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29.7.10

Landrieu joins Vitter's cap sensibility; Melancon absent

Democrat Sen. Mary Landrieu now makes for a Louisiana exacta for the upper house, joining her opposition party colleague Republican Sen. David Vitter in proposing non-extreme legislation to piggyback on existing law that governs how private entities compensate for oil spills of their responsibilities.

Weeks ago, Vitter proposed a very sensible plan calling for a liability floor of $150 million, twice the current cap, with the maximum increasing to an amount equal to four times the company's profits during the previous four quarters. Of course, being that Democrats run the Senate, it was dead on arrival for two reasons: it came from a Republican running for reelection especially in a year where Democrats may lose control of the Senate and because some Democrat senators are enthralled with the know-nothing wing of the environmentalist movement whose prejudices call for, if not an outright ban on offshore drilling, punitive measures to discourage it into oblivion.

That latter attitude is encapsulated in a current bill that would have no liability cap at all which would drastically reduce exploration in the Gulf of Mexico, limiting it only to the largest concerns, in effect reducing supply, driving up prices, and eliminating jobs and economic growth, particularly in Louisiana, as smaller firms would consider it too risky to explore. With politics blocking Vitter’s plan and the current Pres. Barack Obama and Senate Democrat-preferred plan too radical and counterproductive, Landrieu has stepped into the breach with a reasonable approach.

Landrieu’s idea would raise the current cap from $75 million to $250 million and require companies to pay into an insurance policy covering damages of as much as an additional $10 billion. It would base premiums on the size of a company's drilling operations, meaning larger firms would pay more. She has been researching this for some time, and, to date, evidence is that the costs passed on by the policy issuance, while onerous, would not appear to cripple exploration. While not as good as Vitter’s, because his would promote more careful behavior by forcing companies to bear the burden and does not require a periodic cost that would discourage drilling for some, it’s much better than what the Democrat leadership has stumped for.

It’s also good politics for both. Vitter’s Senate challenger Democrat Rep. Charlie Melancon has come down on the side of unlimited liability and all the problems that entails, while Landrieu has a long ways to go in rehabilitating herself after she was the decisive vote that will produce a health care insurance system of higher cost with worse outcomes for which she will not be forgotten soon, so this can’t hurt in winning her back a handful of votes.

Hopefully, if the Senate Democrat majority doesn’t put politics ahead of people and miraculously go with Vitter on this issue, at least it will head in Landrieu’s direction, provided the required insurance is not burdensomely priced.

28.7.10

Reform job left incomplete unless Jindal spends capital

While his enthusiasm deserves applause, at the same time Louisiana Treas. John Kennedy partially misdiagnoses what truly was a missed opportunity concerning the budget that emerged for state government this fiscal. Where he was correct and not provides lessons for a more effective approach in the future

Kennedy blamed both Gov. Bobby Jindal and the Legislature for insufficient cutting and thus reliance on non-continuing fund sources (such as reducing in many cases bulging trust funds whose contents are unlikely to be used any time soon). He also outlined alternatives. The story is more complex both in the practicality of his suggestions and how to go about cutting spending.

Some of Kennedy’s ideas do have merit. For example, there does need to be greater oversight of contracts let by the state for professional services. As previously noted (and brought up by Kennedy), at least some portion of educational services contracts probably really aren’t that necessarily. But others simply sound good but invite their own problems. For example, Kennedy’s idea of lopping off vacated state jobs until the state loses 15,000 presents a host of problems. As previously noted, this indiscriminately removes positions which would disallow critical needs from being fulfilled through replacement, and has no relationship to priority of tasks.

Better has been Jindal’s very public hiring freeze strategy and very private attrition campaign. The freeze does allow filling of jobs by need, but it has been behind-the scenes chess playing that has had a greater impact on reducing state personnel costs, by far the most expensive item in state where its per capita spending ratio is the fourth highest in the country. It has been fought at both a macro and a micro level.

