Mon, 29 Oct 2007
14:40 - 29 Oct 2007 [/y7/oc]
Sun, 28 Oct 2007
[Appeared in Woonsocket Call, Pawtucket Times, etc, last week.]
After a column I wrote about taxes, a reader wrote in to ask about New Hampshire. He wrote that they have half the number of state employees there, and still manage to pave their roads, and do it with no income tax and no sales tax. When you write about taxes and state budgets in Rhode Island, you hear a lot about New Hampshire, a fact that amused several of the New Hampshire officials I spoke to. It seems they don't spend much time thinking about us.
But let's clear up some misconceptions about our flinty neighbors to the north. New Hampshire has no income tax, right? Well, sort of. They have no income tax on wages, but they do tax unearned income, like interest and dividends, at 5%. A married couple here have to be making well over $100,000 a year before they're taxed at that rate. New Hampshire has a business income tax of 8.5% to 9.25%, depending on size and they define taxable businesses much more liberally than we do, with three times as many business tax returns filed than here. The business income tax funds a quarter of their budget and 4% of ours. If I, a self-employed writer, were to move to New Hampshire, my state taxes could go up.
What about the property tax? They have lots of towns, and some tax high and some are low. But it's quite easy to find New Hampshire towns where the tax rate is much higher than in any town here. (Try it yourself: NH, RI.) Most of those are the places where the residents outnumber the tourists. Like several of our seashore towns, a lot of New Hampshire belongs to out-of-state owners. When out-of-towners are paying the bills, taxes can be lower, because people whose real homes are elsewhere also educate their children elsewhere, and they don't call the police in the off-season either. We see the effect here, too, which is why Block Island, and Little Compton have low tax rates. So Franconia and Jackson, up in the mountains, have very low rates, while Keene and Jaffrey, in the unfashionable parts of the south, have rates double or triple those.
According to the 2002 census of state and local governments, New Hampshire and its counties and towns raised about $5.1 billion in taxes, while Rhode Island and its towns raised about $4.8 billion. We divided our taxes among about a million people, and they among 1.25 million. So, per person, their taxes work out to about 89% of ours: New Hampshire may be a low-tax state, but it's sure not a no-tax state, which is the image that many people around here seem to have.
Still, 11% lower taxes isn't anything to sneeze at. How do they do it? Mostly, it turns out, by simply not providing things we take for granted here. We have a state Education Department and so do they, but ours gathers data about all the state's school districts and helps plan and suggest curriculum and professional development programs for their towns and theirs does not. We have a Health Department and so do they, but ours is responsible for food inspection and public health issues, and theirs is not. We have town libraries and so do they, but ours participate in a statewide network, with a shared catalog and reciprocal borrowing privileges coordinated by the state, and theirs do not. There are plenty more.
Another big difference is clear when you look into the facts. New Hampshire's social spending is lower in large part because it's a richer state; income is higher and the poverty rate is about half what it is here. Some will say that's because of their low taxes and pro-business "climate". But urban poverty has been a source of trouble for decades, and even back when the two states had roughly equal average incomes, poverty was much higher here, because we've got cities, and they don't. (Manchester, their biggest city, is just a bit bigger than Warwick.) In 1980, the poverty rate was 10.7% here and only 7% there, but the per capita incomes were both about $9,200. We had more poor people, but apparently we had more rich people, too.
So why are the states so different? Why one place grows to regard as normal what another place thinks of as extreme is one of those mysteries that make our world a fascinating place, but there are some obvious differences in geography that seem relevant. Both New Hampshire and Rhode Island abut a state whose economy, driven by its universities, has been one of the more remarkable success stories of the last few decades. But New Hampshire's border with Massachusetts was mostly wide-open rural areas ready to become suburban developments (for better or worse) while much of Rhode Island's border was occupied by cities. As the interstate highways allowed people to flee cities over the past 40 years, New Hampshire gained and Rhode Island lost, for no reason other than geography. I-93 brought people to rural New Hampshire and I-95 took people from Providence.
