Tag Archives: New York Post

Governors Revolt!

What’s gotten in to the governors? Across the country, a number of them seem to be fed up with their respective budget crises and are proposing bold action. As Eileen has written in the New York Post, New Jersey’s Governor Christie has shown remarkable resolve in tackling “the third rail of New Jersey’s budget: union-negotiated contracts and control.”

On Tuesday, I wrote about New York’s Governor Paterson and his plans to lay-off nearly 10,000 government workers (effective upon his successor’s first day in office). Now the Governor has gone a step further, announcing that he is “taking over” the budget cuts in order to keep the state afloat. After weeks of fruitless negotiations with state lawmakers, the state budget is more than 2 months overdue and there seems to be no consensus about how to deal with the $9.2 billion gap. So Paterson plans to impose dramatic cuts by including them in an emergency spending plan.

A little further west, in Illinois, Governor Pat Quinn and the state legislature are wrestling with a yawning $13 billion gap. Yesterday, the governor declared his intention to make the tough cuts that legislators seem unwilling to make. Of course, when pressed for details, he declined to offer a substantive plan. Hopefully, he’ll come around.

Hopefully, all of the governors will come around. A new report by the National Governors Association and the National Association of State Budget Officers (NASBO) will be released this morning. According to the Wall Street Journal (gated), it shows that states across the country still face a $127 billion gap over the next two years.

Norcross in New York Post

Eileen Norcross has an op-ed in today’s New York Post in which she argues that only substantive reform can fix New Jersey’s budget problem.

[Governor-elect Chris] Christie inherits a state that’s in arguably the worst financial condition in its 233- year history. Last year’s $7 billion shortfall, closed with stimulus dollars and tax hikes, has resurfaced at an even larger $8 billion for 2010. Residents face crippling property taxes (an average of $7,000 per capita), high income and sales taxes, $45 billion in debt and the net loss of 400,000 people since 2000.

This is not the time to tinker at the margins with rebate programs and line-by-line budget deliberations. Without question, turning Trenton on its head means tackling the state’s two greatest and most immediate threats: the Property Tax Relief Fund (PTRF) and unfunded mandates on municipal governments.

[…]

Christie has his work cut out for him. Reviving New Jersey will take hard work and persistence, not just by the new governor, but by the people who elected him. They must demand a fundamental rewrite of the rules under which the state and municipal budgets are drafted — and hold their elected leaders to account if they stray off course.

Read the whole thing here.

New Jersey’s “Stretched” Jobs Numbers from Another Dimension

The New York Post reports that New Jersey Governor Corzine’s office suggested Cabinet members find him speaking events that show job creation or economic development in the private sector, writing in an email, “I know that it might be a stretch for some of you, but please be creative.”

Rather than find fault with political actors acting (unsurprisingly) in their own self-interest, it’s bad policy resting on weak theory that lends itself to creativity in economic calculation.

My Mercatus colleague Veronique de Rugy explains what this fuzzy stimulus-math has to do with the job creation multiplier, a Keynesian-inspired calculation that sits on shaky theory.

First the theory. Keynes asserted that during downturns consumers hoard money. Thus, less is spent in the economy. The policy solution was for government to spend to spur economic activity. In 1930, Richard Kahn built on idea, creating the “Keynesian multiplier,” demonstrating how a government dollar stimulates more spending in the private economy.

Simply put, when the government spends $100 million on workers to pave a road, the workers spend that money in different businesses, which now have more money to spend — i.e., hire more people, who will now have income to spend. Sounds simple. But the theoretical problems are many:

  1. In his model, Keynes separated saving from investment, a fatal flaw. Saving is not necessarily money hoarded, it is money put in the bank and lent out; that is, invested.
  2. Keynes’ model is based on an “aggregate consumer” which abstracts away from the reality of an economy comprised of individuals all facing their own unique circumstances.
  3. The government cannot create wealth, it can only redistribute it from the private sector. At the other end of government stimulus are taxes.

Then there is the problem of calculating the effects of government spending on the economy. When wading into multiplier territory, it can get technical fast. Here’s a discussion of different approaches.

Carl Bialik of the the Wall Street Journal notes that jobs measures differ between states and the CBO due to wildly different assumptions and huge counterfactual leaps:

In every method used, economists are forced to imagine an alternate reality — one built on assumptions that are easily challenged. For example, to compare present unemployment rates to past rates may be straightforward but it fails to account for other economic forces that were going to affect unemployment with or without the stimulus.

Given the “alternative reality” problem, is there really much difference between jobs figures stretched for political effect, and those generated via sophisticated models? Depends on what parallel universe you like to live in.

State Tax Rates and Health Care Reform

E.J. McMahon of the Manhattan Institute calls it a “sledgehammer” to New York City.

This week, the Tax Foundation released this table. It shows what each state’s top tax rate looks like with the House Bill’s three surtaxes, targeted at high earners, to pay for nationalized health care.

Three states meet the 57 percent tax rate mark: Oregon (57.54%), Hawaii (57.22%), and New York (56.9%). At the very top of the list is New York City with a 58.68% top tax rate.

There is not much improvement for the remaining 47 states; the bottom ten states face a top rate of 47.25 percent.

What is the likely scenario in Manhattan? It’s not just Wall Street’s top earners who will bear the burden (or flee for other professions or places): it is small and/or growing businesses. As the New York Post writes, “The legislation is especially onerous for business owners, in part because it penalizes employers with a payroll bigger than $400,000 some 8 percent of wages if they don’t offer health care.”

Here’s a picture, courtesy of the New York Post: