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Blunt Economics
July 17, 2011 - 4:58pm

Across the country, virtually every state is trying to control spending, and nationally we are also working hard to control spending. Who could argue? No one wants additional taxes, so raising revenue (absent a more robust economy) on the state level will be difficult while raising the deficit on the national is equally unpopular. We all demand, and rightly so, fiscal discipline from our leaders.

To control spending, you could do a thorough national, state, and local review of all policies, programs and regulations. It is certain that some programs have a great deal of waste, or have outlived their usefulness, or provide only marginal benefit. It is equally certain that some unfunded mandates/regulations are costly and not needed. But doing a program by program or policy by policy review is difficult, time consuming, and often impacted by politics at least as much as merit. Given that difficulty, tax caps have become more and more popular. You can stringently limit spending increasing but avoid making the tough program by program or mandate by mandate decisions. We have such a cap now in New York, and as a school board member I can clearly tell that there are serious problems ahead that virtually all school districts will face as a result. With the legislation recently in place and given unfunded mandates, the built in annual education cost increase (inflation rate) will likely be higher than the cap. Overriding the cap will require a super majority (60%) and consequently be very difficult but living within the cap will squeeze education and in time almost certainly adversely impact quality. Tax caps are blunt instruments. I am not disputing that they can be helpful but there are certainly alternatives and there are certainly negative consequences.

On the revenue side, we also seem to be embracing a blunt approach. The mantra of no tax increases is alive and well at every level of government. The appeal is enormous and I’m certainly sympathetic. But once again there are consequences of following a one size fits all policy rather than taking a more micro look at taxes. Are there some tax rates that are still too high and tax payers paying more than they should? Are there others where the tax rate is too low and tax payers should be paying more? Remember that if there are no possible increases in tax revenues, we will likely be forced to cut important programs (such as in the education area), that are key investments in our future. Blunt instruments and one size fits all policies may be easier to articulate and implement but may have far greater negative consequences than a more thought through less arbitrary plan of action.

We are all invested in keeping spending under control at all levels of government. We are all invested in minimizing the tax obligation. Both need to happen. But moving forward wearing the blinders of blunt policy parameters can’t be the best decision making process when our future is on the line. Now is the moment for our government leaders to provide the sophisticated leadership that these challenging times demand.

 

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