Heaven knows we don't run our state government very efficiently. Sometimes comparisons with other states can be revealing, but more often what they show is the limitations of such comparisons. New Hampshire is a very different place than Rhode Island. To their credit, they've been able to capitalize on their advantages to prosper over the past two decades. I wish we could agree to capitalize on our own advantages, rather than just wish we had theirs.
20:38 - 28 Oct 2007 [/y7/cols]
Fri, 26 Oct 2007
[Appeared in the Woonsocket Call, the Pawtucket Times, and others.]
We learned last week that Operation Dollar Bill, the federal investigation of the Senate leadership, involves tax legislation. In federal court, Gerard Martineau, the former Senate Majority Leader from Woonsocket, admitted to crimes involving taking money from CVS in exchange for legislative favors. In cases involving other former Senators, we've already heard about corruption involving "pharmacy choice" legislation, where the legislature rejected bills that would have allowed pharmacies to compete with each other for your business. But now we hear that some of the favors may have involved the 2002 capital gains tax cut. If it's true that money changed hands in order to influence tax legislation, I have some free advice for the CVS and Blue Cross executives who gave it: Don't waste your money. Most of the legislators in our General Assembly love you already, and money can't buy that kind of love.
Here's the background. In the 1990's, Massachusetts eliminated its tax on long-term capital gains, the money you earn from the sale of some asset, like stocks or a business, so long as it was held for more than six years. And in 2000, the drum began to beat here for a change to "compete" with Massachusetts. Martineau was an enthusiastic drum-beater, doing as much as anyone to speed this along.
In 2002, the General Assembly eliminated the tax on long-term gains, though the first step didn't go into effect until this year. (And because of the budget crisis this past spring, the legislature delayed the second step.) Putting cuts off into the future is, of course, the usual way faint-hearted legislators avoid questions about what services will be eliminated to pay for them. But while eager investors waited for the cut to take effect, what happened in Massachusetts? Well, they had their own budget crisis in 2002, so they reinstated the capital gains tax, acknowledging that cutting it was not affordable.
You'd think that we could have used that excuse to put off our cut, but no. After all, love is an ever-fixed mark that looks on tempests and is never shaken, or so I've heard, and legislators remain in love. They appear locked into the view that investors drive the economy and making things nice for investors will make the economy better for all the rest of us. But where's the evidence for that? Investors who start or grow businesses are valuable, but they're only a part of the puzzle, along with inventors, workers and customers. Sacrificing the interests of these other groups to favor investors is what we're doing.
What's worse, most investors aren't even investing in local businesses. The Federal Reserve publishes statistics about this, and the September report (the "Flow of Funds", or "Z.1" report) has interesting things to say on the point. Nationally, about 10% of our assets are in non-corporate businesses and 20% in stocks and bonds. A generation ago, in 1974, 20% of our assets were businesses and only 14% in stocks and bonds. As the profitability of small businesses has declined, our taste for investments has changed, and investors today are much more likely to be speculating in the stock market or in real estate than they are to be growing businesses here at home.
Stocks and bonds are traded much more often, too. Again according to the Fed, we sold around ten times as much in stocks as in business shares so far this year. This means that for every person getting a tax break on the sale of some business they built, ten people are getting a tax break on some stock they bought. And who are these people? According to IRS statistics, in 2005, Rhode Islanders reported about $1.7 billion in capital gains income. About $1.3 billion of that was reported by people who earned more than $200,000 that year, a fifth of that group's income.
Every small business owner I've talked to in the past few years has told me the same story about how their business started: The money to start was scraped together through savings and from family and close friends. These people will eventually sell their businesses in order to retire or move on, and they may be wealthy when they do. Perhaps it would be nice to reward them for their hard work at that point, but wouldn't it be nicer to make their businesses more profitable before then? We could invest in our schools in order to make it easier for them to find good employees. We could create a health-care system that takes health insurance out of the picture for employers. Some will perceive this as a two-edged sword, but we could work to create more and better customers for businesses by raising the wages of our lowest-paid workers, which seriously lag Connecticut and Massachusetts. There are dozens of things we could try, if we had the imagination to try them. The capital gains tax cuts will only prevent us from trying them.
