Today’s Financial Times is reporting that Indian Environmental Minister Jairam Ramesh, accused the West of “needlessly raising alarm over melting Himalayan glaciers.” The accusation comes just weeks after the controversial Cap and Trade bill passed the United States House of Representatives. The controversial bill aims to reduce greenhouse gases in the US 80% by 2050.
Ramesh wants no part in it, saying yesterday “The world has nothing to fear from India’s development … An artifical cap is not desirable and not even necessary as we haven’t been responsible for emissions in the first place.” The West responded by threatening to halt financial aid to nations that do not make efforts to curb greenhouse gas emissions.
In my Pioneer Press column of July 17, I did some follow-up on the budget story du jour, the testimony of state economist Tom Stinson to the effect that the unallotment proposals made by Gov. Tim Pawlent would cost the state between 3,000 to 4,700 jobs while a $1 billion tax increase would result in an estimated 1,000 jobs lost. The media portrayed Stinson’s testimony as a comparison between the governor’s unallotment proposal and the bill passed by the legislature and vetoed by the governor may. I talked with Stinson, and he, very carefully, characterized that report as “not entirely accurate” and the interpretation of his research as “simplistic.”
Putting aside the political ramifications of the way Stinson’s research is being characterized, from a market-oriented perspective the partisan spin battle over tax increases versus unallotment is missing the point in a way that does not do justice to the citizens of Minnesota. In every policy decision there are trade-offs, and for either side to deny there are trade-offs is ignorant at best and disingenuous at worst. Stinson’s research is one data point in the budget discussion that highlights a number of trade-offs facing the governor and legislators going forward.
In a response to the column, Dave Mindeman on the mnpACT! blog falls into the partisan trap with the “so what” argument that figures don’t lie and the choice facing legislators is tax increases or unallotment and clearly Stinson’s research clearly shows unallotment is bad. To give Mr. Mindeman credit, in between insults he makes the Keynesian economic argument, but he ignores the point of my column, or more accurately, disrespects the idea of reform – an interesting position for a “progressive.” He more or less denies the concept of tradeoffs, or at best he minimizes it. So, let’s look at the Keynesian argument and the tradeoffs it entails.
First, let’s answer Mr. Mindeman’s direct question regarding the hypothetical $1 billion tax increase versus the actual legislative bill that was vetoed. He asks, “Help me out here…. is there some substantial difference in outcomes? A hypothetical $1 billion or an itemized $1 billion is still going to have the same effect.”
Indeed, there are significant differences in out comes from various forms of taxation. The fact that Stinson modeled a hypothetical $1 billion income tax increase, not the actual bill passed by the legislature is significant. The legislative bill included a pass-through tax on credit card interest on rates over 15 percent and a pass though tax on alcohol profits. A $1 billion dollar income tax increase ($500 million in each of two years) does not create the same distortions in the market place as proposals that would raise the cost of credit and decrease the availability of credit or fundamentally alter he pricing structure of an industry. Moreover, at what level and at what individual rate the hypothetical income tax is implemented makes a difference in the efficiency of the tax measured by how much tax revenue is lost by activity at the margin – how much tax revenue is lost by individuals changing their behaviors as a result of the tax.
In general, board-based, low-rate taxes are less responsive to rate changes and produce a more stable source of revenue than do narrowly focused, high rate taxes that at the margins are highly sensitive to rate changes. Broad-based taxes therefore create less distortion in the market place. A pass-through tax like the proposed tax on credit card company revenue, for example, is a highly distortive tax, which would have had significant ramification for credit card customers and on the availability of credit had it passed. So, yes, Mr. Mindeman, the oncoming ramification of different types of taxes produces substantial difference in outcomes beyond the short-term job loss numbers.
Mr. Mindeman goes on to quote Keystone Research Center (Pensylvania) labor economist Mark Price channeling economist Eugene Stiglitz:
“Every dollar in state budget cuts reduces a full dollar of economic activity. Individuals, especially higher-income earners, save a portion of their income, so tax increases remove less than a full dollar of economic activity. As a result, tax increases do not hit the economy dollar-for-dollar like budget cuts do.”
