What 'stimulates' American commerce?

If Republicans can modify or delay the “stimulus” package, we might be in the midst of a debate over whether our economic woes can be overcome with government policies that encourage production or consumption. That is not likely for, as “post-partisan” President Barack Obama let slip, “We [meaning Democrats] won.” There has been a major divide between parties over this question at least since the Great Depression, and especially since President Reagan led a successful charge for cuts in income tax rates that gave rise to a 25-year boom.

The two opposing views are supply-side and demand-side political economy. The first holds that prosperity is driven by business enterprise, facilitated when income and other tax rates are low. The second maintains that the cause is consumers with spending power, boosted when federal spending “primes the pump” with new government programs.

Let us admit that supply and demand are as inseparable as the concave and convex sides of a curved line. No one can buy what is not for sale and nothing can be sold when there are no customers. But bearing in mind that commercial republics like the United States are vastly more prosperous than primitive societies largely dependent upon agriculture, we must consider that something accounts for the difference.

That “something” is the entrepreneur, who neither commands wealth nor depends upon the beneficence of others. Unlike landed aristocrats or powerful oligarchs, those in business for themselves provide a good or service which a sufficiently profitable number of people need or want, and freely choose.

The supply-side approach demonstrated its capacity for fostering national prosperity when Congress in 1981 reduced the highest income tax rate from 70 to 50 percent, and decreased the number of brackets from 14 to five. Double digit inflation, unemployment and interest rates all fell to lower levels.

In the early 1960s President Kennedy effectively made the case that the existing top tax rate of 91 percent on incomes of $200,000 yielded little revenue to the government because wealthy persons legally shielded their income in ways Congress had made possible with tax breaks.

Why is this? The explanation lies in a combination of human nature and mathematics. High tax rates are, to say the very least, burdensome. So if they can avoid it, people will find ways around them. If someone earns a million dollars and is taxed at 91 percent, that only theoretically (but not actually) nets the government $910,000 . For if he reduces his taxable income through various tax shelters to, say, $500,000, the government gets only $455,000. And even this is fanciful.

On other hand, if the income tax rates are lowered, the enterprising businessman is more likely to invest more and earn more on his money. If he then makes two million dollars under a more favorable tax regime, at 50 percent that yields a million dollars, or more than twice as much as he actually paid under the higher tax rate.

Thus, not only did this policy revive stagnant commerce, it yielded more revenue for the government than ever. Indeed, even substantial federal deficits each year during the Reagan years put no drag on our growing prosperity. We had high defense spending to face down the Soviet military threat along with increases in social welfare spending, but lowered tax rates kept commerce humming.

The demand side approach was first implemented in the administration of Franklin Roosevelt. Income tax rates, which already had risen in the previous administration, went even higher, causing the recession inherited from Herbert Hoover to expand into a Great Depression as the government added agencies and bureaus on an unprecedented scale.

Deflation and high unemployment plagued us during FDR’s first two terms, and only World War II’s demands for armaments and supplies turned the corner. Then, for the first time, income tax was withheld from pay checks to ease the pain of taxing not just the wealthy (who can’t pay it all) but everybody else with any income.

Currently, Democrats are saying that the failures of the New Deal were due to the federal government not spending enough money fast enough. But that is just so much blowing of smoke, for even the government cannot spend money fast enough to stimulate anything except a passion for the political power made possible by enlargement of government beyond its constitutional functions.

The government cannot spend us into prosperity and certainly cannot pay for it with confiscatory tax rates which free people will always find ways to avoid, if they do not move their enterprises elsewhere. Real political economy consists in restraining the government, not unleashing it.

TABOR for dummies (and Dems)

Here they go again. Faced with a budget that's hemorrhaging dollars, it was only a matter of time before one of our spendthrift legislators made headlines by erroneously pointing the finger of blame at Colorado's Taxpayers Bill of Rights (TABOR). Never mind that last spring Governor Ritter and the Democrat-controlled legislature ignored numerous warning signals of a looming recession.

Never mind that they ignored the consensus lesson of the last "budget crisis" -- when times are good, save a little money for when times aren't so good.

Never mind that in November voters rejected higher taxes and defended the few remaining constraints on government spending.

