In my recent op-ed on the structural flaws of public pension systems, I argued that politicians, union heads and bureaucrats use their positions to play taxpayers against public employees for political and financial gain. Monday, the New Jersey Star Ledger reported on a growing backlash against public employee benefits:
In internet postings and on talk-radio shows, government workers are being called “greedy” and “bloodsuckers.” Commenting on the teachers union, one writer called its members “the worst human beings on the face of the planet.” Criticizing the police, another wrote, “The typical criminal could never steal what these cops are walking out the front door with.”
As New Jersey’s unemployment hovers at 10 percent and 401(k)s are dented by stock-market losses, retired public workers find themselves on the receiving end of “pension envy.”
“I understand that I retired with a good pension and the taxpayer contributed to it,” said Tevlin, who kicked in 8.5 percent of his salary toward his pension, which is about $4,000 a month. In his mind it was a fair bargain: In exchange, the public received reliable emergency services. “I don’t apologize to anybody,” he said. “I did a dangerous job.” Read the full post →
Public policy often seems that it should be intuitive. If a state needs more revenue, the easiest way to raise some is to increase taxes (easiest for elected officials, that is). Who has the most money to appropriate? Millionaires, obviously. Connect the dots, and raise taxes on millionaires.
Maryland did just that, but their experiment shows why political common sense and real life common sense are distinctly separate things. From the Wall Street Journal:
We reported in May that after passing a millionaire surtax nearly one-third of Maryland’s millionaires had gone missing, thus contributing to a decline in state revenues. The politicians in Annapolis had said they’d collect $106 million by raising its income tax rate on millionaire households to 6.25% from 4.75%. In cities like Baltimore and Bethesda, which apply add-on income taxes, the top tax rate with the surcharge now reaches as high as 9.3%—fifth highest in the nation. Liberals said this was based on incomplete data and that rich Marylanders hadn’t fled the state.
Well, the state comptroller’s office now has the final tax return data for 2008, the first year that the higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.
Don’t feel sorry for the poor poor millionaires; that’s not the point I’m trying to make. Taxes are a serious driver of out-migration, be it small states like Maine, or more populous states like New Jersey:
New Jersey out‐migrants tend to move to states that have much lower property values (35% lower), property taxes (41% lower) and overall costs of living (17%lower). Destination states also have notably lower average incomes, substantially higher crime rates, higher infant and child mortality; slightly lower school quality, but somewhat warmer winters. Overall, it appears that net out‐migration is due to the high cost of living (especially the high cost of housing and property tax) in New Jersey.
Policy makers and their hangers-on have often regard taxpayers as little more than fiscal sheep, and periodically shear them. But people, unlike sheep, can vote with their wallets and feet. Usually the powers that be see this as something akin to letting the home team down, or not doing one’s “fair share.” The word “selfishness” is also thrown around.
Policies like the levels of taxes, services, and entitlements that a government prescribes are hardly a form of science. Law makers and interest groups would like to portray them as a serious commitments, and not self-interested social experiments. Again from the Journal:
Thanks in part to its soak-the-rich theology, Maryland still has a $2 billion deficit and Montgomery County is $760 million in the red. Governor Martin O’Malley’s office tells us he wants the higher rates to expire “as scheduled at the end of 2010.” But there are bills in both chambers of the legislature to extend the surcharge. The state’s best hope is that politicians in other states are as self-destructive as those in Annapolis.
The “Soak the Rich” phenomenon is a common-sense argument for redistributive policies, but it has significant flaws beyond the simple fact that it doesn’t work. Take a look at this chart of how tax burdens are distributed in Federal taxation. (here, either insert or link to this: http://www.mint.com/blog/wp-content/uploads/2009/11/MINT-TAXES-R4.png)
Libertarians and liberals can mostly agree that there is too much money and influence in politics, but the policy prescriptions each group suggests are dramatically different. Advocates of punishing the rich ignore the simple fact that when a certain group bears so much of the tax burden, they have massive incentives to care about and influence politics. It’s that or leave the country, or just stop making money (by, for instance, not hiring new employees.)
See this graphic (or click below) for a good visual explanation:
Burlington, Vermont’s bond rating has been downgraded from Aa3 to A2 and placed on negative credit watch by Moody’s due to a high debt level. At Digital Society, George Ou places the blame on Burlington’s municipal fiber telecom:
In a city with approximately 20,000 homes and businesses, 4800 of which are municipal fiber subscribers, Burlington Telecom seems to have racked up a $50,000,000 debt. That works out to about $10,417 per subscriber which is a huge tax payer subsidy for relatively affluent homes and businesses that can afford the relatively expensive fiber service. Three out of four Burlington residents don’t subscribe to the municipal fiber service and it is likely that many of them can’t afford the service yet all of them are subsidizing the muni-fiber service with regressive local sales taxes.
Worst still, Burlington Telecom’s deficits and debt are rising which makes the prospect of financial stability more of a dream than reality. This is likely due to the low 24% adoption rate and a dearth of premium high paying customers which makes it extremely difficult to recover the high costs of building out 100% of the residents and businesses. There is even a criminal investigation to determine if millions of dollars have been misappropriated and a lawsuit to reclaim $17 million that Burlington Telecom took in 2008 from the treasury without notifying taxpayers.
Just last year, Burlington was crowing about its Aa3 bond rating and its fiscal prudence, predicting that Burlington Telecom would become self-sustaining in the near term. What a difference a year makes.
Via the Twitter feed of Cord Blomquist.
Like many state services across the country, the Phoenix area’s new light rail system is facing cuts because of budget shortfalls. Like many transit systems, the light rail is funded by a combination of fares and subsidies that come from the local, state, and federal governments.
This payment arrangement makes transit systems vulnerable to volatility in government budgets as well as business cycle fluctuations. An Arizona Republic article explains:
The money shift reflects how much of Maricopa County’s voter-adopted plan to expand transit service in the next 15 years has fallen victim to the economy. That includes some extensions of light-rail lines.
“We’ve pretty much gutted all of our future capital projects that aren’t federally funded in order to keep service intact,” said Paul Hodgins, a planner at the Regional Public Transportation Authority, which manages bus service in much of the Valley.
When new Metro Chief Executive Officer Steve Banta begins his first day on the job in two weeks, one of his first actions will be to review cuts with his new board.
Metro covers about a quarter of its costs from fares, and depends on sales-tax revenue from Phoenix and Tempe and general-fund money from Mesa. With tax revenue down, cuts look inevitable.
In New Jersey, a state that, like Arizona, has a very large budget deficit, legislators are facing similar challenges. Governor Chris Christie is leading an effort to privatize state services to save taxpayer money and increase efficiency.
While privatization can be a solution to curbing government costs and improving service to constituents, the process must be undertaken transparently. The New Jersey Star Ledger warns that previous projects were fraught with corruption:
A privatization effort under former governor Christie Whitman that turned auto inspections over to Parsons Corp. in the 1990s was called a “mammoth boondoggle” by investigators. Parsons was criticized for hiring an array of politically connected subcontractors.
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