Budget progress possible only if false narratives jettisoned
All is sort of well as ends sort of well: the Louisiana Legislature coughed up a fiscal year 2013 budget after a lot of tugging back and forth that didn’t really go anywhere. It accomplished important objectives insofar as it did not abscond with more of the peoples’ resources yet made reductions in ways that will have little or no impact on the quality of service provision and maintains all but the expenditures of lowest necessity. But in the process of getting there, in no way did it bring clarity or resolution to the largest questions of all: what is the appropriate size of Louisiana state government and how best to fund it?
While elements of both the left and right attempted to ask this question, unusually they came into communion with each other by asking it the wrong way, confusing symptom with disease. Both identified lack of revenues as a problem. Both conceptually err by doing so.
From the antediluvian left, it claims too many tax exclusions and exemptions and too little progressive taxation sap the state of revenues that could pay for stuff, requiring that policy increase them through the excising of exceptions and transfer of wealth from those that disproportionately create it. This myopic view discounts the fact that, on the whole, among the states the state’s tax burden is no better than average, perhaps even a bit on the high end, and also completely ignores the spending side of the equation. It assumes that current spending levels are absolutely legitimate and justifiable, even low, without any thoughtful critical analysis of that assertion. Such an attitude it akin to coming up with a cure, i.e. reduce exceptions and raise taxes, to symptoms, lack of revenues, without understanding the disease, excessive spending which defines revenues as lacking, behind them.
From the populist right, it argues that a lack of recurring revenue exists meaning correction must come on the spending side, and can be through better spending choices and greater emphasis on efficient use of resources. This case on the spending side has far stronger evidence to support it but on the revenue side it makes a fundamental error: in fact, the state has plenty of recurring revenues to support current spending at the present, but an artificially-imposed fiscal structure unnecessarily cordons off some of those revenues that then require special legislative efforts to get at them. Here, the lack of recognition that the problem is one of definition and structure, either from genuine unawareness or from a desire to manufacture a false problem to utilize as a method to score political points, is the disease unacknowledged with the cure of reducing spending largely indiscriminately being based upon the erroneous notion that slack resources exist equally distributed across government.
Thus, both factions created false narratives about the issue, as revealed throughout the budget process this session, and neither therefore can provide a valid solution to the condition of fiscal pressure the state looks to experience for at least another year. The state does not have a revenue problem, but a spending problem. Yet focusing only on the spending side by itself cannot produce the system evolution needed to create the fiscal structure that may gauge with accuracy the matching of revenues necessary and appropriate to fund the identified and prioritized genuine needs of the state.
Accomplishing this requires overcoming the mistaking of symptom for disease. As a start, there must be recognition that the great bane of the conservative faction, “one-time” money, is more properly defined as largely recurring funds badly matched to specific spending mostly unevaluated for its importance and purpose. Only until all fiscal dedications are reviewed with precisely that kind of evaluation in mind and the necessary corrections then made, meaning halting over-funded purposes if not eliminating some of them that are not actual needs, can the debate progress to the next stage.
With this deliberate matching in place, meaning some spending curtailed and some revenues formerly attached to it freed, the debate must shift to how many of those revenues should or need go to areas in the past disproportionately prone to lack of funding. Therefore, this also requires that those areas also face scrutiny as to their level of appropriateness. More likely than not, these also might face reduction, leaving over some excess revenues getting collected.
Having that in mind, the whole of Louisiana’s progressive yet riddled with exceptions tax code must get overhauled with the purpose of not gathering these excess revenues. A good start would be to wipe out all corporate tax loopholes along with the corporate income tax, followed by flattening individual income tax rates at a standard below the current top rate and getting rid of virtually all of those exemptions, exclusions, credits, and deductions, with the eventual goal of eliminating that tax as well. The long term bonus besides clarity and simplicity in matching revenue needs to spending priorities would be increased state economic growth entailing increased revenues beyond what the current inefficient system encourages.
Of course, this plan costs policy-makers in that it requires work and political courage to stand up against special interests that would stump for maintenance of dedications, exceptions, and spending, which makes its chances of successful implementation uncertain at best. Throw in the loss of benefits from being able to use the current system to promote political agendas, such as agitating for higher taxes and more spending or posing as faux fiscal conservatives who lust for credit but in reality shirk in taking responsibility for making justified revenue and spending choices, and its probability of implementation decreases still further.
Posted by Jeff Sadow at 11:00