The Truth About Tax & Spend Conservatism Pt 1

Terrance Heath

Last week, I wrote of strange fiscal shenanigans in the reddest of the red states; like tax increases in Mississippi and increased government spending in Texas. "So," I asked, "why are Texas and Mississippi having serious budget problems? And why are their governors breaking promises about taxes and spending?" There are two answers to that question; one simple answer, and one that delves deep into the mysteries of tax and spend conservatism.

Taxes, Truth & Consequences

Texas

So, why are Texas and Mississippi having serious budget problems? And why are their governors breaking promises about taxes and spending? Because the prevailing conservative economic policy in those states hasn’t worked.

In the case of Texas, it was just last January that governor Rick Perry touted his state’s "balanced budget," which attributed to tax cuts and his efforts as governor to "create a climate where people have the opportunity to succeed." Before the year was out, despite CNBC naming it the "best state for business, Texas budget mess was a bad as California’s. Indeed, the Center on Budget and Policy Priorities lists Texas among the states with the biggest budget shortfalls projected for 2012, with a $13.4 billion shortfall — second only to California’s $25.4 billion shortfall

By June, perhaps out of desperation, budge t woes drove Texas legislators to reconsider some corporate tax breaks. The biggest of those tax breaks, the nearly $1 billion carve out for natural gas, came under scrutiny this past February, as eliminating it could pump millions into the state. That seems an obviously smart move, considering that business tax breaks cost Texas $4.3 billion in its last state budget — about a third of the state’s current shortfall. Local governments lost $235 billion in state property tax exemptions.

By August, it was the Texas state comptroller acknowledged that Texas’ state budget would show a deficit at the end of the year. The deficit came to light because Texas usually deals with its budge shortfalls the old fashioned way: they borrow the money.

The deficit came to light because of a routine borrowing exercise. Every year, the state borrows money to make up for a cash-flow gap created every autumn, when its bills arrive faster than its revenue. The state normally pays the loan back in the spring and summer, when revenues catch up. But this year, there’s a dull-but-important fact hidden in that cash flow estimate: State leaders looked a year ago and determined that the "deep hole" — when the cash-flow demand peaks — would be $7.8 billion. Now, Combs has told the debt markets that the deep hole is actually $10.8 billion, or about $3 billion worse.

Revenues didn’t catch up. Revenue forecasts, it turns out were down because "under-performing sales and franchise taxes." The former might be blamed on the economy, as fewer people are working and those who are still working are spending less. But the latter may be a direct result of another Texas tax cut. The state recently change the form of its franchise tax for one that’s only raising half the revenue anticipate.

By this January, Texas — which has no individual income tax or corporate income tax, and where the state constitution severely restricts passage of a state income tax — was considering eliminating 8,000 state jobs to avoid raising taxes. Meanwhile the Republican-dominated legislature is scrambling to make up the budget shortfall with "non-tax revenue" — like an increase in college tuition, and higher fees for drivers licenses.

Mississippi

Like Texas, according to the CBPP Mississippi is among the states with considerable budget shortfalls — to the tune of $634 million projected for FY2012. It also tops the states  where severe budget cuts have impacted the most vulnerable residents. Saddled with its biggest budget deficit since the Great Depression, according to no less than Barbour himself, the Mississippi governor has responded with many painful cuts.

Mr. Barbour has taken an ax to his state’s budget more than five times since September 2009. No agency has been spared, with education, mental health and other areas cut by almost 10% from what was originally budgeted for the 2010 fiscal year that ended June 30. He proposed another 8% to 10% cut for some agencies in 2011, and belt-tightening in 2012 is expected to continue.

At the same time Mr. Barbour has been cutting spending, he has been buoyed by access to more than $2.6 billion in funds from the controversial federal stimulus, which forestalled deeper cuts, and by two tax increases he signed into law. Those will be scrutinized closely by tax-averse GOP primary voters should he run for the party’s presidential nomination.

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Like his Texas counterpart, Mississippi Governor (and GOP 2012 wannabe) Haley Barbour recently bragged about his state’s balanced budget, and claimed to have managed the achievement without "raising anybody’s taxes." But, as I pointed out before, the truth is that Barbour raised somebody’s taxes. Funny thing is that neither Babour’s budget cuts or tax increases has done his state much good, or changed its position at or near the bottom of most state rankings.

What’s more revealing, however, is which tax and whose taxes he actually refused to cut. Mississippi is one of two states that currently tax groceries. That is, Mississippi is one of two states that "continue to apply their sales tax fully to food purchased for home consumption without providing any offsetting relief for low- and moderate-income families." (The other is its neighbor Alabama.) In Mississippi, that’s a 7% sales tax.

But while Barbour’s found some tax increases he does like, he also found one tax cut he doesn’t like — a proposed cut in Mississippi’s tax on groceries. In 2007, Barbour — a former tobacco lobbyist  — claimed "sticking to guns" on his campaign promise, "I’m not gonna raise anybody’s taxes," when he opposed a bill that would increase the cigarette tax by $1 while cutting the food tax in half.

The governor’s aides and allies say Mr. Barbour is simply sticking to his no-new-taxes promise. “The governor ran four years ago on, ‘I’m not going to raise anybody’s taxes,’ and he hasn’t,” Mr. Robertson said.

But others, including health officials, say the dichotomy is false. The governor’s no-tax pledge, they insist, is at odds with the public good, since most studies show that increasing the cost of cigarettes sharply diminishes the number of smokers.

“We have the worst health indices in almost every category of any state in the country,” said Dr. J. Edward Hill, the immediate past president of the American Medical Association and a physician in Tupelo. “Reducing the percentage of citizens who smoke and increasing funding from cigarettes would have tremendous advantages.”

Dr. Hill said the issue had become entangled in political ideology. “It’s political so-called principle — ‘I’m never going to raise taxes on anything’ — which is actually also relatively stupid,” Dr. Hill said.

If the Texas example illustrates once again the failure of the GOP’s "cut and grow" ideology, the Mississippi example illustrates an important truth about what I’m calling "tax and spend conservatism.

It’s Not Taxes

Perry’s tax cuts and Barbour’s tax increases suggest that when it comes to "tax and spend" conservatism, it’s not about taxes.

That is, it’s not just about taxes. It’s about whose taxes are cut, and whose are increased. Which means that in this economic crisis it’s all about who picks up the bill, and who doesn’t.

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