trillion dollars would require from me personally is to take what I paid in federal income taxes in 2006 and double that amount. To pay off $9 trillion, I'd have to do that for 9 years.

It's not just the federal government that has a problem though. Here's the Wisconsin State Journal from June:

Like a financially strapped consumer facing higher credit card bills, the state would face unprecedented debt payments over the next four years under state budget proposals by Democratic Gov. Jim Doyle and lawmakers.

By 2012, yearly payments on state debt will likely consume at least 4.5 percent of the state’s total income from taxes and fees, according to projections by the Legislature’s and Doyle’s budget offices. That’s 13 percent higher than the 4 percent threshold state officials have long considered to be a reasonable limit.

At some point, spending and taxation will have to find a sensible balance; something that is no doubt easier said than done. Those with an affinity for seeking government solutions to all the problems of society ought to wake up and smell the revenue, or lack thereof. There is no support for even moderate increases in the tax burden and rightfully so.

Stimulus Helps States Avoid the Tough Choices

At least that's how I see it. Liberal blogger Matthew Yglesias had a somewhat different take when he noted recently that, "that stimulus funds are sharply reducing states’ needs for tax hikes or budget cuts."

He goes on to say that since conservatives argue against raising taxes during a downturn, they shouldn't argue for budget cuts either since, in his words, budget cuts:

[H]ave the same pro-cyclical impact. I’ve heard people say that the problem with stimulus is that it ignores the need for the economy to make structural adjustments. But huge state budget cuts don’t make structural adjustments easier, they simply increase the quantity of structural adjustments that are needed.

Doesn't increasing the quantity of structural adjustments make these adjustments tougher in the future?

Federal stimulus money allowed states to continue spending beyond their means and left all of the tough choices for the future, like a time capsule filled with nothing but trips to the dentist you put off and all the vegetables you refused to eat as a child. Even here in Wisconsin, the budget in no way prepared us to face an uncertain economic future.

When it comes to state budgets, why should we put off structural adjustments? If the new equilibrium is simply less arts education in our public schools because property tax revenues have fallen sharply and are not likely to rebound any time soon, aren't we better off getting the art teachers out of the classroom now? They could start training for all of those healthcare IT jobs that are always being touted as sources of future employment and (!) ways to reduce healthcare costs. Maybe we could even pay for the training with that soda pop tax Yglesias is always pushing.

Waking up after the California dream

Well, it appears Colin Powell was wrong. The rejection of California's ballot measures on spending caps and tax hikes went down to defeat. Strong evidence, I would argue, that voters do not want to pay taxes for services and that what they are looking for is more free government services in their life.

California's recent history is the nation's in microcosm (a really big microcosm). Spending has simply outpaced revenues. As long as credit was easy and relatively cheap, borrowing was far more attractive than either cutting spending or raising taxes. This approach to fiscal matters has taken a beating recently. The recession has meant falling revenues and the collapse in the credit markets has made borrowing much more costly.

CBS News reports:

Between the 2004 and 2008 fiscal years, total state spending increased by around 44 percent, far outstripping tax revenues. Debt has tripled in six years. All this is true even though Californians enjoy one of the heaviest income tax burdens in the nation.

So now what? McArdle argues for cutting California loose and letting them go bankrupt, even though she doesn't think this is likely. It is possible that we could see a bailout of California by the federal government.

California's particular brand of fiscal insanity combined self-imposed spending mandates with self-imposed restrictions on raising revenues. It would be exceedingly difficult to argue that Californians were deserving of a bailout. Perhaps the only argument that could sway many is the claim that California's failure would be detrimental to the health of the nation as a whole. That may be true, but it is also the case that, in the long term, it is not clear which would be worse, bailout or bankruptcy.

Canaries, Coal Mines, California, & Colin Powell

While the general may be a smart and patriotic American, the new Powell doctrine strikes me as more ivory tower than Army HQ. Here is Powell:

"The Republican Party is in deep trouble," Powell told corporate security executives at a conference in Washington sponsored by Fortify Software Inc. The party must realize that the country has changed, he said. "Americans do want to pay taxes for services," he said. "Americans are looking for more government in their life, not less."[E.A]

Maybe. I would say that it is more likely people want to pay as few taxes as possible, while securing the maximum possible benefits for themselves. That is to say, their first preference is for someone else to pick up the check, but if they are stuck with the bill they had better get a great value for their money.

Good news for us and Powell, we may have a way to test this in a real world laboratory.

California's Proposition 1A is set for a vote next week. This proposition amounts to the combination of tax increases with spending caps. In other words, are Californians ready foot the bill for the government that they currently have.

