The Last War: Higher Taxes Is Not What States Need
We have all heard many times discussions of how generals always prepare to fight the last war. They build a Siegfried Line when they should be preparing for a blitzkrieg. They build giant tanks to cruise the Russian steppes that can't even turn around in Afghanistan.
Now we can turn a military cliche into political metaphor.
If you want to see a classic example of the last battalion of the last army fighting the last battle of the last war, you need look no further than the Illinois legislature. In the face of the painfully obvious need for governments at all levels to reduce expenditures, Illinois has boldly taken the opposite course. It has raised taxes.
At the urging of Democratic Gov. Pat Quinn, and it did not require much urging, the lame duck Democratic legislature increased both personal and business income taxes by approximately two-thirds. This was accomplished in the final hours of the legislative session before newly elected Republicans could put a stop to it. The tax increases are supposed to be temporary. Time will tell.
Meanwhile, it did not take the governors of Wisconsin, Illinois and Iowa very long to invite Illinois businesses to drop by for a chat. Quinn insists that Illinois businessmen are too smart to pull out just because of a tax increase. He says that a well-funded government providing consistent and reliable services is more important to them.
Illinois is gambling that a fat bureaucracy can keep its constituents happy, even at an increased cost. In an editorial last Sunday, The New York Times unsurprisingly agreed. It opined that the states, and presumably the federal government as well, have failed, not in overextending services and failing to be efficient, but in failing to raise taxes enough to pay for those policies.
Other states have taken a different position.
Led by Republican Gov. Christie of New Jersey, even such stalwart blue state Democrats as Gov. Cuomo of New York and Gov. Brown of California are proposing radical budget cuts to their Democratic legislatures. Results are not in, but the mere suggestion would have been unthinkable a couple of years ago. Gov. Christie is even going to Illinois to recruit businesses.
As we all know, something has to give, and most bets are on government budgets rather than taxpayers. Either way, this situation is going to make any kind of robust economic recovery problematic.
Meredith Whitney, one of the brighter analytical lights on Wall Street, projects that a million public sector jobs will be lost this year. If she is even half right, that will place a tremendous drag on the employment picture as well as unemployment benefits. The private sector is barely holding its own now; what will happen when hundreds of thousands of newly unemployed government workers hit the market?
The reverse doesn't work well either. If taxes are increased enough to keep those people working, it will limit the consumer spending on which our economy depends. We have put ourselves in a situation that only time and economic pain will resolve.
It's a favorite argument of small-government advocates that the states should be laboratories of government. They should experiment with different solutions to similar problems, thereby discovering the most effective policies to bring to bear. We're about to see how well that works. Between the different approaches to budget deficits, the collective lawsuits opposing the health care bill, the geographical divergences of boom and bust, we're going to see a lot of things tried very soon.
We should all be grateful to Illinois legislators, I suppose, for giving higher taxes the good old college try one more time. My guess is that they will provide definitive proof of that policy's outcome. It just won't be what they expect.
That was the last war.
Fred Wolferman lives in Southern Pines. Contact him by e-mail at firstname.lastname@example.org.
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