Civitas Review Online

The Heritage Foundation’s Brian Riedl has this lengthy summary of President Obama’s budget in the Wall Street Journal. An excerpt:

When he released his new budget proposal on February 1, President Barack Obama asserted that the government “simply cannot continue to spend as if deficits don’t have consequences; as if waste doesn’t matter; as if the hard-earned tax dollars of the American people can be treated like Monopoly money; as if we can ignore this challenge for another generation.”

Yet the President’s new budget does exactly that– raising taxes by $3 trillion and federal spending by $1.6 trillion over the next ten years. If enacted, this budget would increase the 2010 deficit to more than $1.5 trillion, and leave a deficit of more than $1 trillion even after an assumed return to peace and prosperity. Overall, the President’s budget would double the national debt over the next decade.

Runaway debt, massive deficits, job-killing tax hikes. Oh the joys of Hope and Change.

Gov. Perdue today announced that North Carolina state employees  won’t be getting a pay raise in this summer’s budget.  Perdue did, however, mention the  possibility of paying back the unpaid two-day furlough from last year; but that remains in doubt.

Perdue’s administration writes the first draft of the state budget every year, and lawmakers then make substantial changes before passing it. In this case, though, legislative leaders already agreed with Perdue on forgoing raises. They expressed caution about paying back the $65 million to $70 million in furlough money.

“It depends on the economy,” said Rep. Mickey Michaux, a Durham Democrat and senior budget committee chairman. “I would gladly consider it, but that’ll be tempered by what [revenue] we’re bringing in.”

The governor did not comment on whether any state workers will lose their jobs this year, an issue on which they had conflicting messages recently.

The Washington D.C. based Tax Foundation released this report critiquing the “Amazon Tax,” a tax North Carolina enacted as part of the state budget last summer. Some highlights:

Sponsors have promised that a revenue windfall would follow enactment of an Amazon tax, but no windfalls have been forthcoming so far. This is often because online companies respond to Amazon tax law enactments by ending their affiliate programs.

….

Similarly, legislative officials estimated that North Carolina’s Amazon tax would raise $13 million in its first year of operation, but the termination of affiliate programs in the state makes this unlikely. Revenue officials have stated that they are not tracking Amazon tax revenues.

North Carolina lawmakers saw the Amazon tax as another revenue stream to help bail them out of a massive budget deficit last summer. It appears those funds won’t materialize. North Carolina’s current fiscal year revenue is already below projections, and may likely fall even further behind as the year unfolds. Additional layoffs and unpaid furloughs for state employees and teachers may well be on the horizon in order for the state to pay its bills. This dire situation can be blamed, in part, on legislators’ misguided belief that the Amazon tax would bring in millions in tax revenue. They can’t claim that they weren’t warned.

On a somewhat related note to Civitas being mentioned on Fox News, last night Hannity began a series examining wasteful stimulus projects from around the country. The first installment highlighted a grant awarded to Michigan State University to help preserve their bug collection. Hmmm, that sounds familiar. Oh yeah, its the same as this item from the Civitas Institute’s “Top 10 Worst Federal Stimulus Projects in North Carolina”

9. Preservation of an insect collection at North Carolina State: $253,123

This raises the question: Just how many bug collections received stimulus money, and how much?

Today’s Drudge Report links to a McClatchy News article discussing my recent article on “The 10 Worst Federal Stimulus Projects in North Carolina.”

The radical left’s favorite partisan hackonomist, Paul Krugman of the NY Times, had some rather “bizarre” comments about unemployment benefits, as called out in the Wall Street Journal. When discussing the notion that extending unemployment benefits incentivize extended joblessness, Krugman declared:

Today, Democrats and Republicans live in different universes, both intellectually and morally.

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment.

….

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.

But what “textbook” is Krugman referring to? As the WSJ notes:

What does textbook economics have to say about this question? Here is a passage from a textbook called “Macroeconomics“:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

So it turns out that what Krugman calls Sen. Kyl’s “bizarre point of view” is, in fact, textbook economics. The authors of that textbook are Paul Krugman and Robin Wells. Miss Wells is also known as Mrs. Paul Krugman.

Oops.

Following up on a recent post, economist Robert Higgs delves even deeper into the numbers regarding the current recession. As he explains:

Personal income includes the various “factor returns”―wages, salaries, rents, interest, dividends, and proprietors’ income―plus transfer payments that individuals receive from the government. All of these items together constitute the income available to individuals for use in purchasing consumption goods, paying taxes, and saving. Personal income is much superior to GDP as a measure whose variations tell us something about changes in people’s economic well-being as the economy ebbs and flows.

Examining how the components of personal income have changed, however, we see that the recovery so far has been somewhat ambiguous, even apart from its “joblessness.” For example, private wages and salaries, which peaked in the third quarter of 2008 at $5,419 billion and then fell during the next three quarters to $5,129 billion, or by 5.4 percent, regained only a small fraction of their loss and ended the year at an annual rate of $5,179 billion, still 4.4 percent below their previous quarterly peak. It seems unlikely that the current shortfall will be eliminated within the next two years, even if the economy continues to recover steadily. Absent a turnaround in private employment, the prospects for a return to the previous high rate of wage and salary payments seem even less encouraging.

