We Need Axes, Not Taxes

January 17th, 2003 by Leave a Comment

By Kelly McCutchen

Governor Sonny Perdue gave his first Budget Address this week. It is a speech that no governor likes to give, and one he certainly hopes not to give again.

The new administration barely had time to clean up the confetti after its historic victory party in November before finding themselves in the middle of an historic budget crisis. The news was bad. For the first time in 50 years, state revenue collections were less than the previous year – easily the worst budget crisis in the modern era.

In his budget address, the governor outlined a plan of budget cuts in some areas, tapping a portion of the state’s “rainy day fund” and a package of fee and tax increases totaling more than $500 million. The governor closed his address by stating that he would be open for suggestions for alternative solutions to our fiscal crisis. Several ideas come to mind.

The first suggestion is to consider drawing down the “rainy day fund”. The current budget plan uses $280 million from the reserve fund, but doesn’t touch the remaining $420 million. Leaving just $100 million in reserve would provide a hedge against lower revenues in fiscal year 2005 while dramatically lowering the current revenue gap. Existing state law makes it difficult to accomplish this, but it should be done or the law should be amended.

Greater use of the reserve fund buys us time to implement more long-term spending reductions and prevents or delays tax increases. The reserve fund was created to fund critical programs and prevent tax increases during economic downturns. If we don’t plan to fully utilize these funds in a budget crisis, we may as well give this money back to the taxpayers in the future.

The second suggestion is to take another look at spending reductions. Our current financial situation is caused by over spending, not under taxing. By creating a pro-business, growing economy, tax revenues over the last decade grew as if they were on steroids. Although we reduced taxes nearly every year, it was not enough. Even after accounting for all tax cuts, non-lottery spending over the last ten years grew faster than inflation and the state’s population increase combined – resulting in excess spending of more than $2 billion.

The governor made a valiant effort to hold spending at near zero growth, but there is only so much you can do in a few weeks to impact a problem that has been developing for more than a decade. Significant reductions are possible by restructuring state government, but will take several years to implement. Assuming additional revenue can be used from the reserve fund, the challenge is to identify immediate spending cuts to reduce the budget by another one or two percent.

It’s time to ask some tough questions. For instance, why is education spending, representing more than half of the state budget, such a sacred cow? Can we not identify waste and increase efficiencies without impacting classroom spending? We could start by looking at the numerous administrative jobs at all levels of education, including the University System. Technology can also dramatically reduce costs, particularly in the area of collecting and disseminating critical education data.

Why don’t we consider tolls, where practical, to pay for much needed additional highway capacity across the state? This would both speed up construction and free up gas tax revenues for other projects. Why don’t we consider outsourcing or privatizing more government services? Why don’t we consider using county work camps or other alternatives for non-violent inmates in expensive state prisons? Why don’t we consider scaling back corporate welfare programs such as the state job tax credit that does little for the small businesses in the state that generate the great majority of jobs? Are there no “non-essential” state employees or duplicated services?

The third suggestion is – you guessed it – avoid raising taxes. Raising taxes during an economic downturn, when thousands of citizens are being laid off, could prove to be counterproductive. A tax is a tax is a tax. Even if you are taxing the voluntary purchase of products like alcohol and tobacco, that money must come from somewhere.

These millions of dollars of additional taxes represent money that would have been otherwise spent in our communities and businesses by the people who buy these products. Increased property taxes will impact nearly everyone’s personal budget. You cannot take half of a billion dollars out of the state economy and fail to see an impact. Tax increases hurt people. Jobs will not be created. Jobs will be lost.

Georgia has a spending problem, not a taxing problem. The governor’s budget is a good starting point. He has made a case for funding certain priorities and has asked for help in identifying ways to avoid tax increases. Working together, the governor, the legislature and other interested parties should certainly be able to identify more short-term spending reductions. Georgia should use this downturn in the economy as an opportunity to make government work better for its citizens and at less cost for its taxpayers.

Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (January 17, 2003). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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