Nope, to hear the Denver Democrats tell the story, the problem with the state budget isn't the economy or undisciplined spending. A few degrees further from reality, newly-elected Boulder Democrat Sen. Rollie Heath says the problem is TABOR.

Apparently Sen. Heath didn't hear about Referendum C which loosed Colorado's government from most of TABOR's constraints ‹ except for that pesky requirement that voters still get to decide whether to raise taxes.

"We're hamstrung," Heath complained to a legislative committee even before taking office. "Not only does (TABOR) put a limitation (on spending), it takes away your flexibility. We desperately need flexibility right now."

So perhaps it's time a for a quick session of "TABOR for Dummies" to benefit anyone else who's been elected to state government after spending the past four years in a galaxy far, far away.

Lesson 1 - TABOR doesn't limit spending during a recession.

To quote James Carville, "It's the economy, stupid!" During a recession, the limiting factor on state spending is the economy. After all, Colorado ‹ unlike Congress ‹ has a balanced budget amendment, so the state can't spend money it doesn't have.

Lesson 2 - Ref C doesn't expire in 2010.

When the voters passed Ref C in 2005, they changed the way the original TABOR worked. Even after portions of Ref C expire in 2010, the new, revised spending limit under TABOR 2.0 will no longer "ratchet down" spending during a recession and will rarely restrict spending during an economic recovery.

According to the legislature's economists, TABOR will not limit government's ability to spend in the foreseeable future.

Lesson 3 - Amendment 23 doesn't expire in 2010.

The constitutional amendment that actually makes matters worse during a recession is Amendment 23, which mandates that K-12 education spending must increase every year - even when revenues are decreasing.

In the current budget, Amendment 23 requires a spending increase of $189 million. Meanwhile, economists predict that total general fund spending must be reduced to $172 million less than last year.

K-12 education accounts for 41 percent of the general fund budget, so the remaining 59 percent of the budget must be cut by $172 million to compensate for falling revenue plus another $189 million to accommodate Amendment 23.

Will Sen. Heath and his fellow Democrats buck the teachers unions to pull the teeth of the real shark in the budget process? Don't hold your breath.

Lesson 4 - Flexibility under TABOR 2.0.

Ever since Ref C suspended the TABOR spending limit, legislators have enjoyed absolute flexibility to spend, to save or to strike a balance between the two.

Guess which option they chose? Not saving. Not balance. Just more spending.

The flexibility they haven't enjoyed is the flexibility to raise taxes without a vote -- although they even tried that with Gov. Ritter's property tax increase.

Herein lies the lesson for voters:

For four years, legislators have budgeted without TABOR's training wheels. They could have saved money during good years, but they didn't. They should have asked our permission before raising property taxes, but they didn't.

What possible justification exists for relaxing the remaining safeguards that protect taxpayers?

Mark Hillman served as Senate Majority Leader and State Treasurer. To read more or comment, go to www.MarkHillman.com

Tax for news bailout is a bad joke

Newspapers have been an important part of our society, communicating information and news. But the Internet has served the same function (and I'd say even better) than newspapers have in recent years. I'm not impressed with how they've competed in the marketplace, and how "impartial" (or biased to the left in their reporting) they've been. Given the amount, quality and diversity of information you can get online from other sources, I don't think newspapers have an inherent right to stay in business. I can get more news in a more timely manner online, than I can through traditional print media. Unfortunately, another big, dumb, slow company is now being talked up for help by big-government do-gooders through a proposed “Newspaper Tax.”

Where do the taxes and bailouts end? I don't agree with the bailouts of Wall Street, the big banks, or the Big 3 Automakers.. and I damn sure don't want the newspapers bailed out. Let's call a spade a spade - this is socialism. Through this proposal, they're essentially holding a gun to taxpayers' heads (or wallets, in this case), and saying "Fork it over, or the fish wrap gets it!"

Local blogger Andrew Hudson frames the issue in a nice way (ironically, through the Internet) but he and other Democrats have no problem using the coercive power of government to prop up their favorite industry or company... or decide which business or industry fails or succeeds – at least in the short-term. In fact, I'd say they're rewarding failure - just like Congress has with the banks and automakers. It's getting to a tipping point where taxpayers are saying "ENOUGH" to more tax increases.

