Fiscal Conservatism, the Kicker, and Oregon

“All hail the kicker. It has no basis in logic, fairness or sound long-term economic strategy, but it does one hell of a job turning the house lights up on the state’s theatre of the absurd.”
– Steve Duin (Tuesday, June 6, 2006)

I’ve never understand why the Oregonian, it’s columnists and it’s editorial section fail to understand where Oregon’s fiscal conservatism comes from.

Continually there seems to be a criticism of any ballot measure, policy, or person that seeks to either constrain the spending of our state or return unspent tax monies to the voters. Usually, as above, the criticsim revolves around a perceived lack of reason or failed logic to why a reduction in government money is something that benefit Oregonians.

The above quote from Steve Duin does a great job showing a point of view which guides the tax policy coverage of the Oregonian. One that fails to understand why tax reform activists do what they do, voters vote how they vote, and why many political liberals in Oregon’s legislature and governor’s office don’t get the belief system of what it means to be fiscally conservative. This statement also shows the consistent bias of Oregon’s print media.

The logic of the kicker is simple.

Taxes are a social compact between tax payers and government to fulfill for necessary public services. (I’ll save the debate for what is necessary for another day as this is a whole other ball of political discourse). These taxes paid are projected and if the money budgeted for our state’s services is met the remaining excess is returned to the tax paying public.

The state asks for a budget, the Legislature passes this proposed budget and any excess is rightfully returned to those who provided it. Very similar to a business that is overpaid for a service and that is ethically obligated to refund the excess payment.

Thie kicker is a longstanding fiscal policy of Oregon’s Constitution. Originally provided for by a ballot measure, it was further evolved from a kicker tax deduction into an actual kicker tax-return in the form of cold hard cash. But right there, when the government starts handing back unspent money. Thats were the Oregonian can’t understand why. It is just beyond the paper’s ability to conceive that there would ever be such a thing as excess money in the state’s budget.

On the political spectrum there are two extreme ends as it relates to fiscal policy. Those that believe government can do no wrong (the fiscally liberal) and those that believe government can do no right (the fiscally libertarian). Liberals are those that believe no government expense can possibly be looked at as waste. Those exposed as bad apples squandering the public resource are just one more cost of an adequate government and therefore do not excuse a reduction in state spending (this being the service based budget approach currently applied by our state). And those on the libertarian side believe that there is no such thing as a good government program. The libertarian would argue that anything a public entity can do could the private sector can do it better for less (this usually being the perspective covered by the media when discussing tax related ballot measures).

Then there is a broad range in between – the fiscal middle ground. Most of which would identify itself as “fiscally conservative.” This fiscally conservative majority are those that pass ballot measure after ballot measure, vote down light-rail, and oppose stop-gap taxes. They are also the key to any tax reform package being proposed by any politician. Even more important regardless of their party affiliation they don’t trust government to spend their money as well as they do. (Hence they also connect any form of tax reform that isn’t an additional control on government expenditure to be a new tax – that’s why sales taxes fail every time in Oregon)

Many feel that if government fulfills it proposed budget it’s leaders should return the difference as the remaining revenues are owned by those who created this wealth. The level of service determined is where the debate rages.

On the left there is a call for “service based budgeting” which determines an assumed level of service based on a guaranteed amount of funding. If government can’t succeed, the argument goes, its solely the size of the budget that causes the failure or lack luster performance. This of course makes an easy argument always for more money. At any time every shortcoming of any program is directly linked to a need for more spending (and therefore an elimination of the “needless” kicker).

Contrast this with those on the right who desire to establish a “results based budget” which requires a certain level of service checked by a requirement that the voters become consulted before more money is budgeted. It assumes some basic economic principles such as all things being equal the cost of government should move lockstep in combination with the population served and cost of living inflation. In the middle of a biannum budget period the Legislature must ask for permission (or at least publicly fight) in order to raise the state’s budget (or an admitance that the state is out of money).

In the event that the kicker is taken back to fund government a public dialouge is immediately started as the public begins to ask why. As the argument goes, if government spending exceeds inflation then government is expanding its mission beyond the agreed social compact. In many circles those on the right accuse their government of holding basic services hostage in order to allow for above inflation mission creep of government’s scope.

