“Rightsizing State Government”
I stole the title for this blog entry from Gov. Jay Nixon’s speech the other day. I haven’t discussed it sooner, because I wanted to give it the full think tank treatment, not like the usual ephemera I post on this blog. So, I warn you, this will be a long post.
I strongly recommend everyone watch the video. Speaking as someone who would normally rather take a dart to my eardrum than watch an online video of a political speech, you can trust me that this one is worth it. After you watch it, read the Post-Dispatch’s take on it and try and decide where you stand. Needless to say, I support the governor here. I think that cuts to the size and scope of government in our state, along with consolidations for greater efficiency, are long overdue, and I give great credit to any elected official of either party who is willing to make the tough choices and hard decisions, as the governor is doing here.
I have not fisked a Post editorial or column in a while — probably not since Eric Mink left. But I think that both this topic and article deserve a point-by-point analysis:
Missouri Gov. Jay Nixon, in an address to a group of business leaders in Springfield last week, called for plugging the $500 million gap in the state budget with a program to “right-size state government by cutting programs, trimming the workforce and consolidating departments while maintaining excellence in our services.”
Some of his ideas: Whacking 1,000 more employees from a state payroll that already has been trimmed by 1,800 workers; closing some county offices of the Family Support Division, making it harder for people to get to one; selling 2,000 state vehicles; outsourcing child support collection to private firms; combining the Highway Patrol and the Water Patrol; eliminating the May 8 Truman’s Birthday state holiday; streamlining the environmental permit process and “modernizing” (i.e., reducing) pension and health care insurance for state employees.
So far, all of this sounds perfectly reasonable and positive to me.
“My blueprint for change will recalibrate the size and scope of state government, giving us a government that is leaner, nimbler and less costly,” Mr. Nixon said.
Also, he said this: “One thing is off the table here in the Show-Me State. We will hold the line on taxes.”
In all, this is the kind of plan you’d expect from a Republican governor.
But Mr. Nixon is not a Republican. He calls himself a “fiscally conservative Democrat.” This is nothing if not politically expedient, a quality that has marked Mr. Nixon’s entire career.
I will avoid the political aspects of the article, because commenting on that is not part of my role here at the Show-Me Institute.
Given the Republican majorities in the Legislature and the reflexive anti-tax sentiment in Missouri’s suburbs and rural areas, and given where most campaign cash comes from, it would take a far bolder leader than Jeremiah W. Nixon to tell Missourians the reality.
Although I’m avoiding the politics, I should point out that some of the personal attacks detract from the seriousness of this article.
The simple truth is you can’t cut $1.2 billion from the state budget in two years, as Mr. Nixon has had to do during the economic downturn, and still emerge with a budget that meets the state’s crushing needs.
Whose “Truth”? Who defines “crushing?”
Here’s another truth: Those “excellent services” that Mr. Nixon talks about don’t exist. In rankings among the 50 states for various state services, Missouri generally ranks in the mid-30s to the mid-40s. In public health spending, Missouri is 50th. In Education Week’s recent survey of overall performance on school achievement, the state ranked 40th.
Unbelievable. The Post claims that services are of a low quality, and uses public health spending levels as evidence. It is possible, however, to have low spending levels and still have quality services. At least the other examples cited performance measures (biased as they may be), rather than spending levels.
In his speech, Mr. Nixon touted a report by Moody’s Investment Services that ranked Missouri, largely because of its Triple A bond rating, as one of the states poised to lead the nation in economic recovery. But Mr. Nixon won’t take the lead on a proposed capital bond program that would put Missourians to work.
I am not adamantly opposed to the bond program proposal, but the Post blindly assumes that the short-term economic benefits will outweigh the added debt payoff in Missouri’s long run. It may, but the governor hardly deserves criticism here.
A similar survey done by online newspaper The Daily Beast — and not in thrall to bond ratings — showed Missouri ahead of only Michigan in its economic prospects in the next eight years.
Missouri is a low-tax, low-service state, ranked 16th among the 50 states in The Tax Foundation’s business climate index. Yet that hasn’t brought businesses and jobs knocking on the door. Even before the recession, the state’s growth was flat.
Perhaps this is because all taxes are not equally distortionary, and businesses are more concerned with high state income and earnings taxes than our comparatively low property and sales taxes. We’ve released several studies dealing with these points.
Perhaps its low investment in public health and education quality has something to do with it. Perhaps its low investment in highway, bridge and other infrastructure has something do with it. Perhaps its penuriousness on safety-net services for its people has something to do with it.
I dispute the term “low.” The amount of this type of investment in Missouri may be lower than in some other states, perhaps, for some of the above examples. However, I outright dispute the infrastructure factoid above. Reason ranks Missouri 23rd in its highway system quality. And I want to live somewhere with a lower-level safety net. Expanding the welfare state is not the way to grow the economy. Does the Post really think that economic growth is aided by the expansiveness of a state’s welfare system? That is just ludicrous.
