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David
G. Tuerck
April
1997
The
Massachusetts House is scheduled to begin debate this week
on a record-setting $18.3 billion budget for fiscal 1998.
The budget as drafted by the Massachusetts House Ways and
Means Committee represents an increase of about $500 million
more than current expenditures and about $55 million more
than Governor William F. Weld recommended.
State
spending has grown by 34% since the depths of the 1990 recession.
Even with this explosion in spending, the state has run a
budget surplus every year since FY92. The result has been
the accumulation of some $543 million in the state's rainy
day fund.
With
these rosy statistics in mind, Weld recommended the adoption
of seven tax cuts that would have "cost" the state
about $82 million or less than 1/2 of 1 percent of budgeted
expenditures. These include a reduction of the 12% tax on
unearned income, an increase in the dependent tax deduction
from $600 to $1,600 and the elimination of the telecommunications
tax.
While
adoption of so modest a set of tax cuts would seem to be a
no-brainer for even the most fervent big-government legislator,
House Ways and Means leaders turned down all seven. Adorning
itself in the cloak of fiscal responsibility, the committee
solemnly warned against "ambitious new tax cuts."
Resisting the "politically desirable," it postponed
further tax cuts for an assessment of our "long-term
capacity" to afford them.
So
it's, "Read my lips. No new tax cuts." The ostensible
purpose is to guard against federal aid cuts and any future
Dukakis-like budget deficits. The more likely purpose is to
make sure that there is enough money to fund education reform
and other politically sensitive spending projects.
A
few weeks ago the governor agreed to raise the cap on the
rainy day fund. This means that the state's surplus must grow
to $870 million instead of $543 million before taxpayers get
an automatic tax break. Taxpayers have received only one automatic
tax cut since 1986. Under the new cap, it's unlikely they'll
see one again.
Building up the rainy day fund sounds like fiscal prudence.
It sounds like what sensible households do when they plan
for unexpected expenses like a leaky roof, a blown transmission
or a new refrigerator.
The
analogy is misleading, however. While government is subject
to the same fiscal ups and downs as the ordinary household,
it has one advantage: It can spend more by simply raising
taxes.
The
invocations of fiscal prudence now being heard amount to a
transparent attempt to make hay while the fiscal sun shines.
The real agenda is to guarantee enough future tax money now
to make sure that the state can continue to feed its spending
habits even in the face of predictable declines in tax revenue
and federal reimbursements.
The
committee wants to predicate further tax cuts on an assessment
of our capacity to afford them. While taxpayers await that
happy day, they might want to ask where these born-again guardians
of fiscal prudence were over the last seven fat years of government
expansion.
From
1991 to 1996, state spending grew at an average annual rate
of 4.3%. The growth of the Boston consumer price index over
the corresponding period was 2.4%.
What,
we might ask, did the additional growth in state spending
accomplish? The 1993 education reform act will eventually
add $1.7 billion a year to state spending. Have schools improved?
The data say no. State assistance to the poor has grown by
75% since 1988. Has the poverty rate gone down? The data say
no. Do we have a new convention center or football stadium?
Are we safe from future highway and bridge toll increases?
In
view of the apparent disconnection between the growth of spending
and the improvement of government services, let's consider
what might have happened if our state leaders had discovered
fiscal prudence earlier. Suppose the state had limited the
growth of spending since 1991 to 3% per year instead of 4.3%,
enough to cover inflation and to allow for some "real"
growth as well. How much in additional funds would now be
available to tide us over future rainy days, if the tax dollars
thus saved had been added to the rainy day fund rather than
spent?
The
answer is $3.5 billion. That's more than the accumulated deficits
of the recession years 1988-1990. Had the Legislature applied
the same principles of fiscal prudence to spending then as
it presumes to apply to taxpayers now, it could "afford"
to offer tax breaks that would make $82 million look like
small change.
The
rejection of the Governor's tax cuts is not about fiscal prudence.
It is about making sure that the legislature is able to honor
spending commitments that were easy to make when tax revenues
were growing by leaps and bounds. With the fiscal belt tightening,
it is the state's capacity to honor those commitments that
should be questioned, not its capacity to offer a few tiny
tax cuts.
This
opinion editorial first appeared in The Boston Sunday
Herald on April 13, 1997.
Format
revised on 18 August, 2004
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