Many of our legislators own small businesses themselves. (Gerard Martineau among them -- it was purchases of bags from his company that CVS used to finance his legislative career.) Most of them know how businesses really get their start, but rather than think about the real problems faced by real businesses, our legislative leadership thinks that the route to prosperity is simply to roll out the red carpet to all rich people, and hope that some of them feel charitable toward the state they call home. This is love run amok, and more resembles a strategy for finding a bad marriage than a strategy for developing our state's economy. It's long past time we wised up.
11:07 - 26 Oct 2007 [/y7/cols]
Wed, 24 Oct 2007
For readers coming here from the column in today's newspaper: Scroll down a bit.
09:49 - 24 Oct 2007 [/y7/oc]
This publication is on several press lists, and so I receive press releases from a variety of publications looking for ink. I've been getting releases from the URI College Republicans for a little while, with some irregularities in the address that let me know that they probably got the press list from someone at the statehouse. Imagine my surprise when I got the following message, with the same irregularities.
Date: Tue, 23 Oct 2007 19:45:27 -0400
Since this clearly came from the URI College Republicans, I'd assume that anyone who showed up to protest was a willing tool of that organization. Wouldn't you?
09:49 - 24 Oct 2007 [/y7/oc]
Tue, 23 Oct 2007
Didn't you mean to subscribe?
07:35 - 23 Oct 2007 [/y7/oc]
Answering questions about New Hampshire's taxes. A table of NH property tax rates. You can see in it that the vacation towns tend to have much lower rates than the less fashionable towns. The cities tend to be on the low end of the high side. But check for yourself.
A table of RI property tax rates. Here, too, is it any accident that the lowest rates are in places like Block Island and Little Compton?
New Hampshire's property taxes, in aggregate, aren't that much different from Rhode Island's. But when you look at the non-vacation areas of that state, they're substantially higher. So New Hampshire is allowing its out-of-state owners to subsidize a slightly lower property tax, which is fine for them, but where does that leave a state whose leaders say we should emulate them?
07:28 - 23 Oct 2007 [/y7/oc]
[Appeared in the Woonsocket Call, the Pawtucket Times, and others, two weeks ago.]
The Governor has announced his plans to cut 1,000 state employees and to cut $50 million state spending and another $50 million in benefit costs for the remaining state employees. I can say stuff like that, too. Watch: I will cut all 15,353 state employees! Except the lifeguards at Scarborough. Of course I'm not the Governor, so it's a tiny bit less credible, but not by much. Until he starts to say what positions he will cut, from which departments, and which services will be sacrificed to make this plan work, it's all just words, about as valuable as mine. (Not to mention how he will overcome such obstacles as employee statutory status.)
While we all wait for the Governor actually to make one of those tough decisions he's always talking about, here's something to consider: he is proposing cutting employee benefits, including pensions, for state employees. William Murphy, the Speaker of the House, is proposing a shift in the kind of pensions we offer to state employees. (Which will actually cost *more* in the short term.) What neither of them will say is that we could lower pension costs for the state, as well as for all the schools, by about $43 million or more without reducing benefits or paying another dime. All it would take would be a signature, but Governor Carcieri won't consider it.
The story isn't too complicated, but there are four important things to understand about it. First, and this will come as a surprise to many, current state employees and teachers pay almost all of the cost of their own pensions. State employees pay 8.75% of their salaries and teachers pay 9.5% into their pension funds. This current year the employer (the state and the schools) only pay about 1.5% of payroll to match what are called the "normal costs," which are the expected costs of paying the pensions of the employees who are in the system now.
Second, the system has a big "unfunded liability," which is the difference between what the system expects to have and what it expects to pay, in the future. Paying this off is where the real expense is, and the state and schools are paying about 20% of payroll for that. For a long time, state pensions were underfunded. We gave legislators, judges and other favored employees pension credit for time in the military, for time in other pension systems, and sometimes just for having a nice smile. These abuses have been largely (though probably not completely) eliminated, but their legacy lingers on in the unfunded liability. What's more, for a couple of years after the credit union crisis of the early 1990's, the state skipped its payments entirely. And some predictions about investment returns, or the death rates of retirees turned out to be wrong. (Actuaries aren't soothsayers, and they do get things wrong, but they tend to be high some years and low other years, so it's likely that poor predictions aren't the real problem.)
