Deconstructing Paulson: "It Bombed in Colorado; Let's Try It In Wisconsin"

Wisconsin Neocons and their surrogates are advancing more deceptive and distorted arguments on behalf of the Bride of TABOR. Recall:

• the exterminator who offered you his services after letting a dozen mice into the house.
• the software manufacturer who offered you spam blockers after allowing the infection of your hard drive.

After destroying the fiscal integrity of Wisconsin over fifteen years, the Neocons, most of the influential Republicans in the legislature, are offering a fix that does not work. See In Effect: Ph.D. Barry Poulson, Reporting for Duty They claim there is a basic budgetary problem that their "Taxpayer Protection Amendment" would fix. There is a problem, but they created it.

One of their paid mouthpieces, Barry Poulson, an economics professor from Colorado, sold a bill of goods to a legislative committee last week at a meeting that was a one-sided media event, rather than a legitimate public hearing on a legislative proposal. As a cog in the WMC-backed spin machine, Poulson published the following piece in the Wisconsin Conservative Digest. I spare you the entire document, but here are my comments, which are indented, regarding the more fraudulent claims.

The Taxpayer Protection Amendment for Wisconsin

by Barry W. Poulson
Visiting Fellow, Americans for Prosperity

February 15, 2006

In most states over much of the post WWII period the growth of government revenue and spending has outpaced the growth of income. This is particularly true in states such as Wisconsin that rely heavily on income tax revenues.

It is deceptive to use 1946 as a bench mark.  From 1941-45 domestic spending by the federal government and the state governments was significantly curtailed as the nation fought World War II.  This resulted in a significant reduction in all non-essential infrastructure expenditures at all levels of local government.

This caused in acceleration of expenditures in the post-war years. The national housing shortage is a prime example.  Increased private expenditures for housing for returning GI's resulted in a significant increase in public expenditures on everything from road construction to police officers to patrol those streets.  A few years later, the nation experienced a record level of expenditures for the construction of new schools as we welcomed the baby boomers.

There nothing wrong with relying on the income tax.  It is the fairest and most progressive tax devised.

Progressive income taxes have greater elasticity than other taxes. This means that when income rises income tax revenues rise more rapidly than income; and when income falls income tax revenues fall more rapidly than income.

Not true, depending upon the locality and the structure of the income tax, the sales tax may have greater elasticity. In any case, the author is trying to argue that the income tax is an unreliable tax, making it difficult to project revenues.  The author is about to set up a straw man.

• the income tax is unreliable because of volatility;
• volatile taxes are bad;
• therefore, reduce the income tax collections;
• therefore, cut spending.

This volatility in income tax revenue is often accompanied by a ‘ratchet up’ of taxes and revenues over the business cycle.

The use of the word 'volatility'' is a misnomer. The income tax revenues can fluctuate but any responsible government knows that estimates of income taxes must take into account the possibility of a recession.

In periods of prosperity, when income is rising, governments increase spending to match the increase in revenues.

That is simply not true.  Where is the documentation?  Most responsibly administered governments will limit operating budget expenditures to some reliable bench mark such as inflation plus growth.

The solution to the income tax fluctuations is very simple and obvious: conservatively estimate revenues. Save money so that when the economy worsens, you have a reserve in the years that government most needs the cash the most. 

When a recession hits, and revenues fall. Governments are reluctant to cut spending. As a result there is pressure to increase taxes to offset the budget shortfall.

Please document. Most governments make cuts relative to inflation and growth.

But there is a better option.

The properly managed government will rely on its current unreserved, undesignated fund balance, usually referred to as the 'rainy day fund.' This is exactly what Colorado is now doing after getting clobbered by TABOR.

In good times the responsible government will put aside funds for the inevitable down turn in the economy caused by a recession or for the unexpected disaster.

In 2003 the City of Madison had a 'rainy day' fund of $23 M.  That number is important because when State of Wisconsin revenues went to hell in a handbasket it had less than $2,000 in its rainy day fund to cover a $23 billion budget.

