Wednesday, January 25, 2006

COLUMN -- Democrats can't claim mantle of government fiscal responsibility

Posted by Craig Westover | 8:08 AM |  

Wednesday, January 25, 2006

With an Op-ed piece in the Jan. 17 Pioneer Press, state Sen. Dick Cohen, DFL-St. Paul, tried to paint the Democratic Party as the party of fiscal responsibility. He misses the mark.

Instead of making a case for Democrats as the party of fiscal responsibility, Cohen reinforces a fundamental difference between Republicans and Democrats: Republicans create bad economic policy when they abandon conservative principles; Democrats create bad economic policy by adhering to liberal philosophy.

Cohen leads his opinion article by taking potshots at the Republican administration and Republican claims of having put Minnesota's fiscal house in order. He notes that the claim of a budget surplus disappears after school loans are repaid and inflation adjustments are made. He points out that the state borrowed from the Tobacco Trust Fund to help balance the budget. He cites the controversy over the legality of the fee/tax on cigarettes.

Cohen piles it on. He further notes that while proclaiming "no new taxes," the governor continued many taxes that were due to expire. Under the Republican administration, repayment of sales taxes bolstered short-term revenue and "fees" collected by the state have risen by nearly half a billion dollars. Reduced spending at the state level, argues Cohen, has spawned local property tax increases.

With some nit-picking here and there, fiscal conservatives have criticized the Republican administration on many of those same points. That Republicans have wandered from conservative fiscal policies, however, does not consequently endow liberal Democrats with the mantle of fiscal responsibility.

Cohen reverts to traditional liberal principle — it's not the increase in taxes that bothers him; his concern is from where the taxes come. "Reform the tax structure" in the liberal lexicon encompasses maintaining, if not increasing, government's revenue stream. Liberal reform does not question the expansion of government interest or the degree to which government spends, only the source of the revenue.

Liberal economic policy is premised on government redistribution of wealth. In this world view, the economic pie is only so big, and a fair and just society ensures that everyone not only gets a piece of the pie, but that those pieces are as equal as government can make them.

Define that policy as "fairness" or "social justice," or the more honest "socialism," but it certainly can't be couched as "fiscal responsibility."

The flaws in liberal economic theory are many. Liberal economics ignores the most fundamental of observations — government produces no wealth. Government can redistribute no wealth until someone else creates it. Wealth is a dynamic resource renewed by private investment in the private sector that produces it.

Dry up private, market-driven investment, and indeed the economic "pie" becomes finite and quickly consumed. Encourage private investment (minimize taxation) and the pie grows. Not everyone gets the same-size piece, but everyone's slice is larger.

When a state's revenue system is based disproportionately on taxes on the wealthiest individuals, a recession disproportionately affects state revenues. When the economy slumps, investment income drops and so, too, does tax collected on that income. Swings in the economy may have little visible impact on the wealthy, but they cause a great deal of disruption to the state budget and the lives of those that rely on the tax dollars of the wealthy.

The point is, if you're going to run the state on the backs of a small numerical tax base, then be prepared for deeper recessions and longer recoveries. Be prepared for an inconsistent tax revenue stream. It's the price of class envy — and the height of fiscal irresponsibility.

While DFLers like Cohen salivate at the fiscal nudity of current economic policy, let's hope that Republican legislators can admit the emperor has no clothes and quickly weave a fiscal policy of sound conservative principles. Sticking to conservative fiscal policy would save Republicans from further embarrassment and Minnesota taxpayers from ill-founded Democrat economic reform.

Category: Column, Local Politics, Tax Policy