Third, in 1999, the state began a program to pay down the unfunded liability. This is a good thing to do, but it's important to understand why it's a good thing to do. For private businesses, getting the unfunded liability down to zero is important because businesses can go out of business, and you want the pension system to be able to survive that. The state isn't going to go out of business, but keeping the unfunded liability small helps reduce "volatility" in future pension payments. This is actuary-speak for sudden cost increases. So, doing the responsible thing, in 1999, the state decided to pay off the unfunded liability in 30 years, by 2029.
Fourth, no sooner had the state decided to pay down the liability than the stock market tanked. So for the first five years, the extra payments weren't enough to make up for the investment losses. They have by now, but we're still on track to pay off the liability by 2029. Except now instead of a 30-year payment schedule, we have a 22-year schedule, and the payments are higher, just like a mortgage would be. If we restarted the clock, and moved the payoff date to 2037, state payments would drop by $28 million and the cities and towns would save $15 million. Ask your local school principal if that would be a good idea.
Sounds radical, no? Well, there are radicals in North Dakota, Iowa and Kentucky who do this *every year* for retirement systems there. Oklahoma, too, and they use a 40-year schedule. Actuaries call this an "open" amortization schedule, and it's not at all uncommon. You don't get to a date certain for paying off the liability, but you do make progress on it every year, and that's what being prudent means.
What being prudent doesn't mean is to break the system in the present so that taxpayers in the future will have it easier, which is what we're doing now. I guess there's a certain nobility in suffering now so that our children won't suffer in the future, but our children also attend the schools where pension costs are displacing spending on books.
So as you read the moaning about the state deficit this year -- and there's going to be a lot of it -- remember that a simple fix like adjusting the pension payment schedule is considered off the table. And also remember that, counting the capital gains cuts and the tax rate cap, we're going to give somewhere around $50-60 million in income tax breaks to our wealthiest citizens. Now go read those headlines about cutting state services again and see what you think.
07:28 - 23 Oct 2007 [/y7/cols]
Sat, 20 Oct 2007
[Column originally appeared in Woonsocket Call, Pawtucket Times, etc.]
Last spring, Ralph Mollis, our new Secretary of State, announced the formation of his "Voters First" commission. The idea was to find ways to improve how we vote. Some of his proposals -- extending elections to cover several days and eliminating the need for an excuse to get an absentee ballot -- aren't bad. My favorite is about improving the training and pay for poll workers. Many of them are hard working and intelligent volunteers we should honor, but they are often not informed about the details of election laws. I've twice been threatened with arrest for seeking public information from poll workers on election day.
One proposal, however, stands out from the others: requiring a photo ID to vote. In conversations with friends, I've often heard people express surprise that you don't need an ID to vote, but you do need one to cash a check. To me, though, it always made the process seem more serious and adult. "We trust you," those little forms seem to say, "but heaven help you if you're trying to pull a fast one here." That is, you may need less ID to vote than to cash a check, but the penalties are much more severe.
There are two real problems with the proposal. The first is that requiring an ID is actually a significant burden to a surprising number of people. If you have a photo ID, reach into your pocket or bag and pull it out. Does it have your middle initial on it? Does it have your maiden name? Is it written exactly the same as the way you registered to vote? Does it have the right address? If not, be prepared to be turned away from the polls.
For people who can't afford a car, or who don't drive for other reasons, getting a photo ID can be a significant burden, financial and logistical. Getting the necessary paperwork isn't cheap; a birth certificate can cost beteween $20 and $75, and naturalization paperwork can cost $200 or more. And that's assuming the voter ID is free. Your driver's license isn't.
Timothy Vercellotti and David Anderson, two researchers at the Eagleton Institute of Politics at Rutgers University spent some time last year comparing the detailed 2004 election results across the country with census data, and comparing non-photo-ID states to photo-ID states, district by district. They concluded that voter ID laws had the effect of lowering voter turnout by between three and four percent, and by 10% or more in minority communities. (You can find a link to the report at whatcheer.net.) Like much social science, the research simply confirmed what many people already knew. Are voter ID laws a good idea? It depends on what you think about discouraging poor and minority voters.