Let's get that straight. In 2002 the City of Madison, with left wing partisans at the helm, you know, those freely spending liberals, responsible for budget expenditures of $174.6 million, had a rainy day fund of $23 M.  The State of Wisconsin with a Republican Governor and a legislature pretty much controlled by Republicans for the previous fifteen years had a $2,000 rainy day fund to shore up their $23 Billion budget.

... The tax burden in Wisconsin is among the highest in the nation. Government revenue and spending have increased relative to state income in the long run. Because of the heavy reliance on the income tax, revenue and spending are very unstable over the business cycle.

Time for the myth busters with a good dose of reality:

• Wisconsin relies more on taxes because it tries to avoid regressive user fees. When taxes and fees are combined Wisconsin is just about in the middle.
• Of the 50 states Wisconsin is 15th in terms of revenue per capita and 19th in terms of expenditures per capita. U.S. Census Bureau 
• "According to UW-Madison economist Andrew Reschovsky, who actually completed a formal analysis of the Wisconsin situation, our state ranks 23rd in the nation in terms of revenue collections in relation to personal income." (from In Effect)
• The use of 'very unstable' is pure nonsense. It is predicated on a straw man which presupposes that prudent budgeting is not possible.  True, Republicans have demonstrated they are incapable of responsibly managing fiscal matters, but we have living proof that liberals can do it.

The Taxpayer Protection Amendment for Wisconsin is designed to address two problems: the increase in government revenues and spending relative to income in the long run;

• You never proved that measuring revenues and spending to private income is the proper way to set tax levels.
• You never address the benefits.  Using your arguments, there should never have been a GI Bill, or the Interstate Highway System, two of the greatest public investments in history.
• You never acknowledge that even if this is a problem there are alternatives to strangling government while drowning it the bathtub.

and the volatility of government revenues and spending over the business cycle.

The volatility issue doesn't wash around here. We already drove a stake through that one.

...Income tax rates could be lowered to reduce the tax burden on Wisconsin citizens. This would improve the business climate, attracting new investment and jobs.

Sorry, it is already well documented that new investments and jobs are not tied to lowering taxes.  Lowering taxes is only modestly ranked as an incentive to business growth and development.  Far more important are good public schools, a well trained workforce, a clean and healthy environment, and a sound transportation system, all of which require public investment-(gasp!)-taxes. (Redistribution of Wealth- Highway Taxes Going Up)

Poulson is a patent medicine/snake oil salesman who poisoned all his customers in his home state; the Colorado legislature now has a Democratic majority thanks to the many negative impacts of TABOR.  So it's on to new territories and new suckers for Dr. Poulson.

Comments

[Gunner]

Thanks for all of the thoughtful comments on fiscal policy, Paul. As the former Mayor of Madison and an adjunct professor at the LaFollette School of Public Policy, you clearly know this stuff front and back.

I only have one small, semantic objection, and that is your use of the term 'Neocon'. As you may or may not know, the term Neoconservative was coined by the great American socialist, Michael Harrington, to refer to former comrades who turned sharply right, people like Irving Kristol, Max Shachtman, and Jeanne Kirkpatrick. It was also a term that was largely connoted with views on foreign, rather than domestic, policy. The term has obviously broadened since then to include former members of the Bush administration like Paul Wolfowitz, Douglas Feith, David Frum, etc. But if it is to retain any meaning it should be used sparingly to refer to those who believe in the transformative powers of the U.S. military abroad and retain a kind of ambivalence about domestic issues.

[Paul]

Gunner: I too am troubled by my use (and that of others) of the word Neocon in this context. I have yet to figure out what term to use for this new generation of conservatives who are not true Neocons as you rightly describe and yet are not traditional conservatives in the Goldwater-Reagan sense. These prodigies, these imitators and followers of the true Neocons cannot be called conservatives either. Maybe neo-neocons?