It's not so much a political issue as it is about economic freedom, and how individual citizens should have the freedom to spend our money how we choose to – not how government can. It's like a Jerry Lewis Telethon where taxpayers are forced to "give 'til it hurts." Mr. Hudson knows that almost all taxes enacted by government stay in place forever, and are rarely repealed. This sounds like a sneaky way to extract more money from Colorado taxpayers, to fund an increasingly greedy state government.

Currently, 44 of our 50 states face budget shortfalls. What bureaucrats fail to remember is that budget deficits occur when spending exceeds cash inflows. To reduce or eliminate these deficits, they should (gasp!) cut spending. Trying to balance state budgets on the increasingly-burdened backs of taxpayers qualifies as cruel and unusual punishment. The cause of these shortfalls is that government has spent too much money and made too many promises that it can't deliver on.

Our country wasn't founded or built on propping up industries or companies who “deserve” to be in business. This is another step of slouching towards socialism, all in the name of good intentions – which the road to hell (in this case, bigger government) is paved with. Enough's enough –this “Newspaper Tax” idea should be dropped like a bad habit.

AFP holds line in '09 for Colo. taxpayer

I listened to Gov. Bill Ritter's State of the State speech with anticipation the other day, and we have reason to be concerned. According to the Governor, we need to "invest...despite these tough economic times", and get rid of spending and tax limitations which the Taxpayers Bill of Rights [TABOR] has effectively secured. Ritter wants to extend the spending increases of Referendum C from 2005 and continue seeking changes in TABOR's limitations on taxing and spending. Here’s a quote from his speech:

"As I’ve said before, a budget is a moral document that should reflect our values. . . . There is also an opportunity here – a chance to address TABOR and the constitutional and statutory straitjacket that makes modern, sensible and value-based budgeting an impossibility."

The Governor, though, has left some questions unasked in this statement. Whose values determine what a “sensible” budget is? I know for most Colorado families, a sensible budget is the smallest one possible where they can meet their monthly needs. If their income suddenly decreases or they can't keep up with their credit card payments. Something has to give. They are forced to cut back their spending. Is this the value-based approach to budgeting the Governor finds “sensible”? Or is the “straightjacket” of TABOR, as he implies, keeping him from spending more of our money.

He argues that we have many challenges ahead, but he proposes get rid of TABOR to deal with them. He hopes to remove TABOR's restraints so that he can build a "modern" (read: bloated) government. It seems to be a pattern we are following all over the country: in times of crisis, turn to government for help. Of course, Colorado is faring much better than other states like California which are begging the Congress to bail them out. And TABOR has played a big part in keeping us from going into the tank like they have when huge budgets meet decreasing tax revenues in these tough times.

Americans for Prosperity is going to continue the fight to make this case publicly with your help. When citizens come out in a show of force like they did for us last year, it sends a message to our politicians that we Coloradans will not accept an ever increasing government.

What is a modern budget, Governor Ritter? Does that include ever increasing spending and expanding government services? Or are there some limits to the amount of government we need? Governor Ritter said that when he and other Governors met with Senator Obama in November, the President-elect said, “. . . it would take courage and a strong federal-state partnership to get America back on the path to long-term prosperity.” When has a federal-state government partnership ever made us more prosperous? Does government bring prosperity or do the people and their spirit of ingenuity? These are the questions advocates of government action never seem to ask.

Our left-leaning Congress and State General Assembly will attempt to push the limits expanding government’s role in our economy. Unfortunately, that's what Republicans did when they had the Congress and paid the price at the ballot box. You can be assured that we will oppose any changes to TABOR and any further expansion of government spending beyond the limits imposed by TABOR whether proposed by Republicans or Democrats. But we will need your help to put pressure on our elected representatives to hold the line on spending.

First of all, AFP is hoping for the grassroots army which came out last year to our Hot Air Balloon and Town Hall events to come out again this year to State House rallies and Town Hall events as we force our elected officials to see that Coloradans do not support expanded government.

