Wednesday, January 31, 2018

Now the Real Work Begins

Two sources have confirmed that the Revenue Committee has killed all the tax proposals in the Taxmageddon package. 

This is a victory for all of us. This is a big victory. We should all thank the members of the Revenue Committee for this. 

And tonight we should celebrate. 

Then, tomorrow, the real work begins.

Remember: the state government's budget problems have not gone away just because the Revenue Committee has come to its senses. The budget deficit is still on a trajectory to exceed half-a-billion dollars per fiscal year. The state government's structural over-spending is still very much in place. All that this has bought us is the opportunity to change the conversation. 

Before we get to what that means, let me also mention that there will be individually sponsored bills for tax increases during the session. My bet is on Representative Madden, last year's most prolific tax hiker. I also hear that someone will propose an individual income tax.

It is not very likely that any of those tax bills will make it anywhere. Regardless, it is always good to be vigilant.

Now, though, as mentioned, our job begins for real. The defeat of the Taxmageddon package opens a window for an entirely new conversation. Our legislators, having done the right thing, now need our support in providing alternatives to tax hikes. 

To be blunt, and brutally honest: this agenda will be all about spending cuts. The only thing harder for a legislator than to say no to new taxes, is to say yes to spending cuts. Frankly, this goes for all sorts of candidates for office, including the executive branch. So far, we have not heard anything tangible from declared or likely gubernatorial candidates about where they stand on spending reform. This is understandable - the topic is new to them - but this is the time for them to step up. 

I have written extensively about spending reforms, and that is what we are going to focus on from hereon. For now, let me repeat the basic principles for such reforms, the principles that must guide all reform ideas:

1. Don't leave the poor behind. The absolutely most important principle is that any spending reform that we do, must give the most vulnerable among us a path to a better life. Anything else is immoral. The welfare state - which is really what we are talking about here - thrives on making promises to people who are struggling financially. Once they are roped in and become dependent on what government provides them with, they are completely in the hands of an over-promising welfare state. When that welfare state starts defaulting on its promises, the poor and vulnerable are the first to suffer.

This principle applies across the board of entitlement-based government spending. That includes K-12 spending. When government starts cutting funding for schools, growing class sizes, eroding quality of education and making the entire school experience more stressful, people with high incomes can always send their kids to private schools. Without a school-choice model, the lower you are on the income ladder, the more likely your kids are to be stuck in failing schools. 

Without going into the details of school choice, let us keep in mind that while we have good schools today, tomorrow's schools will be worse if we do not do the right kinds of reforms. That, again, is where the first principle of spending reform kicks in: give everyone, including the poor, a path out of government dependency.

2. Reforms must be permanent. Our budget problem is permanent. During the heydays of the 2000s and early '10s, our legislature expanded spending to the point where we could barely pay for it when the economy was in high gear. It did not take much of a downturn to knock the state budget into deficit; the big downturn in 2015-2017 blew a big hole in it. That hole remains, and will remain even as the economy ticks up again; our state economy is in a new, lower-level of macroeconomic stability, which means tax revenues are at a permanently lower level.

To match this lower revenue level, we need a permanently smaller government. This means that we need to terminate some spending commitments and give responsibilities back to the private sector. With a permanently smaller government, we the taxpayers will be in a better position to secure sustainable funding for the essential functions of government. 

Which brings us to the third point:

3. Prioritize. A good friend once said: "God could not be everywhere, so He invented government." The problem is that too many legislators, over too many years, have taken this too seriously. Government neither can nor should do try to do everything. Most of what government does, can be better handled by the private sector. There are essential functions where government has an advantage: the protection of life, liberty and property; and the provision of infrastructure. In a world of political pluralism, there will also be a list of functions where a sizable portion of people will always see a role for government. This includes K-12 education and some forms of health care. 

Regardless of where exactly we draw the boundaries for government, the key point is that the type of permanent spending cuts needed ot permanently reduce the size of government, should be executed outside of the government core. Protection of life, liberty and property should always come first. 

In the functions that are semi-essential, such as education and some forms of health care, we can, should and must make permanent spending reforms, but they will be heavily guided by the first principle above.

4. Don't punt. It was legislative inertia that got us to where we are today. No more. To get the right kind of reforms done - and done right - our lawmakers now need to move with determination and long-term commitment. 

There is another side to the "don't punt" point. By killing Taxmageddon, the Revenue Committee has given our state some breathing room to refocus and take on a new reform agenda. If we sit and do nothing (for example because there is an election in November) that breathing room will go away. The improvement in the Wyoming economy will somewhat improve tax revenue this year, and possibly spill over into 2019. However, this improvement will be nowhere near what is needed to close the budget deficit. All we will get is a little bit more time before our state's deficit spins out of control and forces us into the austerity corner. 

In short: if we do nothing this year, we are going to be back right here again, a year from now. By contrast, by starting the conversation now about spending reforms, our legislators will make good use of the extra time that the recovery will buy us. It would be even better if our gubernatorial candidates could chime in.

In the coming days I will turn to actual spending reforms and discuss them in the context of these four principles. 

Again: today we celebrate; tomorrow, the real work begins. 

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