08 October 2009

Watching the Stupid Repeating Failure

I know, we'll get the RICH to pay for everything!
New Jersey enacted its half millionaire millionaires' tax in 2004. Pitched by the state's unions as the cure for Jersey's budget woes, the state collected $9.5 billion in personal income taxes in fiscal 2005. Last year, four budget cycles later, the state collected only $10.3 billion and this year it's estimating just $9.4 billion from the same tax. Revenues have fallen so far below projections that Jersey has actually had to cut its spending (not just its rate of spending, like most states) by more than $3 billion this year despite $2 billion in federal stimulus aid for the state budget. And even so, Jersey had to skip payments to its pension system. If it were a business Jersey would be insolvent, a remarkable achievement in a place whose residents boast the highest personal income in the nation.

Maryland enacted its millionaires' tax in the fall of 2007. Earlier this year the state scrambled to enact mid-year budget cuts because of a sharp shortfall in revenues. Year-to-date personal income tax collections are off by about $650 million, and the Maryland comptroller has said, "It seems reasonable to assume...that there will be a significant decline in the number of returns with taxable income over $1 million and a substantial decline in the income reported on those returns."


The really bad news, however, is that there is no easy way out of this for many of these states. Their budget problems are structural and long-term and can't be fixed merely by trimming a little waste and pork here and there. Most of these states have wracked up huge debts, for instance, so that bond payments are now weighing down their balance sheets. Their bondholders must be fed or chaos will ensue.

These states also suffer from huge public employee pension and benefits obligations that are often guaranteed by law. In fact, the pension funds of these states are so underfunded they make the Social Security Trust Fund look solvent by comparison.
For decades, failed governance on both the state and federal level have written checks to their political patronage that they can no longer cash. Like a bounced check, it's time to also bounce the flunky constituents, from dog catcher on up.

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