I am asking for your help if we are going to be successful at stopping the Governor’s and the legislature’s efforts to eliminate TABOR. If TABOR goes down, it would give them the ammunition they need to increase spending and taxes to pay for their pet projects without the “hassle” of obtaining a vote of the people. Please support Americans for Prosperity so we can remain an active, effective force for less government in Colorado.

Last year, Coloradans defeated five measures which would have increased taxes and government spending by nearly $350 million. There is a force of people in Colorado like you who believe in free markets and responsible government.

I look forward to working with you as we continue to hold the line on TABOR and take a strong stand for our rights as citizens of Colorado.

Jim Pfaff is Colorado director for Americans for Prosperity. See www.afphq.org.

Budget test finds Ritter wanting

Colorado faces a $630 million budget shortfall and stark options now that half the fiscal year is past and so much money is already spent. Balancing a budget during a recession is a difficult, thankless job. But balancing this year's budget didn't need to be this hard if only the leaders at the Capitol had learned from the last recession - or listened to those who experienced it.

Last spring as the economic storm clouds gathered, Gov. Bill Ritter and legislative leaders had opportunities to take precautions.

One worthwhile precaution was proposed by Treasurer Cary Kennedy, my erstwhile political foe, and then-Rep. Bernie Buescher. At a time when revenues under Referendum C were surging, their proposal reasonably sought to double the state's reserve fund by saving, rather than spending, some $250 million.

After all, everyone who experienced the austere budgets of 2001-2003 agreed that the state needed a "rainy day fund."

Unfortunately, that proposal died on the altar of the spending lobby.

Then as lawmakers debated the state budget, headlines warned of a looming recession forecast by Federal Reserve chairman Ben Bernanke. Again, prudence dictated that leaders put the brakes on spending money that might never materialize.

Unfortunately, legislators passed and Gov. Ritter signed a budget that spent every "available" dime, making promises that now cannot be kept.

Even more remarkable than the legislature's habitual failure to save is the day-late-and-dollar-short response of Gov. Ritter and his budget office. Upon signing the full-throttle state budget, Ritter said: "This is a budget we should celebrate. This is a budget that is smart, fiscally responsible and effective."

In September, when the legislature's economists sounded warnings about an economic downturn and a budget deficit, Ritter's Office of State Planning and Budget kept whistling a happy tune.

"One of (the forecasts) is pretty significantly wrong," Ritter told the Denver Post, which noted that Ritter "made it clear" that his forecast wasn't wrong.

Ironically, President Bush apparently changed Ritter's mind a few days later by remarking in a televised speech, "the entire economy is in danger." Ritter responded by putting a partial freeze on hiring and new construction and asking his department heads to "identify other money-saving ideas and strategies."

In November, the governor unveiled his budget for the fiscal year starting next July. He called for growing the budget at only 5 percent and setting aside "an unprecedented $77 million" in a new reserve fund.

Again, this was too little, too late.

His "unprecedented" proposal was just one-fourth the size of the earlier Kennedy-Buescher plan ‹ which received no support from Ritter.

The hypocrisy, as surely even Ritter knows, is that the time to save is when revenues are growing - not when they're already in retreat. That's because when revenues are increasing, saving requires simply setting aside a portion of the increase. But when revenues are declining, every dollar saved must be cut from existing programs.

In December, the legislature's economists sounded a full-throated alarm, projecting a $631 million deficit for 2008-09 and revenue growth at less than 1% for next year. This time, Ritter & Co. issued mixed messages.

Ritter said, "We're experiencing a historic and a global economic crisis." But his budget office forecast a mere $70 million deficit.

Two weeks later, Ritter's budget office asked for a mulligan, telling the Post it had "used outdated information" and now forecast a $230 million deficit - still barely one-third that projected by the legislature's economists.

Ritter's budget data isn't the only thing that's outdated. His fiscal strategies amount to closing the barn door after the horses have already left.

It's not as if Ritter is the first governor to experience these challenges. Just seven years ago in the wake of 9/11 and the tech bubble burst, Colorado lawmakers faced similar challenges.

Unfortunately, it seems the only lesson learned by Ritter is to ask taxpayers for more money to spend - but never to save for the next rainy day.

Don't look now, Governor, but it's raining again.

Mark Hillman served as Senate Majority Leader and State Treasurer. To read more or comment, go to www.MarkHillman.com.