Stimulating Tax Policy

One vexing problem with the state of politics today is the lack of concern for the long-term.  Politicians find themselves more concerned with the short-term to get them past the next election, instead of looking at the long-term for the benefit of the next generation.  Our current economic situation in Missouri and across our great Nation is no exception.

It is troubling when high level staff members begin salivating over an economic crisis to make political gain and fret over the possibility of losing such an opportunity to promote an agenda that is anathema to our uniquely American experience.

The federal government, under administrations from both major political parties has embraced a form economics which, in simple terms, says that governments should spend money that they don’t have and that this spending is the pavement on the road to prosperity.  This brand of Keynesian economics is named after John Maynard Keynes whose economic theory assisted President Franklin D. Roosevelt to prolong what we now know as the Great Depression of the 1930’s.

The federal government has also promoted the Broken Window fallacy as part of its economic policy by promoting what is seen versus what is unseen.  As French economist Frederic Bastiat explained, "There is only one difference between a bad economist and a good one:  The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."

Keynesian economics combined with the Broken Window fallacy may reap a short-term benefit to some, but it will fail to achieve long-term prosperity for a Nation.

Missouri is expected to receive up to $4 billion from the federal government through the American Recovery and Investment Act of 2009.  Of that $4 billion, approximately $1.2 billion is available without too many strings.  Missouri state government, compared to other states, is weathering this economic downturn.  We don’t need this money to stay afloat and Missouri has met the “maintenance of effort” requirements of the federal act allowing us flexibility in the use of that money.

We now have three basic choices:  return the money to Washington, spend it on pet projects, or return the money to the people of Missouri in the form of a rebate.

There are advocates for each of these alternatives.  Returning the money isn’t an option, because it will be directed to other states and still get spent by Washington saving us nothing.

Spending the money on pet projects will do little, if anything, to create jobs.  Government doesn’t create jobs, people do and we should not lose sight of that.  Unfortunately, many politicians believe otherwise.  Most of these pet projects are capital improvement projects which benefit only one industry and then only marginally.  Government “make work” projects are temporary and will not achieve the fabled “multiplier effect” sought after by the Keynesian.

On the other hand, there are a few capital projects that need our attention, e.g. a statewide interoperability system.  A project such as this is a long-term asset for the public good, but these projects should be few in any spending plan.

This brings the discussion of using a sizeable amount of the $1.2 billion to put money back in the pockets of Missourians in the form of a rebate.  This is exactly what Washington does not want us to do with the money, which means it is probably the best route to take.

Admittedly, a rebate by itself won’t work in stimulating the economy due to its temporary nature in a families’ disposable income.  The last federal rebate did not increase consumption or stimulate aggregate demand.  It did help families with meeting monthly expenses, paying down some debt, or putting the money into savings - all good things.

This money gives Missouri an opportunity to provide real stimulus for Missourians.  A rebate, coupled with a permanent tax cut will stimulate Missouri’s economy and help Missouri families.  This past week, the Missouri House passed a permanent income tax cut and that bill is now in the Senate for consideration.

The General Assembly has an opportunity to put into place a stimulus package that will work by combining a one-time tax rebate for each Missouri income tax filer and passing a permanent income tax cut.  This approach is lasting; a permanent income tax cut isn’t a blip on the screen for Missouri families’ disposable income.  It is pervasive throughout the economy benefiting individuals and businesses, especially small businesses in each of our communities and denies the government from picking winners and losers. 

It is also predictable in the long-term, Missouri families and businesses will know what to expect in the years to come.  There will not be a question of whether a government check will come in the mail alleviating the erratic, politically driven government interventions seen to date, the tax code will remain beneficial to our pocketbooks beyond the rebate check.

Short-term fiscal policies will fail to promote long-term growth.  These proposals are intended to allow people keep more of their own money, to allow them to make decisions for themselves and their families, to give individuals more liberty in their consumption, savings, and debt retirement.  

Don't Worry, Your Kids Will Pay for It

Last weekend governors from across the Nation met in Washington, DC to learn about the federal dependency package recently lashed onto the backs of taxpayers present and future. As the details of this anti-federalism approach to the woes of our Nation become known, the strings attached are beginning to lift the skirt on the real intentions of Congress.

It is already well known that the vast majority, two-thirds, of the $787 billion is not intended to stimulate the economy, but to help make people more comfortable in their misery. Shame on Congress for feeding crumbs to a hungry man to satisfy the immediate pangs in his stomach, while doing nothing to unburden his load that holds back his ability to innovate, to invent, and to empower him to build a dream. The path that returns us to prosperity begins with these tenants in mind. This is big government at its worst.

States should not, and can not, view this “windfall” of “free” money as the medicine that heals their budget woes. Have we forgotten to ask, whose fault is it when a state spends more than it takes in?

The strings attached to the federal dependency package appear to be strong and many. These strings will require states to change their own state laws to receive some of the federal funds, which is a dangerous endeavor. Congress has made it clear that they want more control over the states and that they know what is better for you and me, instead of your state legislature.

The monies available from the federal government for health care, welfare, and education, to name a few, are only available for two years. What will a state have to do to replace that money when those two years expires? The answer is raise taxes or go hat in hand back to Washington and beg for more.

The cycle of dependency will either begin or end here.

An example of how Washington intends to extend its reach further into our affairs is the unemployment insurance portion of the package. Missouri is expected to qualify for $133 million to prop up our unemployment insurance program, a program that is facing significant fiscal hardships, but only if we change our state laws to significantly expand the program.

The first $88.8 million is only available to Missouri if we agree to cover unemployed people who are seeking part-time jobs, instead of full-time work; to cover people who voluntarily leave their job for family reasons, including the illness or disability of a family member, domestic violence, or to accompany a spouse who has taken a job elsewhere; to extend benefits for an additional 26 weeks, after their regular jobless benefits expire, to people who are in job training programs; and to add $15 a week to the benefits of unemployed people with dependents, such as parents with children at home.

An additional $44 million would become available if we change our unemployment insurance laws to change the time period in which a worker’s wages are analyzed to determine unemployment benefits.

Under our current unemployment insurance law only employees fired without cause are eligible for jobless benefits. The proposed revisions will take away the power of the state to decide its own future.

If the state went along with this, it is estimated that Missouri would have to spend somewhere between $28.1 million to $93.7 million of it’s own money to get the $133 million from the federal government. Where is that money going to come from? How will the state make up for the $133 million in later years? Again, either raise taxes or go hat in hand back to Washington while costing Missouri jobs.

This is an example of how the federal government is willing to bribe states to expand welfare systems making more and more people dependent on government thereby consolidating more and more power in Washington, inhibiting our ability as a state to chart our own future, and further erode our Liberty.

The Republican House and Senate remain cautious and skeptical about the federal dependency package and will continue to do our due diligence.

By contrast, Governor Nixon through all caution to the wind last Sunday on C-SPAN when responding to the Republican concerns stating, “Missourian’s paid their taxes and if there’s a debt, Missouri’s kids and grandkids will pay that debt off. We are here to take the money…” I have always contended that federal monies to an elected official is like crack cocaine – its fairly easy to get and becomes habit forming instantaneously.

As I have stated before, we will not balance our state budget on monies that may or may not come in the mail - we refuse to rely on a federal welfare check to meet the needs of our state. It may be considered good politics by some, but it is lousy fiscal policy. We can’t allow the federal “stimulus” to lead us down the path to ever more federal dependency. This is a time for restraint, a time to prioritize, and a time to drive efficiencies into the state bureaucracy.