The establishment’s false solution to public debt

posted at 8:41 pm on June 11, 2012 by Karl

Ronald Brownstein argues that Wisconsin Gov. Scott Walker fought an unnecessary 1 1/2 year battle by responding to the state’s budget crisis “with a sharply ideological plan that targeted its pain almost entirely at Democratic constituencies.” He claims that it would have been better purse the “balanced approach” taken in the Nutmeg State:

In Connecticut, Gov. Dannel Malloy, also elected in 2010, closed a deficit as large as Wisconsin’s with $1 billion in spending reductions, $1.5 billion in tax increases, and $1.6 billion in union concessions. It wasn’t easy, but the plan ultimately drew support from public-employee unions (after initial resistance) and the chief executives of the major insurance companies that anchor the state’s business community. The fact that Malloy pursued tax increases and spending cuts made it easier to seek union concessions—and vice versa. “It was a balanced approach, and that made it easier to do that big ask of labor,” said Roy Occhiogrosso, Malloy’s senior adviser. “It was a big ask. But it was also a big ask of taxpayers and people who depend on the social safety net.”

An impressive story, if you rely on the governor’s adviser as your source of information. However, here’s what right-wing extremists from the New York Times reported on Connecticut in February:

Not everyone is so impressed. The rating agency Moody’s, which speaks a language familiar to Connecticut’s many financially inclined residents, downgraded the state’s debt last month, citing the high debt accumulated over years of borrowing as well as the depletion of the state’s “rainy day fund.”

The General Assembly’s nonpartisan Office of Fiscal Analysis reported the state had a $145 million deficit in January, when the Malloy administration was projecting surpluses. And critics, not limited to Republican lawmakers, have raised questions about how real his projected cost savings, including from his agreement with the unions, really are.

Oops. And this month, the Connecticut Mirror reports that the state continues to tap into its capital project accounts to pay its operating bills. In May, Gov. Malloy’s won approval of a plan to divert more than $200 million originally dedicated to pay off 2009 operating debt to instead close the current deficit. According to Connecticut Deputy House Minority Leader Vincent J. Candelora, despite more than $1.5 billion in state tax and fee increases ordered in May 2010, “revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

Apparently, this would be news to Brownstein and other establishmentarians who keep demanding “Grand Bargains” involving a “balanced approach” of “shared sacrifice” to public debt problems. The establishment continues to ignore that a history of fiscal consolidations in 21 countries of the Organization for Economic Cooperation and Development over 37 years shows successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. They continue to ignore that the Tea Party extremists at the International Monetary Fund advise that a prolonged period of weak growth and high unemployment be addressed by spending cuts and temporary tax cuts, not tax increases. They ignore successful examples including New Zealand, Canada, and the post-WWII United States. They ignore that the “balanced approach” is failing where tried in Europe. In comparison, Estonia, Lithuania and Latvia have bounced back strongly after adopting strict austerity measures and vastly reducing government indebtedness. Indeed, Estonia is just starting to get good coverage in America, causing Paul Krugman to mislead his readers about it.

The establishment ignores all of this because to do otherwise would force them to confront the importance of public-sector unionism to the Democrats and thus center-left governance. The Cheesehead Days of Rage were fueled by Gov. Walker’s reform of some public-sector collective-bargaining rights and compulsory public-sector unionism (unions were willing to increase the employees’ contributions to their medical and pension plans), yet Brownstein treats it as a secondary or tertiary concern. As Jay Cost details in his new book, Spoiled Rotten, Democrats legitimized public-sector unions as private-sector unionism began to decline. However, private-sector unions depend on a growing private-sector, while public-sector unions depend on ever Bigger Government. The differences between the private-sector and public-sector bargaining almost inevitably produce the budgetary problems faced by Wisconsin and other states.

