July 21, 2005

If only it were true

On the Wall Street Journal's online Op-Ed clearinghouse, Ken Blackwell, Ohio's Secretary of State and a candidate for the Republican nomination for the governor's office in 2006 and Arthur Laffer, of Reaganomics, write about the greatness that is TEL. TEL is a spending cap that in Blackwell's plan would limit state and local spending growth to 3.5% or the sum of inflation and population growth. The proposed TEL for Ohio is not very different from TABOR in Colorado, which has been highly problematic since it was voted into the state's constitution in 1992.

The most surprising claim in the column comes in the second to last paragragh:
Given that high-spending states underperformed low-spending states in key growth and productivity metrics from 1994 to 2003, under TEL the fiscal experience in Ohio would have been dramatically different. A 17% reduction in tax rates would
have enhanced Ohio's attractiveness to investors, businesses and employers. Greater investment, more businesses and more employers would obviously have lowered unemployment rates, raised real wages and attracted migration into the state. This in turn would have increased allowable expenditures. Thanks to these dynamic effects, even with its cut in tax rates the Ohio TEL could well have increased tax revenues, allowing for even larger tax reductions and further enhancing economic growth.
The problem, and you hate to burst the bubble of people who are so giddy with excitement for public policy--no matter how ill-conceived, is that, if TABOR is any guide (and I think it is), TEL will definitely reduce revenue. The odd thing about their final claim is that they spent the whole article extolling the virtues of low-taxes and small government. But Blackwell and Laffer can't leave it alone there--indeed, Laffer has made a career of not leaving it there. Instead, they make the preposterious claim that dramatically lower taxes will yield much higher revenue (which presumably, the government will need to give back to the taxpayers, under TEL).

Moreover, Blackwell and Laffer write as though taxes and Ohio's economy live together blissfully in a vacuum. They make no mention of the loss of manufacturing jobs. They also make no mention of how taxes are collected or the distributive impact of different taxes. These are crucial issues, but it seems that Blackwell and Laffer don't have the inclination to consider them. It's not really a shock though, if you're an ideological warrior like these two, it's easier to squint through public policy details.


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