Foster’s Daily Democrat

Foster’s Daily Democrat
Saturday, December 4, 2010
Scaling back too far can damage the whole
By Cathy Silber
Executive Director Granite State Fair Tax Coalition Concord

People like to compare the state or federal budget to a family’s budget, and base suggestions about what government should do on the habits of regular people. For example, Rep. Bill O’Brien, the likely next speaker of the N.H. House, plans to switch the order of New Hampshire’s budget process, looking first at revenues and then at spending, because this is what families do.
Is this what families do? Add up the amount of money they have and then figure out what to spend it on? In one sense, especially in our consumer economy, people do spend based on how much they have at their disposal. A lot of people do choose a bigger TV, more features on a cell phone, or a fancier house, just because they have the money to pay for it.
Or, all too often, even when they don’t. Personal debt is the norm: mortgage debt, car debt, credit card debt. Our economy runs not just on meeting our needs, but on the stoking and instant gratification of our desires. The way we understand our needs actually promotes
overspending and debt.
Perhaps the reason it’s easy to assume that governments spend recklessly is because so many people do. The American norm is not to spend only just as much as one needs to and no more, but to spend as much as one can afford to, or even more than that.
Yet to my mind, responsible family budgeting works more like this: add up the cost of basic needs—food, clothing, shelter, transportation, health care, education—and weigh the total against income. Some families will have something left over, some will break even, and some — more and more these days — won’t have enough.
People — and governments too- — have been known to save when they have extra, for college, for retirement, to fill a rainy-day fund, to end a recent decade with a surplus. Both people and governments are known to spend to the break-even point too, perhaps crossing an unexamined line between needs and wants, because the money was there.
But what does a family do when it doesn’t have enough? It re-examines every need, scales back as much as possible and keeps trying to bring in more money somehow.
This is where the comparison between regular people and governments gets interesting.
Individually, people can scale back a long way, depending on where they start, from eating out to eating in, from steak to hamburger, bologna to beans, three meals to two, to the food pantry, food stamps, the dumpster behind the supermarket. The health effects of moving from a four-bedroom home to a small apartment to a relative’s basement probably don’t start setting in until the move from the basement to the car, or the tent to the underpass.
Beyond the comforts of a warm bed and a full belly, all that individuals lose when they don’t have enough is the chance to reach their fullest potential, to make their fullest contribution to the world. People can survive quite a lot before it kills them.
But what about a state, a society? Is there a point in the scaling back at which damage to our whole becomes greater than the sum of harm to our parts? We already accept a certain level of harm to our parts — that’s not the main question here. It’s OK with us, for example, that certain children, veterans, neighbors are cold and hungry, that some people who get sick will suffer without care or die before their time, that it might take a state trooper an hour to respond to someone’s emergency, or a year or two for somebody’s court case to get resolved.
The question concerns the pillars of our society, the infrastructures of our economy, the foundations of our future. Somewhere, there is a point beyond which the scaling back incurs irreparable harm, harm beyond the human toll we’ve already agreed to accept. Have we reached it? Have we passed it? Would we know it if we saw it?
Is that point set at exactly the amount of revenue we generate in any given year, in good times or bad, whatever that amount may be?
A recent conference in Manchester, sponsored by the Concord Coalition and the Whittemore School at UNH, explored the conflicts between investment and consumption, between short term solutions and long-term sustainability. One of the panelists noted that conservatives believe that government should be a certain percentage of GDP, from which spending priorities follow, and that liberals believe that government should set its priorities first and then ensure sufficient revenue to pay for them. The panelist offered a third way, a simple test for determining the viability of government spending: is it an investment whose benefits exceed its costs?
A family without enough re-examines every need, scales back as much as possible and tries to bring in more money somehow. A family without enough will try to get another job before eating its seed corn or burning its furniture for fuel.
Individuals do act on impulse and governments can be reckless too. But not being able to make ends meet isn’t always the result of reckless spending. Cuts can be reckless too — of the nose to spite the face, for instance, or the legs right out from under you. When ideology is reckless, cuts become more about ax grinding than pruning for new growth. And just as sometimes it may be irresponsible not to take a second job to provide for one’s family, so too can it be irresponsible for a state not to raise sufficient revenue to meet its basic obligations. If not because we care about the bodies in the streets, then because it costs so much more in the long run to rely on them for a workforce, to stack them in prisons, or to shovel them away.
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1 thought on “Foster’s Daily Democrat

  1. Legislature shouldn’t ‘downshift’ tax burden

    Nashua Telegraph – 1/3/11
    The New Hampshire state budget is facing a shortfall for the next two years that’s estimated to be between $500 and $800 million. Everyone recognizes that balancing that budget will require spending cuts that will impose great hardship on thousands of residents. Yet Republicans nonetheless want to reduce or eliminate a host of taxes, which would require that even deeper cuts be made.
    The proposed cuts include reducing the business profits, rooms and meals and interest and dividend taxes. All are major sources of state revenue. Anyone tempted to cheer the reduction or elimination of state taxes should realize that the need for the services the tax revenue finances won’t go away. It will only be shifted, primarily to local and county governments, which means to property taxpayers.
    The tax cuts, proponents say, will make New Hampshire more “business friendly” – but will they really? The Tax Foundation, which compares tax policies and business climates, already ranks New Hampshire among the states most attractive to business. Theoretically, reducing tax rates would make it even more so, and reductions would make sense if a booming economy allowed the state to meet its responsibilities while taxing less. But that isn’t the case.
    The state’s transportation infrastructure is in poor shape. Its courts can only afford to remain open part time. Its mental health system is triaging clients. Measures to conserve land, protect the environment, reduce energy use and otherwise improve quality of life in New Hampshire are shrinking. None of that is good for business.
    New Hampshire property owners already pay the second highest property taxes in the nation, behind New Jersey. State tax cuts that shift costs to property owners and raise their taxes will make that situation worse. Home ownership will become even less affordable, and the return to a healthy real estate market slower. That’s not good for business.
    Downshifts to the property tax also make it more difficult for schools to produce the well-educated workforce that draws and retains employers. Downshifting costs from business to property owners also increases the inherent unfairness of New Hampshire’s tax system.
    In 2008, according to the Concord-based New Hampshire Fiscal Policy Institute, combined state and local taxes consumed 8.7 percent of a person’s wealth, more than two points less than the national average. That ranked the state 49th out of 50. Only South Dakotans paid a lower rate.
    That low tax burden certainly sounds good, but it’s only good for some people. The tax system is extremely regressive.
    People in the bottom 20 percent of the state’s income earners pay 8.3 percent of their income in state and local taxes, most of it through the property tax, whether directly or in higher rents, while people with incomes that place them in the top 1 percent pay just 2 percent.
    People with incomes in the top 10 percent of the income scale pay about 4 percent in state and local taxes and people in the middle income bracket 6.3 percent.
    Downshifting, which is what will occur if Republicans decide to tax business less and property owners more, will make the system more unfair and life even harder on the poor.

    – Concord Monitor

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