This battle rages over a middle ground of fiscally conservative voters. Voters who want government to be frugal, spend only what it needs, and be responsible in returning the excess. The kicker is an invention devised to serve this middle ground as a constituency that seems fickle at the polls but is consistent when it comes to the fiscal policy of our state.

The kicker is fair and it makes sense as a tool to engage the public in the debate over how and where Oregon spends money. The fairness of the kicker is that Oregon recognizes that government is beholden to the people it is charged with representing. The long-term economic strategy is simple; voters have incentive to watch their government and government has a need to spend only what it requests as reasonable. Beyond this there is also the fact that without the kicker talk about a rainy-day fund would likely be just that – talk.

There is no problem facing Oregon that cannot be solved with more daylight, more public awareness, and more involvement. Without a clearly transparent government no reform will ever happen as confidence is to low in our executive and legislative branches. The kicker is one of the few tools that short-circuits any attempt to play shell games with the budget. It guarantees one form of transparency and that is an expectation that the Oregon’s economy should always grow faster than government’s immediate needs. When that doesn’t happen the voters begin to watch closer just as the legislature begins to nickle and dime the very voters denied their kicker. Like a flashing yellow caution light – thats what a denied kicker really becomes to the voting public.

So All Hail the Kicker! It’s logic, it’s fairness, and it’s long-term role serving Oregon and it does one hell of a great job turning a spot light on what our government does with its revenue.

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Posted by at 06:45 | Posted in Measure 37 | 12 Comments |Email This Post Email This Post |Print This Post Print This Post
  • I agree that a key benefit of the kicker is to shine a light on what government does with our money. For more on my view of the current kicker debate see:

    Don’t Kick the Kicker – part II

  • It is simple:

    To the left, government is religion (and yes, I was saying that before Ann Coulter’s book release). As such, giving back taxes is akin to reaching in to the donation jar: a sacrilige!

  • Bert

    I think you know that the logic issue has to do with fiscal strategy and stability. It would be politically unfeasible and counterproductive to ask for a tax increase in a recesssion. Likewise it is politically difficult to constrain spending during an upturn even with the kicker. Both constraint and stability could be achieved with a rainy day fund policy, with or without a change in the kicker policy.

  • steve schopp

    “It would be politically unfeasible and counterproductive to ask for a tax increase in a recesssion”

    The problem is in reality the left,and rino’s in this state demands tax increrases no matter what the economy is doing.

  • Bert

    OK I looked up what rino means … ha ha. I suppose rinos are the ones gettng elected, so a better name would be de facto republicans … competing with de facto democrats. Republicans and dems aren’t so different. Both face similar institutional constraints and incentives.

    The point, Steve, is to shape the institutional constraints and incentives so that political actors develop better policy. A rainy day fund with constraints seems reasonable to me and is justified by a quick read of just about any macro economics 101 textbook.

  • Bert-

    What Econ 101 textbook were you looking at. I never remember seeing a rainy-day fund in ever mentioned anywhere while pursueing my degree. I do remember alot about tax policy effecting economic growth (namely tax increases and targeted taxes creating perverse and unforseen reactions in the economy).

    I think you’ve got economics confused with political economy which is about the political influencing on the economy and policy decisions done to alter economic outcomes. This rainy day fund has little to do with the economy and alot to do with growing the state budget and pretending that its a savings account.

    The day that PERS is fixed by politicians and our unfunded medical liablity to retirees from the state is solved by politicians I will actually believe a rainy day fund could exist. Unitl that day I assume it is lip service and nothing more. The talk of a rainy day fund now, after the hard times have passed, is just an excuse to needlessly take the kicker away.

  • Anonymous

    OK, I pulled out my macro economics text book (McConnel and Brue) and you’re right that “rainly day fund” is not mentioned specifically. However, the “pro-cyclical” nature of state government spending is mentioned as problematic. This is explained to mean that in a recession states, because they have balanced budget provisions, have to reduce spending when faced with decreased income tax revenues. This is not ideal in a recession. In an upturn, states may and probably will increase spending. Such spending could be inflationary.

    So, the larger point is basic fiscal policy. Counter cyclical policy with both fiscal and monetary elements has been pretty effective at the national level. If we are devolving more governance responsability to states, then it makes sense for states to adopt stabilizing macro economic policy instruments.