So, here we have our first trade-off. The decision between spending cuts and tax increases involves a trade-off between immediate economic activity and encouraging saving. In the Keynesian view, spending is a good thing. A perfect example is the recent statement by vice president Joe Biden that the country is going bankrupt and the only way to save it is to spend more money. (The VP must also drive faster when the fuel gage reads empty so he can get to a service station before he runs out of gas.) The flip side of the coin is that one of the significant causes of the housing collapse is that the “cheap money” credit policies of the federal government created a demand for housing that was not supported by adequate consumer saving. Keynesians believe that to grow the economy, one must stimulate demand; the flip side is that without available capital to finance production, there is no capability to produce product irrespective of the demand. The tradeoff simply put is between short-term job loss and long-term economic growth.
Stiglitz goes on to say in the work I assume Price is referencing –
“For states interested in the impact only on their own economy rather than the national economy, the arguments made above [for tax increases] are even stronger. In particular, the government spending that would be reduced if direct spending programs are cut is often concentrated among local businesses. (This can cause distortions in the long run, but it bolsters the local economy in the short run.) By contrast, the spending by individuals and businesses that would be affected by tax increases often is less concentrated among local producers — since part of the decline in purchases that would occur if taxes were raised would be a decline in the purchase of goods produced out of state. Thus, more of the reduction in purchases that results from tax increases than from government budget cuts falls on out-of-state goods (relative to in-state goods), lessening the adverse impact of a tax increase on the state economy. Reductions in direct government spending consequently could have a larger adverse impact on a state’s economy than tax increases, which have a stronger adverse impact on out-of-state goods and services.”
In that paragraph, Stiglitz himself parenthetically defines the trade-off: “(This can cause distortions in the long run, but it bolsters the local economy in the short run.)” He also sets the context of his remarks: “For those interested in the impact only on their own economy rather than the national economy ….” We have another tradeoff.
Applying Stiglitz observation to Minnesota, the tradeoff is between Gov. Pawlenty “kicking the can down the road” by delaying deficit issues through across the board unallotment and tax shifts rather than solving structural budget problems and Stiglitz “kicking the can” to the overall economy. Indeed, Stigliz, in noting the “problem” is state requirement for a balanced budget, a nod to Keynesian predilection for deficit spending, writes “Given the existence of balanced budget rules at the state level, some form of federal fiscal relief to states is therefore warranted.”
Again, we have a tradeoff between the seen versus the unseen economic consequences of an action. If we focus strictly on the Minnesota economy, we can see the visible benefit of people employed because of government spending; what we cannot see (but can anticipate) is the unseen “distortions” (as Stiglitz notes) and job losses that result from things like excessive federal borrowing making investment capital more expensive and harder to get and the consequences of inflation.
Mr. Mindeman is correct when he “screams” that the governor and the legislature “STILL HAVE TO CHOOSE.” He ignores that they put themselves in that postion, each side fighting for an idealogical point while ignoring economic reality. Mr. Mindeman’s blind spot is his sole criterion for making the policy choice for tax increases is impact on short-term job loss. He, like partisans on both sides of the budget debate, doesn’t argue for the tradeoffs that are the consequences of his policy. Mr. Mindeman doesn’t acknowledge or make a case why the short-term economic view (something he rails against when the short-term view is corporate quarterly profits) is better for Minnesota than the long-term economic growth perspective. He disrespects the notion of structural reform – moving from an inefficient tax system to more effective taxation and redefining the role of government, which is necessary to stabilize spending.
And that was the point of my column – neither accounting shifts and arbitrary unallotment, cutting a little bit here and a little bit there nor tax increases that permanently make Minnesota a high-tax state at a disadvantage in a competitive global market solves the structural budget issues of this state. The irony is, the “conservative” position of tax and spending reform is the policy that demands change and progress, while the “progressive” position of tax increases as the single solution to Minnesota’s budget woes argues for continuation of the status quo. Who really is kicking the can down the road here?