Now comes Mr. Nixon with a bugle sounding retreat.
And then there’s the so-called “Fair Tax” proposal. It was pushed in the Legislature earlier this session and now is being pushed in a petition drive. The man behind both is retired investment executive Rex Sinquefield. The “Fair Tax” would eliminate the state income tax and replace it with a “consumption tax” — a sales tax on nearly everything.
The state sales tax, now 4.225 cents on the dollar, easily could climb to 7 or 8 percent. Depending on how successful lobbyists are at carving out exemptions, it could go as high as 12.9 percent, according to an analysis done for the Missouri Budget Project, a liberal-leaning think tank.
The Post is correct here. The latest plan has a rate of 7 percent, because a few major exemptions have been added, and that rate would indeed suffer more if lobbyists are successful in getting still more exemptions approved.
When you add local sales taxes (anything from 2.1 cents in parts of St. Louis County to almost a nickel in parts of the city of St. Louis) that would mean you’d be paying an additional 15 to 19 cents on everything you buy.
This is factually wrong. The plan includes decreasing local sales tax rates if the “Fair Tax” were adopted, in order to prevent a windfall for local governments.
Yes, that would attract jobs and businesses — to Illinois and Kansas.
It might encourage some retail businesses to move, particularly those near the Kansas border, but the exact same set of incentives would encourage other types of businesses — like, oh, say, corporate offices — to move into Missouri.
Missouri must live within its means. But the means don’t have to be quite so mean. The Missouri Budget Project suggests three simple, fair steps that Mr. Nixon and the Legislature could take to offset the need for many of the new cuts.
These ought to be good.
- Collect sales taxes from all online vendors, not just those with employees in the state. This could return $180 million a year to state and local governments.
On top of just being wrong, this would be extremely difficult to enforce, and probably impossible at this time. Please tell me: What services does an online vendor in California receive from Missouri that would justify forcing it to collect a sales tax?
- Eliminate the so-called “Geoffrey Loophole” — named after Geoffrey the Giraffe, the mascot of Toys“R”Us, one firm that exploits the loophole. It allows companies to reduce the profits shown on Missouri tax returns by transferring income from subidiaries to out-of-state corporate umbrella companies. Taxing all the profits they earn in Missouri could return $90 million a year.
Taxing all the profits might also encourage some businesses to leave Missouri entirely. Then where would we be? However, this point is not entirely off-base. Eliminating loopholes can be great, but only if the overall rates are correspondingly lowered.
- Eliminate the “Timely Finally” discount given to corporations that pay their taxes on time. Individuals who pay on time don’t get a discount. Why should corporations? Estimated new income: $39 million a year.
This refers to the credits businesses get when they submit employee income tax withholdings and sales taxes on time. If the state forces private businesses to serve as its tax collectors, it should compensate them in some manner. This is no different from paying jurors a small salary.
Long term, real leaders will have to lead a discussion about the true relationship among taxes, services, growth and prosperity. Missouri taxes individual incomes over $9,000 at the same 6 percent rate. If you make $9,000 you pay the same 6 percent as the guy who makes $9 million. Or $99 million.
Finally, something on which we can all agree. If the “Fair Tax” does not receive the support of a majority of Missourians, than we should increase the threshold at which you’re required to pay the highest tax rate of 6 percent. That would entail a tax cut for almost every Missourian, but would really benefit people with lower incomes.
In 2007, each Missourian enjoyed the benefits of $66 paid by corporations in income tax. Per-capita corporate income taxes were higher in all eight bordering states, ranging from $233 in Kentucky to $109 in Iowa. Rich people and corporations are getting a deeply discounted ride on the backs of the poor and working class.
This is absurd class warfare rhetoric. By this logic, states should all be in a race to levy the highest amount of taxes possible.
If this had yielded jobs and prosperity, that would be one thing. But it hasn’t. And it won’t. And eliminating the income tax entirely would make a bad situation catastrophic.
Missouri is doing better than most other states in this recession, not worse. The state’s relatively low tax rates help that. And, as a point of fact, none of the suggestions in Gov. Nixon’s speech involve getting rid of the state income tax.
Mr. Nixon’s solution: Cut more services for the poor and middle class. Lay off more state workers. Wrap it all up in clichés and euphemisms and call it “right-sizing.”
There is perhaps nothing more important, cruel as it may sound, than keeping a lid on the overall number of state workers. Almost every government employee (and I used to be one), becomes an enthusiastic advocate for higher taxes and more spending, in part as a direct result of the perverse incentive that it would directly benefit them and their families.
Blight-sizing is more like it.
And the win goes to the governor.