Budget Woes: Using the Wrong End of the Stick

There are a variety of explanations to the term “wrong end of the stick.” Some say it originated with holding the small end of a walking stick rendering its purpose virtually useless. Others suggest that it refers to an uncomfortable period of time when one used a stick in an outhouse to wipe one’s nether regions and that if you placed the stick upside down the next person would grab the wrong end of the stick. For me it meant the first time as a small child I picked up a baseball bat by the fat end thus rendering it useless.

Regardless of its origins it is an apt expression of governments approach to growing budget deficits.

According to The Oregonian Oregon Gov. Kate Brown (DLP) – Democrat/Liberal/Progressive – at a recent meeting of the Oregon Leadership Summit* discussed the current financial difficulties for Oregon state government:

“Gov. Kate Brown on Monday again called for state leaders to find a long-term solution for Oregon’s budget problems.
“During a Q&A session in front of a ballroom full of executives and lobbyists, the Democrat said Oregon has a “structural budget deficit” that she expects will continue for years. This year, lawmakers entered the legislative session with an estimated $1.4 billion budget shortfall, which they eventually managed to close.
“Oregon’s state government must pass a balanced budget every two years. Problems have arisen because although revenue continues to grow, expenses have outpaced the gains. Brown said she wants to find solutions for future rounds of budget negotiations.
“Though she did not specifically call for state lawmakers to pass new or higher taxes, Brown said she hopes to identify policies that will stabilize revenues for “the long haul.” Last year, Brown endorsed the ill-fated Measure 97, which would have increased business taxes by an estimated $6 billion each two-year budget cycle. Voters soundly rejected the measure.
“’It is time that we quit kicking this can down the road,” Brown said at the Oregon Leadership Summit, in Portland. She said she’s asked her staff to put together a list with ‘a handful of options.’”

Bold talk from a tax and spend Liberal/Progressive – but trust me, she and her financial backers in the public employee unions are not the slightest bit of interested in budget constraints. When they are talking about “long term solutions” they mean permanent tax increases on the job creators in Oregon. Ms. Brown’s comments are comparable to House Minority Leader Nancy Pelosi (D-CA) who bemoaned the proposed tax reductions as ruinous leaving the Democrats nothing to do but raise taxes.

At the same time the Republicans in the United States Senate are grabbling with what they have laughingly described as a tax reform and middle class tax reduction – it is neither. First, let’s remember that only fifty percent of those filing tax returns actually pay income taxes. Add to that those who have no income because of health, age, disability or choice, or are a part of the “underground economy” – dope dealers, prostitutes, human traffickers, etc, and you readily conclude less than half of America is paying for the whole of government spending.

On average those making less than $50,000 pay little or no income taxes. Those in the middle – earning up to $250,000 – see minor reduction in the tax rates. While the standard deduction is doubled, the individual tax exemptions are eliminated virtually offsetting the increase in the standard deduction for those having more than 1.5 children.

While Subchapter C corporations receive a significant tax reduction to 20%, mainstreet business using alternative organizational structures (Subchapter S, limited liability partnerships and corporations, etc.) receive only a minor adjustment to income in calculating taxable income. Worse yet the tax reduction for C corporations is made permanent while the adjustments for alternative business structures are only temporary and will expire in 10 years. The same is true for individual tax rate reductions that will also expire in 10 years,

But that is only the tip of the spear. Last minute amendments made by the Senate were designed to “free up” money in order to reinstate tax favors for special interests. Then there is the huge amount of hand wringing by Sen. Bob Corker (R-TN) and the Democrats piously bemoaning an increase in the national debt. Their solution of course is to lessen or eliminate the proposed tax reductions.

Neil Cavuto on FoxNews has repeatedly noted that all of this concern about the tax cuts burdening the national debt by nearly a trillion dollars over ten years misses the point of excessive spending currently projected to add nearly $9 Trillion over the same ten years. And here is the rub.

The trillion dollar addition to the national debt is calculated by the non-partisan, but highly biased Congressional Budget Office (CBO). Their calculation is based on straight line economic growth with no regard to the stimulus effect of the tax cuts (static scoring). Consideration of the stimulus effects is known as “dynamic scoring” and demonstrates that the tax reduction will actually lower the deficit. However, the calculation also uses the “continuing service level” (CSL) assumption for expenditures. The CSL assumes that every government program will continue increased annually by factors including inflation, employee growth and beneficiary growth without regard to whether each program should continue at all. The adjustment factors always result in growth in excess of inflation and generally growth in excess of revenue. (Note similar comment in the Oregonian article referenced above.) History has taught us that the growth in government spending is a drag on the economy.

So in the end, the geniuses that run our governments – both on the state and the federal levels – ignore the stimulus effects of tax cuts while ignoring the repression effects of increased government spending. Budgeting out of ignorance. Why are we not surprised?

And yet there is a laundry list of things that the Oregon Democrats and the Congressional Republicans and Democrats alike can to. On a state level, reduce the ongoing cost of PERS by reducing benefits, recoup the losses from an inept implementation of the hated Obamacare (Cover Oregon), slash ten percent of the workforce other than public safety workers, and eliminate subsidies for alternative energy sources. At the federal level implement workfare instead of welfare by denying benefits to any person capable of working, tighten examination of “disabilities” paid for under the Social Security system (Title II of the Social Security Act) and restrict benefits to members of Congress unless they have served at least fifteen years. With the exception of Social Security for the elderly and military defense there is not a budget that cannot be reduced by 10 percent and still maintain the current level of service through better management practices. It is true in large businesses and it is equally true in government.