The Cowardly Lions in Olympia

The news today that the state budget crisis is worse than originally projected is like one of those expensive studies you read about that finds a wholly predictable result, such as that pretty people get helped more when they fall down or that women in bikinis lead straight men to make stupid choices. It's a giant collective "duh" moment, where our fearless politicos in Olympia finally come out and admit the reality that existed a few months ago but is finally "official," even though everyone with half a brain and a moderate attention span knew it then, much as they know things are going to continue getting worse.

Photo of the 1st Avenue S. Bridge opening, 1956, courtesy of our good friends at the Seattle Municipal Archives.

The central problem the state faces, though, isn't the budget crisis, now estimated at $8.3 billion (not that that's not a big problem in and of itself), but rather the gutless and cowardly response of our elected officials in dealing with it. While Barack Obama labors in D.C. to rethink the failed policies of the last few decades, his erstwhile Democratic allies in Olympia remain cowardly lions, more desperate to keep a cush government job than to take the decisive steps to solve the state's downward slide. Gov. Christine Gregoire acts as though she's still running a campaign against Dino Rossi, refusing to countenance the possibility of tax increases. More like a Republican than a liberal Democrat, her response to the emptying state coffers is a slash-and-burn approach, featuring budget cuts, layoffs (expected in July, when the next biennial budget cycle starts), and fights with unions representing state employees as she tries to back out agreements guaranteeing cost-of-living adjustments. The problem is that everyone whose opinion should matter agrees that balancing the budget exclusively through cuts is exactly what we shouldn't do.

Today, a group of 27 economists and experts released an open letter to Gregoire through the liberal think tank Washington State Budget and Policy Center, arguing that:

Drawing upon economic theory, we believe reducing government spending will have a more deleterious effect on Washington State’s economy than would increasing revenue. Although both cuts in government spending and tax increases have the potential to slow economic growth, cutting government spending would likely have the most immediate impact by directly reducing consumption. Tax increases are less problematic because individual consumers, especially those with higher incomes, are unlikely to reduce consumption by the full amount of the tax increase.

At the same time, the Economic Opportunity Institute has released a report arguing much the same thing. "Washington State appears poised to repeat the mistakes of the last recession by slashing public services--and jobs--which could deepen and prolong the effects of the recession locally," the authors write, and further: "New tax revenues raised primarily from higher income individuals and businesses and spent on services for low and moderate income state residents will have the most stimulating effect on the state economy."

For the past several months, Gregoire's been stalling (at one point two weeks ago she went to jury duty, as though the state's business wasn't a sufficient reason to excuse her in advance), hoping the feds would bail them out with wads of free cash. State Sen. Margarita Prentice, the head of the Senate Finance Committee, admitted the failure of that plan to the P-I: "I was hopeful, sort of, that the stimulus might help us....We still haven't had a complete analysis of it, but apparently there are enough strings attached that it's not going to be enough."

It seems clear at this point that what's desperately needed is a progressive income tax in Washington. Slashing services when they're needed most kicks victims of the recession when they're already down, and increasing unemployment by reducing state payrolls is most certainly counterproductive. What the economy needs is spending--smart spending, but spending nonetheless. It's perfectly understandable that consumers are saving more under the current circumstances, but we need productive dollars, not unproductive dollars, and it's time we all got over the idea that government is the problem and accept that they can be part of the solution. That was the core of Obama's campaign for change, but it seems as if the Governor's mansion and the State Congress are the last people to buy into it.

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By Jeremy in News on February 20, 2009 3:30 PM

Comments [rss]

BigGreenFrank

"It seems clear at this point that what's desperately needed is a progressive income tax in Washington. "

Uhh... that's not clear AT ALL.

You seemed to have understood the easy to understand parts that appealed to your sensibilities and glossed over the ugly economic details that cloud the issue.

Government spending is not some simple panacea.

Paying higher taxes is not some free ticket to more jobs and better programs; there is a negative cost to consider. The degree to which is debatable. These economists seem to agree, but that's hardly the consensus of economic minds.

Simple example, if I'm taxed at a higher rate, I won't be able to spend as much, and thus the businesses I would normally patronize will cut back on employment (less waiters, less dry cleaner employees, less stockers at the grocery store, etc)

Now, that's fine, if that tax money can be used to a greater efficiency by the government and the government can use the collective revenue of our taxes to create jobs and opportunities.