The Minnesota Free Market Institute, with the Friedman Foundation for Educational Choice, will be hosting an event to honor Milton Friedman on July 31st. The event is free, more details can be found in the flyer found here.
The headline in the Pioneer Press seemed to tell the story: ‘DFL budget plan would have cost fewer jobs, state economist says.’
Indeed, before the Legislative Advisory Commission, state economist Tom Stinson estimated Gov. Tim Pawlenty’s spending cuts will cost Minnesota 3,000 to 4,700 jobs. He also modeled the impact of a tax increase on job loss. The Pioneer Press reported “the $1 billion income tax increase that the Democratic-controlled Legislature passed and Pawlenty vetoed in May would have cost the state an estimated 1,000 jobs over the next two years.”
Unfortunately, in eagerness to report or spin Stinson’s numbers, the press, progressive think tanks and DFL legislators misunderstood the purpose of Stinson’s work and didn’t get the basic story straight. In the measured terms of a professional, Stinson confirmed to me that the coverage of his testimony was “not entirely accurate” and interpretation of his data was somewhat “simplistic.”
His job as an economist is not to make political or policy judgments, Stinson said, but to provide a common basis of information and understanding from which better political and policy judgments can be made.
I fear he misreads the motivation of the DFL-dominated commission.
When House Majority Leader Tony Sertich, DFL-Chisholm, declares that “Governor Pawlenty’s budget proposal is going to cause three to five times as many job losses in the state as the legislative proposal,” he is “not entirely accurate” and “simplistic.” In his eagerness to exploit Stinson’s data, he misses larger policy implications. And that is the problem.
First, Stinson’s research did not analyze the DFL bill vetoed by the governor (as reported and repeated). The vetoed bill included income tax increases and pass-through tax increases on credit card companies and on alcohol products. Stinson was asked to evaluate the governor’s unallotments in terms of job loss. A professional, he also modeled a hypothetical $1 billion income tax increase (over two years) because he was “trying to make sure people understood that there are no easy answers.”
In other words, Stinson came not to praise or bury Pawlenty. Short-term job loss is one data point among many trade-offs inherent in the budgeting process, but it is not the only trade-off. In fact, the trade-off between tax increases and spending cuts results from a higher-level trade-off — between a balanced budget and making a recession worse.
Progressive think tanks often quote Nobel laureate and Columbia University professor Joseph Stiglitz saying that a reduction in government spending is more harmful to the economy in the short run than an increase in taxes. What they fail to note (but Stiglitz emphasizes) is the balanced-budget trade-off that puts policy-makers in a situation that is ultimately harmful to the economy.
“It is worth emphasizing,” Stiglitz writes, “that any state spending reductions or tax increases are counterproductive at this time: they restrain the economy at time when it is already slowing.”
So, let’s be honest: The debate over tax increases or spending cuts is not about improving the state’s economy. The choice is not between “good and bad” or “better and worse”; the choice is between “bad and worse.”
Stinson’s model does not make value judgments about how the loss of specific job types affects the state economy. Nor does it consider the value of freeing unproductive resources for other uses, nor does it provide any criteria for making those judgments. Those are among the political and policy questions that must be addressed on a case-by-case basis, which won’t happen while the Legislative Advisory Committee remains intent on misusing data to beat up the governor.
The legislative end game is neither “stupid” DFL tax increases nor “evil” GOP spending cuts (nor some really stupid and evil “bipartisan” combination); the end game is enabling Minnesota to be a competitive player in the global competition for the capital that creates productive jobs in the private sector. To correct that problem requires reform of the tax system and a redefinition of the role of government, and that won’t happen if the Legislative Advisory Council stubbornly continues turning data points into talking points, which makes for provocative newspaper headlines but precious little progress.
Craig Westover is a contributing columnist to the Pioneer Press Opinion Page, a senior policy fellow at the Minnesota Free Market Institute (mnfmi.org) and a member of the Republican Party Liberty Caucus. His e-mail address is westover4@yahoo.com.
This commentary originally appeared in the St. Paul Pioneer Press July 15, 2009.