Sad to say, some people think that's a good idea, and they are usually the ones you'll find behind proposals like this. Photo ID requirements for voting are a part of an increasingly sophisticated set of techniques used to suppress voter turnout by people who believe that suppressing voter turnout favors them. This is usually Republicans, which is why photo ID laws have been passed in states like Georgia, Missouri, Arizona and Indiana, where the Republican party dominates state government. Hawaii, where Democrats are in control, stands as a single counter-example, and I suppose with Mollis's leadership, we could add Rhode Island to the list, too.
The other big problem with photo ID laws is that this is really a cure without a disease. This is Rhode Island after all, and after every state election since I've been an adult, I've heard rumblings about vote fraud. I've heard allegations of candidates and campaign staff trolling nursing homes and senior high-rises for seniors who may need "help" filling out absentee ballots, and I've heard allegations of manipulation of the old black voting machines we used to use. I've heard allegations about machines mysteriously refusing to advance their counts, and I've heard allegations about people maintaining false addresses in order to vote (and run) in the wrong district. I've heard lots of allegations, and I even believe some of them, but I've *never* heard an allegation of fraud that would have been prevented by requiring a photo ID.
What would a photo ID requirement prevent? Well, it would prevent a candidate from recruiting people to run around from poll to poll, impersonating other voters in order to vote multiple times. Do you believe that's been happening in your town? It would take a few dozen to make any difference. That's a lot of people willing to risk a jail term, and it's a lot of people to keep a secret. As Ben Franklin put it, three can keep a secret if two are dead, so color me skeptical that this kind of fraud is a problem.
Last week, the US Supreme Court has agreed to hear an Indiana case on the subject this winter, and will issue a ruling by next June. Will the conservative majority on the court forbid an important Republican election tactic? Color me skeptical on that, too.
The Secretary of State is still soliciting opinions about this proposed rule, which will probably become a bill in next year's legislature. There's an email link on the Secretary of State web site: www.sec.state.ri.us. Tell him what you think.
19:22 - 20 Oct 2007 [/y7/cols]
Thu, 18 Oct 2007
14:41 - 18 Oct 2007 [/y7/oc]
As you may know, in 2006, the legislature adopted a tax cap for very wealthy taxpayers. The idea is that we shouldn't tax those people any more than they'd be taxed in Massachusetts. This is supposed to help our economy somehow, though there is little reason to think so, unless you think that rich investors power the economy, regardless of the fate of the workers, customers, inventors, roads, schools, police and fire departments on which they depend.
But putting those little details aside, there is some confusion about how much this tax cut will actually cost us. The tax division put some numbers out in 2006, based on the 2005 tax returns, but they didn't make any predictions for the future. What's been clear over the past several years is that the incomes of the wealthy are growing at a different rate than the incomes of the less-wealthy. This makes tax projections tricky.
What makes them trickier is that the Bush administration's IRS has decided it's no longer important to provide detailed tax data for the states. (They still provide state data, but with far less detail than since the statistics of income bureau was established.) So there are some significant grains of salt to take with tax projections. That said, knowing the cost of this cut is important to what passes for policy debate around here, so I spent some time this past week reconstructing my model of income distribution and tax collections for our state, to take newer data into account.
Here is what I get for the flat tax costs. The second column is the limit, which is applied to the taxpayer's taxable income:
Caveats: I'd be willing to bet these are within 10% of the right answer, but no better than that. These are tax year predictions, not fiscal years. Here's the hit on fiscal years, more useful for discussions of the state budget:
These are the best estimates I can make with the available data. When more data becomes available, I will revise them.
08:12 - 18 Oct 2007 [/y7/oc]
Sun, 14 Oct 2007
A cool way to look at the federal government's budget.
21:53 - 14 Oct 2007 [/y7/oc]
Fri, 12 Oct 2007
Apparently as high as its been in the US since statistics have been kept. This article in the radical rag The Wall Street Journal reports that researchers say you probably have to go back to the 1920's to find a comparable period.