Establishmentarians like Brownstein want to avoid the ugly reality that the Wisconsin budget battle was about reforming a system in which: (1) government unions forcibly extract dues from employees; (2) government union officials enrich themselves; (3) government unions kick back donations and in-kind contributions to Democrat pols who defend them and promise substantial pension and medical benefits; and (4) legislatures fail to adequately contribute to public pensions and medical plans, while looking the other way at public pension accounting that would be criminal in the private-sector. Progressives will complain that public-sector union-busting harms women and African-Americans, who make up a disproportionate share of the public-sector workforce. They rarely mention that the establishment has been effectively defrauding the public-sector workforce for decades, let alone protest the Democrats and moderate Republicans most responsible.

The common thread is the establishment’s ideologically extreme insistence on center-left compromises. Center-left government is at the heart of most of the crises America currently faces; it is at the heart of the budgetary crises here and in Europe. People like Brownstein see them as a virtue, despite their track record of failure.

This post was promoted from GreenRoom to HotAir.com.
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The General Assembly’s nonpartisan Office of Fiscal Analysis reported the state had a $145 million deficit in January, when the Malloy administration was projecting surpluses. And critics, not limited to Republican lawmakers, have raised questions about how real his projected cost savings,……

Hmmmm that sounds familiar but on a larger scale….anyone?

/

CW on June 11, 2012 at 8:44 PM

Someone should ask Romney if he will repeal JFK’s executive order pertaining to establishing Federal unions. Any executive order can be changed with the stroke of one person’s pen. A person who just so happens to have certain Constitutionally granted powers. Ahem. No need for Congress.

txmomof6 on June 11, 2012 at 8:48 PM

Can’t we just raise revenue by taxing the unions? That would be a win-win situation for almost everyone involved.

People who want to pay more taxes would, and people who don’t wouldn’t.

malclave on June 11, 2012 at 8:49 PM

To raise revenue, you lower taxes.

But NO! That’s blasphemy!

Rixon on June 11, 2012 at 8:52 PM

despite more than $1.5 billion in state tax and fee increases ordered in May 2010, “revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

Who could have seen that coming?
\

JusDreamin on June 11, 2012 at 8:52 PM

Tax Cuts Increase Federal Revenues

By Andrew Olivastro
December 31, 2002

A New York Times article, Deficit Spending Can Help Republicans, by Daniel Altman, shows that old, wrong assumptions die hard. The article reports that:
“From the beginning of 2001 through the third quarter of 2002, the federal government leapt from a surplus (including Social Security) amounting to 2.3 percent of gross domestic product to a deficit of the same size. By itself, the current deficit is not terribly threatening. Indeed, running a modest deficit during an economic downturn can be useful, as long as the policies behind the deficit – lower taxes and higher spending – benefit consumers and businesses.”
The article then claims that the 1980s Reagan tax cuts failed to increase tax revenues;
“The White House says lower tax rates will lead consumers to work more and businesses to expand, resulting in higher tax revenues and eventually closing the budget gap. That notion, chided as “voodoo economics” by critics, turned out to be false when it was last in vogue, during the 1980′s.”
However, the numbers, crunched by Heritage’s Brian Riedl, show otherwise (see chart below). In 1980, the last year before the tax cuts, tax revenues were $956 billion (in constant 1996 dollars).

Revenues exceeded that 1980 level in eight of the next 10 years. Annual revenues over the next decade averaged $102 billion above their 1980 level (in constant 1996 dollars).

Any increase in budget deficits was therefore the result of spending increases rather than tax cut-induced revenue decreases.

Speakup on June 11, 2012 at 8:53 PM

I’ll have to admit this one is a complicated one for me on its face. A good bit of math and what not. My nature is to cut spending, whether it is difficult, and painful or not. Public servants should always strive to reduce the tax burden on its citizens while at the same time finding inventive measures to efficiently deliver necessary services. Nothing more nothing less. Small efficient Government makes its citizenry happiest. Did I miss the point?

Bmore on June 11, 2012 at 9:00 PM

“revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

Hahahahaha!!!!!!! JUST LIKE CALIFORNIA!