Dane Smith’s most recent Legal Ledger column “If taxes are bad for us, how did we get so healthy, wealthy and wise?” provides the most vivid example of strawman abuse since the Wicked Witch of the West plucked the Scarecrow.
Dane is a pretty reasonable guy, so when he resorts to calling those who disagree with him “anti-government” and “anti-tax,” you know he’s on shaky ground. It is not “anti-government” to be concerned when government consistently exceeds its constitutional authority; it is not “anti-tax” to uphold the constitutional principle of the sanctity of private property and think it wrong for the state to tax for programs and projects that exceed its constitutional authority. That said his column is made for fisking, and that just what I’ll do.
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If taxes are bad for us, how did we get so healthy, wealthy and wise?
by Dane Smith, Growth & Justice
Here’s a tax-and-budget Question for the Century, as we brace ourselves in Minnesota this summer for continued cuts to our state and local governments, all in the holy cause of not raising state income taxes ever again under any circumstances whatsoever.
Actually, not raising state income taxes ever again sounds like a pretty good objective when you consider what it means. It means that that economy is healthy, that more people are working, more wealth is being generated, and more tax revenue is being collected. It means that instead of relying on inefficient, unstable revenue generated by narrowly based, high marginal rate taxes, the state would transition to more efficient, broader-based, low rate taxes, which produce a stable revenue source providing sufficient revenue to meet the state’s constitutional objectives. When Dane tries to be sarcastic with the phrase “under any circumstances,” he succeeds only in declaring a tax increase to be the last resort of the incompetent.
Answer this: If government and taxes are so bad for growth and general prosperity, why did we grow so much and get so generally prosperous over the last century, especially in Minnesota, a period during which government and taxes grew exponentially?
Okay, so what is it? In past pieces, Dane has told us that Minnesota taxes have not kept up with the national average and the size state government has remained constant and is actually below its apparently Creator-endowed 17 percent of state income. But that aside, the question Dane is asking might be addressed with an analogy.
Suppose I challenge LaBron James to a little game of one-on-one basketball, and he beats me 21-zip. We play again, and to make things more fair LaBron wears 25-pound ankle weights. He still beats me 21-zip. Now suppose, as Dane suggests, we “exponentially” increase LaBron’s handicap and attach 50-pound weights to his ankles. This time he beats me 21-1. Same outcome: LaBron wins. Relative to kicking my butt, it is accurate to conclude that even 50-pound ankle weights did not affect LaBron’s performance, but it is not logical. Of course the 50-pound weights affected LaBron’s performance, but he is so much better than I am, he still beats me handily. So it is with capitalism.
The economic engine of capitalism, the adaptability and innovation of free people in a capitalistic system can carry a lot of deadweight government activity. That is accurate, but it also follows logically that without carrying excessive government on its back, a capitalistic society could produce a whole lot more wealth for a lot more people. It also logically follows (and Dane acknowledges later in his column) that at some point even a superstar can be handicapped beyond ability to produce. Chain LaBron James to a truck, I just might beat him; chain capitalism to a government that finds virtue in “expanding exponentially,” and capitalism is defeated.
Since 1909, and with big spurts in the 1930s and 1970s, the federal-state-local government’s share (anti-tax types like to call it “take”) of income in Minnesota and the United States grew steadily and sharply, from about 5 percent to 35 percent.
A seven-fold increase in taxes should have left us a howling wasteland, if one subscribes to the anti-government theory of anti-tax zealots. We should have less wealth, no creativity, diminished entrpreneurialsm, little technological innovation, and no incentives to do anything but seek or wait for the next government check.
The exact opposite happened as government grew.
Our mostly well governed nation, and high-tax Minnesota in particular, and other democratic and capitalistic nations with expanding public sectors, got very rich during this period. And more important, our quality-of-life improved dramatically, beginning with life expectancy but extending into a multitude of aspects ranging from education to mobility to more fairness and equality for the two thirds of society (women and non-white males) who were second-class citizens in 1909.