But if the government is inefficient in that spending, then that money would have been better used by me to support those various businesses.

Alternately, if you force me to pay more than the economic impact I would have had, that may override what I would have spent on these businesses. (but at that point, I may just leave the state...)

Again, there's always a price for taxes. You can't just create tax revenue without taking away something else.

Jeremy

A fair idea, Tory! BigGreenFrank should join us, too. The more the merrier. What do you think, BGF?

BigGreenFrank

Always down for an Oly.

Jeremy

@3 -- You're making a simplistic and common argument. Whenever taxes are the issue, there's always some anecdote about not going out to dinner. Fair enough, sometimes that is the problem. However, you are the one cherry-picking points: I never said that all government spending was equal, nor did I suggest a wily-nily approach to income tax. A progressive tax would disproportionately affect higher wage earners, the majority of whose income does not get spent in restaurants and coffeeshops. They may still go out to dinner, but they've stopped buying their new beamers, cut back on major expansions of their home, etc., and are saving, which is actually bad because for the entire economy because those dollars are unproductive. This is basic Keynesianism. It's not new. If you're of a more Austrian School mindset, I'm sure there's some D.C. think-tanks full of ex-Bushies that will be publishing the sorts of things you want to read.

@ 4 -- Troy, as above, not all government spending is equal. The mistake Japan made during the 90s, amongst other things, was an over-reliance on major infrastructure that was not a productive investment (i.e., bridges to nowhere). In this case, the Viaduct should be off the plate entirely because for any sort of injection of public money to stimulate the economy, it needs to spent fast, and none of the Viaduct options are near implementation, meaning that this is, in terms of helping us in the current situation, a moot point. And as for the complexity of implementing taxes, for God's sake, be realistic--part of my point in the piece is that the state government is failing to do anything. If they don't implement a tax or find other revenues, well, the feds will eventually probably give them the cash and tax us for it via federal taxes--what a remarkably efficient system!

As for your witticism about taxes, dollars, and cents, actually there are extensive studies regarding the relative return on various forms of government spendings. Some generate more return than others. I'll look for some and post them.

Troy Morris

Jeremy,

That would be interesting, for certain. Infrastructural investments aren't necessarily the only investments that generate money for the state. A great example is the Lottery. If it wasn't for that, God only knows what our school system would be.

My main objection to any income tax recommendation still lies with-- it'll never pass in this generation of Washingtonians. Which translates to wasted legislature time. Just as waiting for Fed. Bucks is wasted time.

You're absolutely spot on about the higher wage earners saving and not spending. Like you said, nothing about taxes is simple, from a implementation stand point, as well as a instituting stand point. Especially with progressive income tax and the all too common "class warfare" argument (barf, I know).

While I completely agree with the thesis of this article (state legislators being chicken shit), I think there is a hell of a lot room for indepth discussion. Not that I'm an expert, by far. But goddamn if it's not interesting. Let's chat next Happy Hour.

It's not like there'll be anything new out of Olympia.

Oh, and we should totally drink Olympia beer for the occasion.

Troy Morris

Yeah, that's pretty much what I meant.

Troy Morris

My underlying message is this: I for one don't want a State Income tax (ontop of stupidly high sales tax, it will do more harm than good-- it would require an entire overhaul of the tax system as certain programs allocations come from sales taxes and that much tax more cash netted out of income would exponentially decrease the revenue from sales tax).

Most people in this State (which side of the mountains, you pick) would not want income tax either.

Additional revenue will not stop the budget shortfalls. The theory that simply adding an additional source of income for the state will somehow curtail deficits is laughable.

Using money to make money makes more cents -- pun so damn intended, I spelled it out!

Troy Morris

I'd love to dive into this and verbally play around with the thought "Revenue and spending amounts aren't the issue. It's the type of spending and if it's doing enough to generate more income for the State."

Like spending billions on a tunnel. Will that make more money? Or would creating a surface/transit replacement generate more income for the state... holy shit.

Then let's chat about Port taxes. Not like this State doesn't have a few port authorities... sitting on oodles of real estate... renting and selling it for next to nothing.

And the list rolls on.