Overall, Jindal has battled to turn the civil service system, under which a majority of state employees work, into an organization that uses dollars much more efficiently. In fact, he has been downright scorched earth about it, wanting the optimal system which the State Civil Service Commission has rejected. In response, Jindal has strongarmed out of the budget money for any raises two years consecutively, saving more money than if his plan had gone through. It also, because of the defined benefit retirement system under which most employees operate and as it makes positions especially among less-capable employees seem less attractive compared to the private sector, has the effect of increasing vacancies that then can be strategically dealt with.

More specifically, Jindal has been trying to get government out of inefficient provision of services, through tactics like privatization, and in making other services work better, such as bringing increased rationality to health care provision. But his biggest impediment here has been the Legislature and its subservience to parochial attitudes by its members and pressure by special interests. Many of its members are more interested in keeping government employment high and government money rolling to certain groups.

In addition, the Legislature rejected attempts this year to reform a fiscal structure that would make it easier to make cuts, such as loosening dedications that make for a severe lack of flexibility, allowing lower-priority tasks to continue funded and being forced into cutting more important ones. So, all in all, the Legislature bears the most blame, and the Senate more than the House as it acquiesced more to spending in this fiscal and year and politically forced the House into that, in part because Jindal appeared in need of quick resolution.

But Jindal deserves chastisement as well, as many of the difficulties heretofore noted he probably could have overcome by flexing some political muscle. One could argue he had good cause to be too detached with oil lapping up on shore, and this as well may have distracted him from following up on some good recommendations issued early in the year, only some of which found their way into policy.

Yet the buck does stop with him and the fiscal crisis looms larger. A coordinated effort addressing simultaneously the fiscal regimes’ structural flaws and legislator and other policy-maker resistance must come from him if anything beyond the partial progress of this year can happen in the next year. Not much more than was tried has to be done, it just has to be finished, and Jindal must lead that charge. Unfortunately, an election year may make obstructionist interests dig their heels in further so Jindal cannot be tentative. He faces no serious opposition for reelection and has gained even more political capital from his competent handling of the oil spill crisis. The window for real, beneficial change still remains open; he needs to make withdrawals of that capital to attain it.

27.7.10

Bad theory, selective outrage mark anti-tax cut screed

Once again, the usual suspects, with little merit, complain about tax reduction in Louisiana, telling us more about their preference for big government than any useful public policy prescriptions.

A week after it seemed to have caught smaller-government fever against type, the Baton Rouge Advocate editorially went back to its old ways by highlighting a warmed over report, the gist of which already has been critically examined, chastising the state for reinstating deductions and marginal rate cuts to state income taxes. In the end, it concludes that these actions were unwise because they took revenues from the state.

Such a view shows a vast ignorance about economics and how the world really works, and disregards that state government’s fiscal difficulties come from its revenue-raising structure and overspending. Its most basic mistake is that it relies upon a model of tax policy that is unsustainable in theory and in data, a belief that taxation rates do not affect human behavior.

Simplistically, the report from the Louisiana Budget Project – a creature of the Louisiana Association of Nonprofit Organizations – relies upon static revenue forecasts from the original bills that, first, reinstated (and actually relatively increased) deductibility, then, second, lowered marginal tax rates. These were snapshot guesses from years ago that made a static assumption about people – that the amount of money not coming into government because of the cuts, when used by the private sector, did not produce more tax revenue because of people’s use of it. This view makes no theoretical sense because the private sector is a much wiser and more efficient user of resources than is government. Simply put, the more money in the hands of the people, the greater productivity economically comes out of it, boosting tax revenues. The economic growth that results may even offset the loss in tax revenues, depending upon other factors (this summarizes that effect).

Amplifying this impact is that the nature of the cuts disproportionately put money in the hands of the higher-earning households, who acquire wealth precisely because, in a semi-free market economy, resources accrue to those who make the best, most efficient use of them. This helps raise the tide of society’s overall wealth higher, lifting household boats higher. And it’s not like they aren’t paying their “fair” share. At the end of fiscal year 2009 (right before withholding at the new lower rates kicked in), filers making over $50,000 a year – about a third of all filers which includes single people and married or jointly filing households – paid a crushing 84 percent of total Louisiana state income taxes, or an average of about $3,686 per filing, while the remaining two-thirds of filers paid less than a tenth of that, around $357.