Many, including Smitty at The Winning McCain, and WI's own DAD29, see the CA vote as a test case for whether or not Powell is correct in his judgment of voters' attitudes toward taxation and government size.

If the revenue increase are rejected by CA voters, what does that say about the supposed tidal wave of progressive sentiment that supposedly swept the country resulting in an Obama victory?

Unfortunately for progressives, you can't change human nature. If you ask people, they will tell you sure, everyone deserves food, shelter, and access to medical care. If you asked them to vote or sign a petition based on that same notion many would do so. If you asked them to actually pay for it though, I think that apparent tidal wave of progressive sentiment would look more like low tide at a California beach.

Left blogs to tea party - one lump or two?

Many liberal bloggers both nationally and right here in Wisconsin have had no small amount of fun taking shots at last week's tea party protests.

One method of attack seeks to label the entire group as racist, tin-foil-hat-wearing, conspiracy nuts. This is primarily based on some of the more outrageous signs wielded by a few of the protesters. Any mass movement is apt to attract a few (or even more than a few) characters that see this as a forum to shout about their own particular viewpoint, no matter how questionable. I seem to recall certain WTO protests at which it wasn't entirely clear if the crowd was against free trade or unbroken storefront windows (perhaps they didn't like the look of their own reflections).

The next attack revolves around the involvement of professional groups to promote and organize the tea party rallies. In the minds of those on the left, this results in the tea parties being artificial and not a real grass roots movement. This may be fun to repeat, but is entirely beside the point.

If the people that attended the rallies last week were the same ones that voted against President Obama last fall, and these events result in nothing more than preaching to the choir, then the left really has nothing to fear from them. If, on the other hand, some voters previously disposed to give Obama the benefit of the doubt start to wonder about the impact of his policies based on coverage of the tea parties, then these events do represent a political threat to the enactment of the so-called progressive agenda. If someone's mind is changed based on what they saw or heard at one of the tea parties, will it really make one bit of difference that Dick Armey parked their car?

The final, and in my mind the most disingenuous, critique states that ordinary working and middle class people shouldn't participate in the tea party protests because: 1. Obama's massive spending spree is being done for their benefit and 2. Taxes will be cut for 95% of the country and raised on only the top 5% of earners in order to pay for the spending.

First, here's Emily Mills at The Lost Albatross:

Apparently it took a New Deal style stimulus plan to do it for the teabaggers. This would be the stimulus plan aimed at pulling the country out of the abominable mess left by the last administration's hard-on for deregulation and tax cuts for the wealthiest among us.

Next here's Corey Liebmann at Eye on Wisconsin:

Another crazy point was that we were all being taxed to death. While that may have been an official talking point, it is clearly not based in reality. President Obama's stimulus plan actually gives significant tax cuts to working people and he only raises taxes on the very wealthy – and even then only to Clinton era levels.

If you increase government spending and decrease revenues you have to start borrowing. At some point, that debt will have to be paid back. Does anyone really think we can just get the top 5% of earners in the country to all pass the hat and pay off the massive debts we incur? This problem is magnified by the demographic conditions we are up against in the very near future.

That the bill will come due is true regardless of how the money is spent today. Spending it wisely and in ways that encourage future growth may help ease the debt burden, but this will not eliminate it.

So when people, ordinary working and middle class people, stand up at rallies around the country to denounce spending they are not defending the wealthy, they are sticking up for their future selves and for their children's future.

Washington Post writer Steve Pearlstein identifies the heart of the matter here:

The old Republican fantasy was that tax cuts were the magic elixir that would solve every problem. Now that the public has finally rejected it, it's disappointing to see Democrats offering up the equally fantastic notion that Americans can have all the government they want while getting someone else to pay for it.

Or if he's not good enough for you, how about a true believer, liberal blogger Matthew Yglesias has tried to point out that a higher tax bill is in our future (emphasis added):

Barack Obama has, quite rightly, an ambitious progressive agenda. But in budgetary terms you can’t really implement an ambitious progressive agenda and pair it with revenues that are only “slightly above” the average at which they rested during an era of conservative governance. This is not an issue in the short-term, since we’re dealing with a recession, but what you see at the right hand side of these charts is not sustainable. And I think the administration is correct to think that they should not compromise on their main policy pillars. The issue, though nobody wants to say it, is that taxes need to be higher.

If more people on the left had the courage to make this argument in public, many questions about the motivation and funding of the recent protests would give way to a simple, "how do you take your tea?"