Dane needs a little lesson in the difference between correlation and causation. Over that same period of time, Al Gore tells us the earth was getting warmer, carbon emissions were increasing, and dramatic changes were occurring in the Earth’s ecosystem. Using Dane’s logic, I can only conclude that global warming is good for the economy.
I would point out to Dane that it was government that denied certain civil rights to women and non-white males, so it is kind of cheap to give points to government for the wisdom to correct its own mistakes – mistakes that those of us advocating for limited government understand result from government overreaching in the first place.
It is always interesting to me that when progressives want to justify government they point to areas where government has a defined constitutional role (education being a state but not a federal obligation). They also use as a measure of success “participation” rather than “effectiveness” – education being the prime example. Today, public schools proudly proclaim they “take everyone,” and quietly disavow that they cannot “educate everyone.” As in my mythical game of one-on-one with LaBron James, the deadweight of government hasn’t yet reached the point where it completely burdens the resilience of a free people, but image if that burden were diminished.
Now to be fair to Dane, as a nation and a state, we do accomplish good things, collectively, through government. But the point Dane never seems to grasp is that we live in a constitutional republic, not a democracy. Democracy is how we make collective decisions about collective actions, but it does not tell us when collective action is appropriate or allowed. We do not vote on when we get to vote. It is our federal and state constitutions that define when we act collectively. We are a republican government of enumerated powers, and the problem is, Dane does not recognize that restraint. In his progressive view, government authority is defined by the consent of the governed, the will of the many, and the rights of the minority are protected only by the grace of the majority. It is no wonder then that he takes the inevitable and makes it look like a plan when he gives government points because the majority controlling government finally decided to provide equality for women and non-white males. Are we to assume then that it was okay when the majority denied equality to women and non-white males?
Again to be fair, Dane has some handicap weight to carry when we debate. To denigrate my ideology, he must come up with terms like “anti-government” and “anti-tax.” To denigrate his ideology, I merely have to use his self-description – “progressive.”
This question and sound answers to it are posed strongly and clearly in a gem of a little book penned right here in Minnesota “Cracks in the Foundation: Refuting the Conservative Case for Low Taxes and Small Government.’’
Its author is Elaine J. Handelman, a lifetime Minnesotan and a recent addition to the Growth & Justice Board of Advisers. She’s neither a left-wing academic nor an advocate for taxpayer-funded causes. She’s a business professional with expertise in quality improvement initiatives for the private sector, who has a real grasp of economics and history.
“If freedom varies with the portion of our income we keep,’’ Handelman observes in the book, “then we were freer in 1900.
“Yet most of us, I suspect, would prefer the freedom we had in 2000…The capacity to exercise choice is an important part of our freedom and there is no question that the number and quality of choices increased over the century… (And) that growth would not have been possible without significant investments in the public sector.’’
If I might borrow from Robert Browning, I would suggest that Ms. Handelman’s reach has exceeded her “real grasp of economics and history,” but then what’s a government-run utopia for?
In the first sense, Handelman is talking about “freedom” as manifest in the principles the U.S. Constitution – the primacy of individual sovereignty, the sanctity of private property, and preservation of the rule of law, the protection of which is why our government was formed and our Constitution written. In the second paragraph she is talking about “freedom” as opportunity, the result of the wealth created by a free people, each person acting in his own self-interest absent coercion of any kind.
In the first respect, yes to a large degree we were freer in 1900 than we are today. In the 1900’s we were even free to campaign against government’s denial of women’s suffrage and government-imposed Jim Crow laws; today, even the president of the United States by implication compares those who campaign against the government-sanctioned view of climate change with “holocaust deniers,” and we have a Patriot Act that is used against people who support a presidential candidate who advocates a return to constitutional principles.
Even were one to acknowledge Ms. Handelman’s conclusion, “that growth would not have been possible without significant investments in the public sector,” where does she suppose those investments came from? They were the result of private sector wealth production. Why were those public sector investments required? To support private sector growth, not to subjugate the primacy of individual sovereignty, the sanctity of private property and the rule of law. Without that freedom and the wealth it produces, we will not have the freedom of opportunity in 2100 that we had in 2000. Frankly, we don’t have it in 2009.
