Hypocrisy Charge Needs Context

Hypocrisy is defined as “the practice of professing beliefs, feelings or virtues that one does not hold or possess.”

I needed to double-check the definition after reading a Quick Hit from Arizona Republic editorial board member Linda Valdez who wrote that Arizona’s deficit could reach $700 million this year.  She then added, “But prior to new federal assistance, the shortfall had the potential to reach $1 billion.  Those railing against the Obama administration might check their hypocrisy meters.”

If this is a shot at Gov. Brewer, then Valdez should say so.  Brewer has been critical of Obama on a few fronts, namely ObamaCare (in which she filed a lawsuit against) and the Obama administration’s lawsuit against SB1070.  It is also true that Brewer has accepted hundreds of millions of federal stimulus dollars to plug gaping holes in the state budget.  Does the criticism of ObamaCare and the 1070 lawsuit, while accepting federal dollars to backfill the budget constitute hypocrisy?  No, they have nothing to do with one another.  Brewer never said she thought SB1070 was unconstitutional, nor did she ever claim we needed ObamaCare.

Moreover, Brewer has not been overly critical of the federal stimulus dollars as have other governors, and Brewer has publicly fretted over cutting enough spending to balance the budget.  Heck, she even raised taxes to avoid cutting spending.  So accepting federal dollars as part of her budget fix is not only NOT hypocritical, it’s consistent with her view of state spending.

Maybe Valdez wasn’t directing her Quick Hit toward Brewer.  Maybe it was directed at the (very) far left (Maher, Olbermann, Matthews, Valdez, etc.) who are “railing against” Obama for not being “left” enough.  “Well, he may have fallen short on some of our issues, but at least he prevented even more state cuts to education and health care.”

That’s the only way I see the hypocrisy charge sticking.

(I’ve emailed Valdez for clarification.)

Liberal Policy Group Diminishes State Corporate Tax Cuts

The Center on Budget and Policy Priorities (CBPP) released a paper today saying that corporate income tax cuts don’t matter much to a state’s economy.  We hear the same thing all the time: that taxes don’t really matter except when they do.  For example, industrial policy proponents, or those who want only certain jobs and industries to thrive, often turn to corporate tax credits to achieve their ends.  Case in point: in 2009, in order to lure renewable energy manufacturers to Arizona, lawmakers approved a five-year, $350 million package of tax credits to qualifying companies.

The problem with these credits, which Republicans passed by a wide margin, is that they must be subsidized by every other taxpayer.  Across-the-board rate cuts, however, such as a reduction in the corporate income tax rate that the CBPP discredits, apply to everyone.  In a free society, the tax code should be neutral on what kind of business you’re in.  The state shouldn’t pick winners and losers.  So, while we agree that corporate income tax cuts don’t pay for themselves immediately and should be accompanied by spending reductions, it doesn’t mean that high rates (like in AZ) should be left alone.

Furthermore, Arizona taxpayers could stand a bit of relief.  In the last two years alone, taxes have skyrocketed.  Residential and business property taxes have increased $250 million and the statewide sales tax rate just jumped 18 percent.  We need some downward pressure on taxes, and the corporate income tax is a place to start.

While we disagree with much of the CBPP paper, they do make some valid recommendations.  For example, a focus on the “principles of good tax policy and sound management of core public responsibilities.”  They also argue that states should “examine existing economic development tax incentives for effectiveness — and cost-effectiveness— at regular intervals.”

On that, we couldn’t agree more.

An Idle $50 Billion

New York Times columnist Paul Krugman has a September 7 blog post arguing why additional government spending is arguably better than tax cuts to stimulate economic growth.  I have actually never seen Krugman argue a case where tax cuts are preferred, but that’s not the point.  Here is Krugman’s example:

So suppose we’re going to put $50 billion of resources that would otherwise be idle to work. Is it better to use them to produce public goods like improved roads, or private goods like more consumer durables? That’s not at all obvious — and anyone who tells you that basic economics settles the question, that is says that devoting more resources to production of private goods is better, doesn’t understand Econ 101.

$50 billion of resources that would otherwise be idle?  What does he mean, idle?  Money is never idle.  It is always in use.  Money the U.S. borrows to fund stimulus projects is money taken from somewhere else (China usually) and redirected.  Krugman knows this, of course, but he doesn’t address the major difference between government spending vs. private sector spending.  It’s the known vs. the unknown.  It is relatively easy to track $50 billion in spending projects.  Whether roads, bridges, railways, or whatever, we can know exactly where the $50 billion will be spent.

But leave $50 billion in the hands of entrepreneurs and try to predict what will happen.

If you want government to drive the economy, move.  If you want the private sector to drive it, we need to get government (and her obstacles) out of the way.

A Recent History of K-12 Funding in AZ

Education Funding
K-12 M&O only
All funding sources (state, local, federal)
Source: JLBC

2001 $3,899,678,400
2002 $4,437,848,500 +12.8%
2003 $4,749,655,600 +8%
2004 $5,076,776,500 +6.2%
2005 $5,397,481,900 +5.8%
2006 $5,825,724,000 +7.4%
2007 $6,416,123,000 +10.3%
2008 $6,702,879,600 +4.6%
2009 $6,575,512,200 (1.4%)
2010 $7,001,179,100 +6%

Total Increase is 79%

The Impending Tax Increase

The Goldwater Institute published a smart piece this morning highlighting the importance of two November ballot initiatives that need to pass in order to prevent an even bigger budget hole. You can read it here.

Propositions 301 and 302 would take approximately $450 million from two programs previously approved by voters. As the Institute points out, the legislature has already counted those funds as part of the 2011 budget. If one or both of the initiatives fail, policymakers will need to make up those funds. How? Byron Scholmach, the author of the Goldwater piece, argues that additional cuts – most notably from K-12 – will have to be made. We agree that should be the first place to cut. Thanks to federal stimulus dollars, K-12 has largely been exempt from the approximate $1.1 billion in real budget reductions that have already taken place. While other agencies saw real reductions, K-12 funding from all sources (state, local and federal) reached its high point in 2010 at $7 billion. And that was a 6 percent increase from 2009. In other words, any reductions in K-12 have been more than made up by other funding sources.

So, while Schlomach is correct to argue that cuts to K-12 (and the other exempt agency: health and welfare) need to occur if Props 301 and 302 fail, there is another option that lawmakers and interest groups will look at: an income tax increase.

Since the collapse of state revenues, liberal policymakers have had their eye on raising income taxes 10 percent on all brackets. This essentially reverses the 2006 10 percent income tax cut spearheaded by the Free Enterprise Club. Never mind that raising taxes in a recession is a bad idea (Gov. Brewer did it twice in the last year with property and sales tax hikes), and never mind that even left-leaning economists in Washington, DC are arguing to extend the Bush tax cuts, lest a double-dip recession becomes more likely. While intuitively counter-productive to sound politics, tax increases in Arizona seem to be an easier path for many lawmakers than taking on the K-12 lobby.