(The editorial also repeated an oft-made error, that a fifth of all taxpayers only file deductions. Actually, that is a fifth of all tax filers since many never have to pay any Louisiana state income tax or file in order to be able to take advantage of tax credits or other purposes. A much higher proportion of those who actually pay taxes take one or more deductions.)

The number used also does not take into account that a forecast of years ago often bears little reality to present conditions. The Legislative Fiscal Office was a as surprised as everybody else about the severity of the economic retrenchment which affected income tax take, meaning the estimates of what the reversal would “cost” were too high. Therefore, part of the reduced revenue picture for income taxes is not a result of the rollback, but by a sputtering national economy that shows few signs of revival anytime soon.

Thus, this “cost” is an overestimation of an unknown, but likely significant, magnitude. It does not factor in forecasting error, nor does it acknowledge the reality that tax cuts stimulate economic growth that produce higher tax revenues – not a great amount in this, the first year of it, but over the next few years it will multiply. So, when an estimate of $649 million is said to have been “lost” by these changes, in reality the figure is less, perhaps much less. And, because of the economic growth the cuts will trigger, in a few years that “loss” will turn into a surplus.

We know this because of past data. One indicator is change in the rate of increase in individual income tax collections relative to the overall change of the rate in increase in gross state product – the economic output of the state’s production. From fiscal years 1990 to 2002, before the “Stelly Plan” change that raised taxes on all but the lowest level of taxpayers, Louisiana’s GSP went from $91.4 billion to $134.6 billion, while its individual income tax collections went from $677 million to $1.789 billion – increases of about 50 percent and over 250 percent, respectively. But from then through 2006, the increases to $193.1 billion and $2.512 billion are about the same rate, just above 40 percent (the next couple of years get hard to judge because of hurricane recovery cost distortions, with the deduction part of the Stelly reversal happening beginning in 2008, and the reduction part in 2009). In other words, higher rates depressed economic growth that kept overall total income tax take down from where it would have been at lower rates.

But besides its errors in economic theory, the Advocate’s view ignores other considerations. It completely discounts expert advice to create a fiscal structure to capture revenues more efficiently. For example, instead of spreading out payment, Louisiana allows too many exemptions to its sales tax – just the food, utility, and uncovered services tax revenues forgone the LFO estimated cost almost $1 billion a year. (The tax rate rollbacks in fact followed expert advice, of flattening rates.)

Nor does it consider getting rid of genuinely unproductive tax breaks. What about the wasteful spending on film production tax credits, which return less than 17 cents on the dollar to the state, which the LFO estimated cost $125 million in forgone revenues? Or the earned income tax credit, which because it goes to the least productive workers generates next to no economic growth, which took away $41 million? Why does the Advocate pretend these nonproductive revenue-sappers don’t exist yet it rants about policy that promises in the near future to produce far more revenue?

And it doesn’t even address the real reason for fiscal difficulties, state spending, at a macro and micro level. Not only does Louisiana rank fourth in per capita spending on government and 12th in workforce numbers, showing how inefficiently it is, but even in these lean times a number of wasteful programs continue to operate, such as paying nursing homes for empty beds. (Of course, the report authors have no desire to delve into this side of the equation, especially not to criticize such things as “members’ amendments” because they get taxpayer largesse from that spending.)

Understand that the Advocate’s interest is to grow government by championing its ability to take more of the people’s money. Ignoring economic reality, turning a blind eye to the consequences of the programs it ideologically favors, and a refusal to view holistically the question of what is the appropriate level of revenue raising given the genuine needs of the state explain why, through criticism of tax cuts, it trusts you less than state government to control your own resources.

