September 9, 2015
As originally published in the New Hampshire Union Leader
The state doesn’t have a budget and no one seems to care much. Most of the issues supposedly dividing the sides will be resolved easily or delayed until next year. The real dispute is over the Republican plan to cut business taxes and the governor’s fictitious criticism of it. Misleading rhetoric is used to cover a philosophical disagreement.
In the absence of a budget both sides will make claims that the other party is delaying critical services or causing uncertainty but in reality there are no crises and no threats to any agency’s funding. In the event of a cash flow issue caused by the general language of the temporary budget resolution, the fiscal committee can meet and make an accommodation as it did a few weeks ago for state parks.
Agencies and local communities know that when the budget is eventually resolved it will look remarkably like what passed the legislature and everyone will be made whole. Because of that there will be virtually no public outcry or angst over the lack of a budget.
Even at political gatherings during the summer season, the groups most likely to care about the subject, no one seems to notice. The lack of even the mildest public concern and the continued unremarkable operation of state government at the same level as last year allows us to recognize the only real issue separating the two parties.
Republicans included a cut in business taxes to be phased in over three years. Democrats would rather the government spend the money. The governor claims, quite nonsensically, that the cut isn’t “paid for.” She’s quite simply wrong and is justly ignored because of it.
Philosophically, Republicans believe tax rates matter. Our corporate income tax (the Business Profits Tax) is among the highest five states in the country at 8.5%. To be in the top 10, we’d need to be at 5%, to be in the top half we’d need to be at 6.5%. Even Massachusetts has gotten below us at 8.0%.
The legislature would phase in a lower rate to move us back below Massachusetts. To make it manageable, they would dedicate the natural increase to rate reduction to keep revenues flat.
The governor has claimed these cuts are not paid for yet the official documents of the respected and bipartisan Legislative Budget Assistant prove conclusively that the budget is in fact balanced. Their “surplus statement” published regularly throughout the budget process is accepted government-wide as the official proof-of-balance document. No one disputes their published numbers.
So the cuts are paid for. What the governor really means is that in the future the government will have less money from the lower rate than they would from the higher rate. The legislature is not as exercised about this fact as she is. She believes the legislature should raise other taxes by around $90 million to make sure government has more money in the future.
The governor is trying her best to create the impression of austerity forced on the state by an eagerness to forego taxes. The real numbers tell a radically different story. Current estimates have the two-year budget that ended June 30 spending $4.42 billion in general and education funds, the operating part of the budget paid for with general taxation. The supposedly austere legislative budget she vetoed would spend $4.67 billion, an increase of $254 million in spending.
The supposedly irresponsible cuts allow for an undeniably balanced budget that allows spending to climb by $254 million. It’s hard to see those as “unpaid for” or as causing holes in our future.
Each side will cite economic research showing their conclusion and ignore research showing the opposite. Those of us who think business taxes are too high are persuaded by Robert Reed’s research in the National Tax Journal on “The Robust Relationship Between Taxes and U.S. State Income Growth” which found “taxes used to fund general expenditures are associated with significant, negative effects on income growth.”
The other side of the debate believes increased government spending will be better for the economy than more competitive rates. This is a philosophical disagreement. At some basic level, this is the fundamental debate policymakers ought to be having for the next few years.
Debate the issue at hand but be honest about what’s happening. The need for fiction suggests you don’t really believe what you’re saying.