Handelman, with careful footnotes and sourcing, nails down the facts of public sector growth and all the ways that taxes have provided humanity-enriching investments — from building national parks to ensuring financial security for old age to probably the most cost-effective spending of all, our state and national appropriations in behalf of educational equality and attainment.
Recognizing and celebrating the basic virtues of business and profits and private enterprise, Handelman scores strong points on several other important spin-off issues raised in the eternal debate between public and private.
“The oft-heard “points of light’’ claim — that private charities and non-profits can fill the void if our governments abdicate that responsibility — is just not realistic as a total solution. Private spending for the economically disadvantaged currently amounts to only 10 percent of what government spends. If government pulls out of the safety-net business, does anyone really expect Americans to increase their giving tenfold? Or even half?
“The notion that the private-sector always does it better than the public sector is dispelled, with anecdotes and statistics. Handelman cites numerous success stories in government, including the consensus that programs like Medicare and Social Security are remarkably efficient and low in overhead costs.
Here’s where Dane plucks the Scarecrow. Yes, some people make these arguments as absolutes, but there are far more fundamental issues – respect for the Constitution for one – that are at stake. For example, the issue is not whether or not a “safety net” is in place, the question is because we have some individuals who are economically disadvantage must we reinvent government outside its constitutional authority and create massive government programs that impinge upon the entire population to its determent and still don’t help the disadvantaged?
Universal health care is a prime example. Much like Dane’s effort to make government correcting its disenfranchisement of women and non-white males into a virtue, universal health care is government’s effort to correct its misguided creation of a bureaucratic, highly regulated managed care system (not by any-stretch a free-market health care system) that caused the economic distortions progressives call a “crisis.”
Because some people can’t participate in our state-imposed, highly regulated, managed health care system is not a good reason to give government even more authority over health care. Instead, why not consider freeing the health care system of the ankle-weights of government interference. More toward a free market in health care where patients control their health care dollars, doctors compete for patients not insurance dollars, and insurance companies compete for customers by writing diverse policies targeted to individual need. And the disadvantaged? Why not provide them with health care vouchers and let them participate in a free health care market with the same freedom and dignity as others instead of pushing poor people into government programs that provide neither quality care nor the self-esteem and motivation to become self-sufficient?
“And yes, taxes obviously have their limits and cannot be raised without consequences for growth. And governments need to redouble their efforts at accountability and cost-efficiency. “Everyone agrees that taxes can not be increased endlessly (and) the manner in which the tax burden is distributed on businesses and individuals has economic consequences.’’
Handelman concludes: “We all agree that government should defend us against enemies foreign and domestic, provide a safe environment and enforce the law. I argue for the value of government in additional roles: Our public investments provide us with increased individual choice, expanded business opportunities, increased scientific and technological ideas for our entrepreneurs to exploit, improved health and an improved quality of life.’’
Okay. Dane quotes Ms. Handelman and confirms the old wives tale that if we engage in the self-abuse of excessive taxation too long, we will eventually go blind. But citing the second paragraph, Dane also wants to keep doing it until we need glasses.
As noted above, it is a fundamental progressive belief that government is restrained only by the consent of the governed and the will of the majority. Dane advocates raising taxes and expanding government until the majority determines that there are “consequences for growth” but without guidance on what constitutes a “consequence.” Cap and trade certainly has “consequences” for growth, not to mention it impinges on individual sovereignty, the sanctity of private property and makes a mockery of the rule of law. But apparently, the national self-abuse of cap and trade is still on the path to eyewear and won’t yet cause climatic blindness, only economic disaster.
Dane and Ms. Handelman can argue for “the value of government in additional roles,” but in the context of our constitutional republic, they nor anyone else has the legitimate authority to expand government into a role not granted to it by the Constitution, irrespective of the benefits.
I couldn’t have put it better.
Here, I agree with Dane – he could not have put the progressive case better. The weight of progressivism’s immorality, economic illogic, and contrariness to constitutional principle would be too much handicap for even the intellectual equivalent of the athleticism of LaBron James. One-on-one is simply not the progressives’ game.