26.7.10

Jones, ban, berms: politics explain odd Obama policies

As days go by and the Pres. Barack Obama Administration continues to engage in perplexing policy regarding the Gulf of Mexico oil spill, it becomes clearer that it is part of a political strategy where Democrats are going “all in” ideologically speaking at the expense of immediate electoral consequences.

Given the vast negative opinion nationally , and especially in Louisiana, about the moratorium on deepwater oil exploration imposed by Obama, one might think that this would have been abandoned, particularly as the judiciary gave Obama a chance to retreat by striking down the first ban, twice, and additionally given its enormous costs and incredible overreach that its six months not only are far longer than needed to inspect and reapir but also likely actually reduces safety. (Of course, the entire exercise already has been compromised by Obama’s creative license in using expert opinion.) Yet it continues, and stealthily has acquired a near-moratorium on all new drilling including that in shallow water.

In Louisiana, the ban is suppressing the victory chances of Democrat candidates this fall. The last thing Rep. Charlie Melancon, a vocal ban opponent, needs is a reminder to voters the president from his party for no good reason is damaging a significant part of the state’s economy and that he has no influence to stop it. The small chance of Democrats retaining Melancon’s current spot representing the Third District, the epicenter of the labor force for the oil exploration industry, has about evaporated because of the ban. And nationally this cannot help Democrats against the increasingly-likely chance they will lose control of at least one chamber of Congress in national elections.

25.7.10

Melancon tries again with more questionable numbers

Even if its tactics are transparent, one must credit the Democrat Rep. Charlie Melancon campaign for Senate for its extreme tenacity in the face of long odds. Or it may be just one more potential sign of desperation on its part.

Rarely does a campaign release its internal polling numbers but with the recent release of information it has collected relevant to Melancon’s challenge to incumbent Republican Sen. David Vitter, the campaign now has done so twice this year. Normally, this is not done because of concerns about appearance of partiality and internal strategy concerns.

But as all but two polls releases well over the past year have shown, Vitter continues to enjoy a large lead and/or majority proportion of the vote. In most he crests 50 percent of the intended vote, and in almost all he enjoys a double-digit lead. In just about every independent poll, he has had both. The two exceptions to these conditions, guess what, are the internal Melancon polls conducted by a firm that almost exclusively polls for Democrat campaign.

Previously, the inadequacies of this approach for understanding the true competitive balance of a contest and the inherent unreliability of the results (for example, without having knowledge of the sampling frame or exact question wordings) render them useless for telling us anything meaningful about a contest. However, because one news outlet cast these concerns aside and ran a story stumping for the questionable numbers, perhaps the campaign thought it could get such favorable coverage again by repeating the exercise – especially because, as divergent as the result were last time, these were even more out of step with the rest of the polling (including independent ones) world.

This latest edition has Melancon behind but within the margin of error when no other poll (even other partisan Democrat ones) shows him close to that. The campaign claims it is because of an obscure personnel issue that few voters know about, so that is an unlikely source of such a large difference. This admission probably means that was part of a push poll process, where the pollster asked one or more questions highly loaded and distorted against Vitter before asking for a vote intention. We would know about this and other matters such as sampling frame and the like only if the Melancon campaign releases unexpurgated data and reports from the poll, and it is unlikely to do that because of the problematic reliability and validity aspects that are sure to come out.

But we can conduct an exercise that researchers who gather and analyze primary data use, estimating construct validity of the concept of debate, vote intention. When a researcher wishes to evaluate how well an instrument, such as a survey question, really reflects the concept being studies, construct validity is established by seeing how closely related the measure in doubt is to others that supposedly do the same. Since all other studies are showing a much different distribution of vote intention that Melancon’s internal numbers released publicly, we must conclude this one doesn’t show much construct validity and hence isn’t doing a good job in revealing the reality of the Senate contest.

Yet that’s not the purpose of the number’s publicity, that being to jumpstart the Melancon campaign and to remove the long-standing air of inevitability that not only will he lose, but lose big. As such, it represents spin and nothing else of value.