15:03 - 12 Oct 2007 [/y7/oc]
Wed, 10 Oct 2007
Especially when they quote people. Read about Hillary and torture.
22:13 - 10 Oct 2007 [/y7/oc]
Mon, 01 Oct 2007
[Appeared last week in RIMG papers all over Rhode Island. If this wasn't in your local paper, complain to the editor.]
It's hardly news to anyone that the state is in a terrible fiscal situation this year. It will be very surprising if we end this fiscal year without a deficit, and the deficit anticipated in *next* year's budget looks immense. Numbers north of $400 million are being discussed around the state house. For some perspective, this is over 10% of the state's entire budget.
The Governor spent a little time last week trying to prepare the ground for the upcoming budget season. He put out a press release saying how hard he was pushing the heads of state departments to find cuts to make, and sat for press interviews. He promises deep cuts in services, and wants to lay off 1,000 state employees. (When he said something similar last spring, it turned out that no member of his administration had actually identified 1,000 employees whose services could be dispensed with. Instead it appeared his office had simply picked a number from a hat, and then complained when no one in the legislature took the proposal seriously.)
As he frequently does, the Governor took some time to claim that the blame for the budget situation belongs to the legislature, who rewrites the budgets he submits. In a newspaper interview last week, he is quoted as saying, "I can propose some things, but the General Assembly has to enact it and they enacted a budget that... is not a budget that works."
The Assembly is far from blameless for the current disaster of a state budget, but he is far too modest. Without his able leadership, we wouldn't be in nearly as serious a crisis. To hear him speak, you'd think that the budgets he submitted were models of fiscal responsibility, vandalized by evil legislators, but that just isn't true, and it hasn't been since the day he was sworn in.
Rhode Island is constitutionally forbidden from running a deficit in the current year. But there is nothing that says we can't write a budget that will create a deficit in the following year, and we do that all the time. Budget folks call this the "structural deficit". The Governor's first budget proposal, for the 2004 fiscal year predicted that, if enacted exactly as proposed, it would create a deficit of $23.8 million in 2005. For 2005, his own budget office predicted his budget would create a $68.9 million deficit in 2006. In 2006, they predicted a $98.5 million deficit in 2007, in 2007, they guessed $134.6 million in 2008, and in 2008 (the fiscal year we're currently in) they predicted a deficit of $379.2 million in 2009. That's a jumble of numbers, but here's the bottom line: the structural deficit was $23 million in Governor Carcieri's first year, and it's $380 million now. The situation is sixteen times worse than it was when he took office.
These are not numbers passed by the Assembly. These are numbers created by the Governor's own budget office about his own proposals for a state budget. No one forced him to propose a budget with a structural deficit. He owns these numbers, and what they say is that every year of his term, he has presented a budget that has led us further down the abyss we're in. They say that his administration is fully aware of the problems we face, and yet for five years has chosen to do approximately nothing to address them. This is leadership?
The fact is that Rhode Island faces a number of serious challenges, only one of which is the cost of our government. The cost of housing is too high, the wages to low-end jobs are too low. The cost of health care is way too high, and the support we give to public education is way too low. The price of gas is going up and up, and the buses can't handle the new demand. What has the Governor done -- or proposed to do -- about any of these problems? A zeal to cut taxes has driven almost every policy decision he's made, and in doing so, he's completely punted on addressing anything else.
You tell me that high taxes are the number one priority? I'll reply that a typical family in Rhode Island is paying around $1,500 more for gas in a year than they were five years ago. They and their employers are paying 35% more for health insurance than they were in 2001, after discounting for inflation. Rents are up so much that more than one household in six pays half their income for housing. Tuitions are up for our public colleges, and the cost of child care has increased, too. These are all problems that our government could address if it chose to. But instead our "leaders" worry about where to cut more. We are on schedule to cut the income taxes of our wealthiest citizens yet again this coming year. Which of these problems will that address?
15:51 - 01 Oct 2007 [/y7/cols]
12:00 - 01 Oct 2007 [/y7/oc]
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