While private wage and salary income was falling, the disbursement of government wages and salaries was ascending. Between the fourth quarter of 2007 and the fourth quarter of 2009, such government payments (at an annual rate) increased from $1,106 billion to $1,189 billion, or by 7.5 percent in just two years.

Anybody surprised that government workers have been benefiting at everyone else’s expense? Higgs continues:

Another such troubling sign has to do with the flow of government transfer payments to individuals, which have increased greatly since the recession’s onset. In the fourth quarter of 2007, they were running at an annual rate of $1,721 billion; by the fourth quarter of 2009, they had reached $2,130, having risen by an astounding 24 percent in just two years. Of course, unemployment insurance payments (a subset of all government transfer payments to individuals) ballooned even faster, increasing from an annual rate of $34 billion in the fourth quarter of 2007 to $127 billion in the fourth quarter of 2009, or by 274 percent. In 2007 as a whole, total government transfers to individuals amounted to 14.2 percent of personal income; late in 2009, they constituted 17.5 percent.

To sum, transfer payments such as food stamps and unemployment benefits were up a whopping 24% in two years, and grew from 14.2% of personal income to 17.5%

As I noted last month, the radical far-left statists at NC Policy Watch had this to say about government transfer payments:

…money spent on food stamps or unemployment directly stimulates the economy because people almost always spend it. That helps create jobs.

I’ll ask again, if food stamps and unemployment benefits create jobs, and such transfer payments are up dramatically in the last two years – where are those jobs?

Bill Lumaye had me on 680 WPTF yesterday afternoon to discuss “The 10 Worst Federal Stimulus Projects in North Carolina.”

To listen to the segment, clicke here.

The North Carolina General Assembly’s Fiscal Research Division this week released its 2010 Economic Development Inventory.

The report itemizes state government’s “economic development spending,” which includes appropriations, tax credits, deductions and preferential tax treatment targeted to a particular business or industry. The report delineates between “direct incentives” and “support programs.” Direct incentives provide funds or relief directly to a company or to a local government designated for a specific company, while support programs are those that provide support for businesses considering locating or expanding in N.C.

The report finds a total economic development spending of $1.2 billion in FY 2008-09. Of that total, 95%, or $1.16 billion, is for direct incentives. By comparison, state corporate tax revenue for FY 2008-09 totaled $835.5 million.

In short, if the state ended their targeted handout and tax credit corporate welfare schemes, the added revenue would be enough to offset an elimination of the state corporate tax. Or it could offset a significant reduction in North Carolina’s high “small business tax.”

The policy of high tax rates for most with handouts and tax breaks for some makes for bad economics and an unfair treatment of similar businesses. The Economic Development Inventory is a prime example of how politicized our economy has become.

This N&O article predicts another difficult budgetary process on tap for this summer. State budget writers will once again struggle to balance the budget as revenue will continue at a slow pace as North Carolina remains mired in recession and strapped with high unemployment.

A few comments in the article deserve a little scrutiny to better provide context for the situation in which the state finds itself.

Bottom line: Legislators will have a hard time finding the money to keep state government going even at the reduced level mandated in the current fiscal year’s budget – because the money just isn’t there.

But the needs are. They don’t go away in a recession, and in many ways they have intensified.

….

For the legislature and for state employees, then, a relentless drive for greater efficiency, which includes Perdue’s pledge to “shed services that are not core to our mission,” is the only logical and reasonably humane route to balancing the budget

Sounds sensible, but the current recession was preceded by five or six years in which state coffers were swelling with money. What “needs” and “core services” did lawmakers devote our money to during that time? They certainly didn’t set aside much for a rainy day. In spite of more than $3.4 billion in surplus revenue being available during 2004-5 thru 2008-9, the state’s rainy day fund stood at only $787 million as we entered last summer’s budget process.

A look at the major spending trends during those flush years is revealing.  Spending on the UNC system ballooned 50% in just five years, during a time that enrollment increased only 17.6%. And that is just operating expenses and doesn’t count the unprecedented debt-financed spending binge the state embarked upon for new buildings in the UNC system. From 2003-4 thru 2008-9, the state authorized $3.2 billion in new debt (none of it approved by taxpayers, BTW), with most of it going toward capital projects on UNC campuses.

Similarly, enrollment in North Carolina’s community colleges rose 19%, but funding for their operations shot up by 42%.

Anybody think these trends were a result of the state simply maintaining “core services” in those systems?

Furthermore, the N&O article says that “needs” such as Medicaid are deeper during a recession. On that logic, one would assume that such needs would be lessened during good economic times. From 2003 to 2008, unemployment in North Carolina remained under 7%- compared to the 11% current rate. During those times of relatively low unemployment, however, state spending on Medicaid/Health Choice leaped by 40%. If demand for “needs” such as Medicaid are supposed to be light during good economic times, why the rapid increase in spending?

Fact is, the state finds itself in yet another massive budget deficit because of its short-sighted, irresponsible spending habits. And the trend is nothing new.

Will NC lawmakers learn from this experience, and take a more responsible approach to budgeting when (if) the economy recovers and revenue once again starts flowing?