Today, ABC news is reporting that the stimulus tracking site recovery.gov is undergoing a major redesign. The six-month old site is being revamped by Smartronix, a Maryland based company that wins millions of dollars in federal government contracts annually. The cost of the redesign, according to ABC News, is an estimated $18 million dollars in taxpayer money, or 5.9 cents for every man, woman and child in America. The goal of the site is preventing waste in the disbursement of the $787 billion dollars in stimulus money to projects all over the United States. A noble goal, but spending $18 million updating a site that already exists might raise some eyebrows in itself.
As the economic results of the first stimulus continue to reinforce the fact that such measures are futile in trying to curb job loss, calls for a second stimulus have increased in volume. Obama administration advisor, Laura D’Andrea Tyson, joined the chorus this week in Singapore saying, “We should be planning on a contingency basis for a second round of stimulus.” The appeal for a second stimulus comes from an administration that has to date, only feigned fiscal responsibility. In fact, the federal government’s current deficit, 12% of GDP, is the highest since World War II. As a result of such deficits, the American taxpayer must continue to pay an increasing amount of interest, a whopping $565 billion this year alone, according to the New York Times.
Not everyone on Capitol Hill is ignoring the numbers. Congressman Erik Paulsen, from Minnesota’s 3rd Congressional district, spoke Tuesday about the explosion in the federal debt.
Paulsen is not alone in his criticism of federal spending. Economists Alan Auerbach from the University of California, Berkleley and William Gale, from the Brookings Institution, echo the Congressman’s worry. In their paper, “The Economic Crisis and the Fiscal Crisis: 2009 and Beyond” the two economists outline what they believe to be a bleaker, more realistic fiscal future. They believe the CBO’s federal deficit estimate relies on unrealistic assumptions. The CBO puts the cumulative deficit at $3.8 trillion, Auerbach and Gale project a cumulative deficit of $10.2 trillion.
Neither of the forecasts incorporate the impact of a second stimulus, which could send the deficit soaring even higher. As unemployment continues to rise, so will public pressure on Congress to act. Let’s hope they craft legislation based not on political posturing, but fiscal prudence.
The UK’s Daily Telegraph is reporting that polar bear expert, Mitchell Taylor, is not being allowed to participate in a meeting of the Polar Bear Specialist Group held in Copenhagen this week. Taylor, who has been researching polar bears for 30 years, was told that he was barred from the group because “his views on global warming do not accord with those of the rest of the group.”
The researcher insists that contrary to popular opinion among global warming scientists, the population of polar bears is not falling, but actually rising. Taylor believes the Arctic Ocean is warming, but does not attribute the warming to human behavior. The researcher believes the warming is due to warm currents bringing water in from the Pacific. Taylor, who had already raised the neccessary funding to attend the meeting, was told that he was excluded not because of a lack of polar bear expertise, but because he was a signer of the Manhattan Petition, a document attributing global warming to natural causes.
The suppression of science to further global warming scientists’ views does not seem to be limited to the Polar Bear Specialist Group. Last Week, the New York Times reported on a leaked Environmenal Protection Agency memo critical of the Agency’s use of “outdated science to support its finding.”
Today’s Financial Times is reporting that Indian Environmental Minister Jairam Ramesh, accused the West of “needlessly raising alarm over melting Himalayan glaciers.” The accusation comes just weeks after the controversial Cap and Trade bill passed the United States House of Representatives. The controversial bill aims to reduce greenhouse gases in the US 80% by 2050.
The Minnesota Free Market Institute, with the Friedman Foundation for Educational Choice, will be hosting an event to honor Milton Friedman on July 31st. The event is free, more details can be found in the flyer found 
Dane Smith’s most recent Legal Ledger 
Today, 
The UK’s Daily Telegraph is reporting that polar bear expert, Mitchell Taylor, is not being allowed to participate in a meeting of the Polar Bear Specialist Group held in Copenhagen this week. Taylor, who has been researching polar bears for 30 years, was told that he was barred from the group because “his views on global warming do not accord with those of the rest of the group.”