    I prefer an explicit policy to debt through bonds.

    I can sympathize with your concerns about PERS. I guess I’d rather see explcit constraints built into the use of rainy day funds or policies that deal with PERS directly on the agenda.

  • Anon

    What your talking about is basic Keynsian principles. It also looks more to the federal government to deficit spend in recession and responsibly pay back the debt in the expansionary cycles. Usually a recession is a readjustment of what Alan Greenspan once referred to as “animal spirits” and is a good thing for the economy as bad ideas consolidate and assets get picked up by businesses that are more productive.

    Some of these assets are human beings with talents. Some of the readjustments are human beings who don’t produce enough to justify the wage they are making. This of course being the story usually covered by the media during a recession.

    Back to rainy day funds. Its something that exists in other states. It does not exist to influence or effect the economy but rather to help government avoid from needing to make tough decisions. Its a political tool not an economic tool.

    One state in particular with a rainy day fund that I have a lot of experience with is Alaska. Watching the debate rage over what the money should be spent on or whether more money should be invested has conivinced me that Oregon is incapable of such fiscal responsiblity.

    If we have a rainy day fund and even a hint of rainy day appears it will be prematurely looted by public employee unions and teachers unions. It will look exactly like PERS did – over extended in a nonsustainable way with plenty of backroom promises made and kept way outside of public view.

  • Bert

    Good discussion, though I still think a rainy day fund could play a similar fiscal policy role, and it would be good to “help government to avoid making tough decisions” by making adjustments non-discretionary and explicitly targeting funds.

    I don’t think we should let a recessions interrupt stable funding of K-12 education and services such as drug treatment or homeless shelters which are likely to be more necessary in a recession.

    I think we already have some models working at the state level. Isn’t it already done with unemployment insuranance, for example? That works with a trust fund of some sort. The rules for the use of UI funds are explicit and fairly strict.

  • I agree that a rainy day fund could play a role in stable funding of priorities but removing the kicker does the opposite of what a rainy day fund should do.

    Instead of planning for a savings as part of the state’s budget Kulongoski is proposing we gamble on a robust economy. It would be one thing if he was proposing this $1 billion surplus to start it off. Then also provide a dollar figure set asside every year for the next six so that we could build interest over a rainy day fund. Instead the governor is looking to couple an temporary elimination of the kicker with a spending proposal of increasing the pay of public employees.

    I also think the kicker serves a great purpose in focusing the public’s attention on state spending. Eliminating the kicker will do nothing but establish more government spending. The kicker also was created witha logical intent (curb government’s growth) and it does a good job of shining a spotlight on spending.

    The point of the post was to show where Duin and the Oregonian consistently failed to acknowledge where this was the real reason the Kicker exists.

  • mmmarvel

    Funding MORE government with money that they hadn’t budgeted for will get us to the same ‘hole’ that we found ourselves in when the last recession hit – it wasn’t THAT long ago, most of you SHOULD remember it. We had programs (an incredible number of really stupid programs in my opinion) which suddenly had to be cut or eliminated due to a severe reduction of income coming into the state. The more money the state gets, the more programs it feels it can fund with ever more people ‘eligible’ for the programs. When bad times hit, then boom, all these programs are “necessary” and we’re “throwing granny into the snowbank” because we can’t fund them. WRONG – keep government doing what it SHOULD do fight crime, keep us safe, help the infirmed and elderly and keep up the roads (not MAX).

    So, would the rainy day fund be an answer? Not just no, but hell no. If there were a rainy day fund then the next time the income tax decreased they would raid the rainy day fund to make sure that “board of red-haired-blue-eyed-left-handed-bunion removers” would be allowed to continue it’s existence. Government funds SO many truly STUPID committees, boards and programs that no rainy day fund would EVER be safe.

    Give me back my money and let’s get government back to doing what it’s suppose to do – it’s NOT doing it now.

  • Terry Piatt

    The kicker is actually very progressive and the left doesn’t get it.

    According to the Oregonian, a surge in capital gains and business profits created the surplus to be kicked back to taxpayers.

    I earn minimum wage and did not participate in the capital gains and business profits enjoyed by others. The kicker will cause some of these economic gains to trickle down to people like me in a way the economy has not otherwise delivered.

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