And Walker is a “villain”? Only to stone-blind Democrats!

GarandFan on June 11, 2012 at 9:14 PM

Public servants should first obey the limitations of the Constitution, be pretty tough to spend 20% of GDP if they did that

halfbaked on June 11, 2012 at 9:17 PM

Can’t we just raise revenue by taxing the unions? That would be a win-win situation for almost everyone involved.

If the Republicans were smart they would counter with a “balanced” package of spending cuts and tax increases on Democrat constituencies.

Unions are an obvious choice, as are the legal and entertainment industry.

But alas, Republicans are not smart collectively, and have chosen a liberal as their standard bearer.

18-1 on June 11, 2012 at 9:40 PM

I guess they ‘deemed’ the deficit to have closed.

fossten on June 11, 2012 at 9:40 PM

Oops. And this month, the Connecticut Mirror reports that the state continues to tap into its capital project accounts to pay its operating bills. In May, Gov. Malloy’s won approval of a plan to divert more than $200 million originally dedicated to pay off 2009 operating debt to instead close the current deficit. According to Connecticut Deputy House Minority Leader Vincent J. Candelora, despite more than $1.5 billion in state tax and fee increases ordered in May 2010, “revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

Gee, sounds like someone’s been to the Jim Doyle school of budgets and ciphering!

Thank GOD for Scott Walker!

Sasha List on June 11, 2012 at 9:55 PM

Oops. And this month, the Connecticut Mirror reports that the state continues to tap into its capital project accounts to pay its operating bills. In May, Gov. Malloy’s won approval of a plan to divert more than $200 million originally dedicated to pay off 2009 operating debt to instead close the current deficit

…so, how do you “win approval”?

KOOLAID2 on June 11, 2012 at 9:55 PM

so, how do you “win approval”?

Neal and Bob??? :)

Sasha List on June 11, 2012 at 10:02 PM

bayam hardest hit

gwelf on June 11, 2012 at 10:30 PM

Great article Karl.

Steveangell on June 11, 2012 at 10:34 PM

Which explains why, when given a special second chance to renegotiate the compensation portion of their pre-Act 10 contract to have the employees pay the 5% of wages to the pension/12.5% of health care premiums almost every other government worker now pays in Wisconsin, without losing the mandatory auto-dues deduction, the rank-and-file of the Milwaukee Teachers’ Education Association overwhelmingly rejected it and thus toosed a couple hundred of their own into the unemployment line.

Steve Eggleston on June 12, 2012 at 12:33 AM

Oops. And this month, the Connecticut Mirror reports that the state continues to tap into its capital project accounts to pay its operating bills. In May, Gov. Malloy’s won approval of a plan to divert more than $200 million originally dedicated to pay off 2009 operating debt to instead close the current deficit. According to Connecticut Deputy House Minority Leader Vincent J. Candelora, despite more than $1.5 billion in state tax and fee increases ordered in May 2010, “revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

The Laffer Curve strikes again.

Steve Eggleston on June 12, 2012 at 12:34 AM

My nature is to cut spending, whether it is difficult, and painful or not. Public servants should always strive to reduce the tax burden on its citizens while at the same time finding inventive measures to efficiently deliver necessary services. Nothing more nothing less. Small efficient Government makes its citizenry happiest. Did I miss the point?

Bmore on June 11, 2012 at 9:00 PM

Ya know the other thing about cuts? Cuts are absolute. If you cut $100,000 from the budget, you saved $100,000. No guesswork involved. You can count on it, you can plan on it.

Not like some 1cent tax increase that MIGHT bring in $100,000 (or $40,000) thats just a guess.

Small gov doesn’t make the crooks who run it happy tho.

orbitalair on June 12, 2012 at 8:30 AM

I think, maybe, going after those stealing the money is more appropriate than going after everyone..

dahni on June 12, 2012 at 12:06 PM