DFL spins tax talk away from the real issues — tradeoffs and reform
July 15th, 2009 by Craig WestoverIndeed, before the Legislative Advisory Commission, state economist Tom Stinson estimated Gov. Tim Pawlenty’s spending cuts will cost Minnesota 3,000 to 4,700 jobs. He also modeled the impact of a tax increase on job loss. The Pioneer Press reported “the $1 billion income tax increase that the Democratic-controlled Legislature passed and Pawlenty vetoed in May would have cost the state an estimated 1,000 jobs over the next two years.”
Unfortunately, in eagerness to report or spin Stinson’s numbers, the press, progressive think tanks and DFL legislators misunderstood the purpose of Stinson’s work and didn’t get the basic story straight. In the measured terms of a professional, Stinson confirmed to me that the coverage of his testimony was “not entirely accurate” and interpretation of his data was somewhat “simplistic.”
His job as an economist is not to make political or policy judgments, Stinson said, but to provide a common basis of information and understanding from which better political and policy judgments can be made.
I fear he misreads the motivation of the DFL-dominated commission.
When House Majority Leader Tony Sertich, DFL-Chisholm, declares that “Governor Pawlenty’s budget proposal is going to cause three to five times as many job losses in the state as the legislative proposal,” he is “not entirely accurate” and “simplistic.” In his eagerness to exploit Stinson’s data, he misses larger policy implications. And that is the problem.
First, Stinson’s research did not analyze the DFL bill vetoed by the governor (as reported and repeated). The vetoed bill included income tax increases and pass-through tax increases on credit card companies and on alcohol products. Stinson was asked to evaluate the governor’s unallotments in terms of job loss. A professional, he also modeled a hypothetical $1 billion income tax increase (over two years) because he was “trying to make sure people understood that there are no easy answers.”
In other words, Stinson came not to praise or bury Pawlenty. Short-term job loss is one data point among many trade-offs inherent in the budgeting process, but it is not the only trade-off. In fact, the trade-off between tax increases and spending cuts results from a higher-level trade-off — between a balanced budget and making a recession worse.
Progressive think tanks often quote Nobel laureate and Columbia University professor Joseph Stiglitz saying that a reduction in government spending is more harmful to the economy in the short run than an increase in taxes. What they fail to note (but Stiglitz emphasizes) is the balanced-budget trade-off that puts policy-makers in a situation that is ultimately harmful to the economy.
“It is worth emphasizing,” Stiglitz writes, “that any state spending reductions or tax increases are counterproductive at this time: they restrain the economy at time when it is already slowing.”
So, let’s be honest: The debate over tax increases or spending cuts is not about improving the state’s economy. The choice is not between “good and bad” or “better and worse”; the choice is between “bad and worse.”
Stinson’s model does not make value judgments about how the loss of specific job types affects the state economy. Nor does it consider the value of freeing unproductive resources for other uses, nor does it provide any criteria for making those judgments. Those are among the political and policy questions that must be addressed on a case-by-case basis, which won’t happen while the Legislative Advisory Committee remains intent on misusing data to beat up the governor.
The legislative end game is neither “stupid” DFL tax increases nor “evil” GOP spending cuts (nor some really stupid and evil “bipartisan” combination); the end game is enabling Minnesota to be a competitive player in the global competition for the capital that creates productive jobs in the private sector. To correct that problem requires reform of the tax system and a redefinition of the role of government, and that won’t happen if the Legislative Advisory Council stubbornly continues turning data points into talking points, which makes for provocative newspaper headlines but precious little progress.
Craig Westover is a contributing columnist to the Pioneer Press Opinion Page, a senior policy fellow at the Minnesota Free Market Institute (mnfmi.org) and a member of the Republican Party Liberty Caucus. His e-mail address is westover4@yahoo.com.
This commentary originally appeared in the St. Paul Pioneer Press July 15, 2009.
Posted in Blog Posts, Commentaries, Craig Westover, Tax Policy | 1 Comment »