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Spending solution flawed

Originally published in the Frederick News-Post

Economic & Fiscal Policy

by Marta Hummel Mossburg

OP-EDS

JULY 14, 2010 Bookmark and Share

The dean of the University of California, Berkeley, School of Law last week called for states to borrow from the Treasury during recessions.

Christopher Edley Jr. wrote in The New York Times, "Congress should pass legislation that would allow a state to simply get an 'advance' on these future federal dollars expected from entitlement programs." He added, "The Treasury Department, which writes the checks to the states, could be assured of repayment (with interest) by simply cutting the federal matching rate by the needed amount over, say, five years."

If his proposal became law, each of us in Maryland and around the country would suffer bigger government and higher taxes in a never-ending, misguided quest to boost employment through state spending.

Edley reasons more spending would allow the states to keep stimulating the economy and speed recovery. But as the $787 billion American Recovery and Reinvestment Act showed, government can spend billions with little to show for it except bigger deficits. Nationally, private-sector employment has increased by about 600,000 this year through June. But the slow pace of hiring means it could take years to replace the 8 million jobs lost since the recession started in December 2007.

Maryland Public Policy Institute research associate John J. Walters found wildly conflicting numbers about jobs "created or saved" in Maryland when he compared state and national stimulus data and found the vast majority of money used went toward purchases, not new hires.

Besides, government does not have a revenue problem, it has a spending problem. As Bureau of Economic Analysis data show, state and local governments around the country collected 22 percent more in taxes in the first quarter of this year than they did just five years ago at the same time.

And government keeps growing despite an inability to pay for it. For the past decade government has grown faster than the private sector. According to Veronique de Rugy, research fellow at George Mason University's Mercatus Center, "The continued increase of government spending despite fluctuations in the private sector means that we should not bank on a future contraction in government spending to balance out our fiscal woes."

In Maryland, General Fund spending rose 7 percent from 2007 to 2010. During that time, General Fund revenue declined 3 percent, one of the main reasons for the deficits over recent years, according to an analysis of the budget by Delegate Steven Schuh, R-Anne Arundel. While revenue is estimated to increase in coming years, $1.5 billion-plus structural deficits persist over the next five years because state legislators refuse to adjust their spending to match the money collected by the state treasury.

If Maryland were allowed to spend even more to fill in gaps of its own making as proposed by Dean Edley, taxpayers would be in even bigger trouble than projections show. There is no guarantee Maryland legislators and the governor would take the opportunity to realign the budget with reality. They have no history of being up to the job.

In 2007 they relied on massive tax increases to solve the budget problem. But they only delayed the day of reckoning. After the election, look for higher taxes again to be the solution to bad choices compounded over decades in the General Assembly.

Marta Mossburg is a senior fellow at the Maryland Public Policy Institute. mmossburg@mdpolicy.org