Tue, 27 Nov 2007

The Big Picture

Curious how our state budget follies fit into the big picture? Do you know that we haven't had a real federal budget for quite a while? The president won't sign off on anything, so we continue with "Continuing Resolutions" which are de facto federal spending cuts. (Except for the war.)

Here's a summary.

17:03 - 27 Nov 2007 [/y7/no]

Mon, 26 Nov 2007

What you didn't know about welfare.

[From the Woonsocket Call and Pawtucket Times, etc.]

The Governor made it clear last week that he wants to include discussions about welfare in the debates over the state budget crisis, again. Fair enough, I suppose. No budget item is sacred. But let's make sure we know the facts first.

How much don't you know about welfare? Like many people you might have heard that Rhode Island is a "welfare magnet," attracting welfare recipients from other states by our lax rules. Did you know that the actual data show exactly the opposite?

Did you also know that the cash benefits to welfare recipients haven't gone up since 1989? How about that about a third of welfare recipients leave the program each year for work? Or that by every measure, the cost of the program has gone down dramatically since 1997, though the savings have been put into child care and other non-cash benefits. In other words, the Department of Human Services' annual report about the "Family Independence Program" (FIP) is a fascinating read, mostly for the contrast between what it shows and what is widely believed. (Don't take my word for it; it's readily available at www.dhs.ri.gov.)

I read the report this morning, and learned that in 1996, 1225 families joined the program when they moved here from other states. In 2006, the number was 721. These data are self-reported, on the welfare application, so perhaps are not terribly reliable. However, there are three reasons to believe them. First, there are no penalties either way, so there is no incentive to lie on the application. Second, the data was collected precisely the same way in 1996 as in 2006. Third, there are no other data on the subject.

What's more, since 2001, more welfare recipients have moved away from Rhode Island each year than new ones arrived. Despite this, you hear this "welfare magnet" thing all the time, on the editorial pages of newspapers, on talk radio, and in speeches by politicians, including Governor Carcieri (an example). But it's not just that the balance of facts don't support it; no facts support it. When I asked him the source of his assertion when he cited the cost of our kindness in a column, Ed Achorn, the Providence Journal columnist, told me only, "I am citing common sense there." But I know of no definition of common sense that implies I'm supposed to believe things uninformed people made up just because they assume them to be true.

Besides, we're not even all that kind. This part of the welfare magnet fiction is only empty self-congratulation. Welfare benefits here are skimpy and the rules restrictive, just like in other states. Even with the non-cash benefits like food stamps and rent vouchers, this is not a program you can use to support a family for long -- and people don't.

In December 2006, there were 10,755 families on welfare (down from 19,000 in 1997) but this is only an end-of-year snapshot. During the year, there were 6,885 families that joined the program and about 7,855 left it. A bit under half of them left because they got a job. The others moved, or were cut off. Also, notice that there were a thousand fewer people getting assistance in 2006 than at the same time in 2005, and this was before the latest round of "welfare reform", enacted last year with the 2007 budget.

As we look forward once again to balancing the budget by denying help to our friends, neighbors and relatives who need it, let's remember the purpose of welfare: it's to help people with children out of a bad situation. It's a program for temporary assistance, and the evidence shows that people use it temporarily. Remember, three quarters of the people who were receiving welfare in December 2005 stopped getting it in the next twelve months.

Here's another widely ignored fact, worth remembering in a week of Thanksgiving. Even for people in the middle of some family crisis, welfare is a choice. This means there's a limit to how restrictive you can make the program if you truly want it to be useful. No one is forced to apply for welfare benefits. That is, you can always eat dog food. And it's fairly dry under most of our bridges. Or you could just decide to stay with the abusive husband. The point of having a program like FIP is to prevent parents and children from having to face situations like these. If the program doesn't prevent that, then what's the point of even pretending to help?

23:08 - 26 Nov 2007 [/y7/cols]

Sun, 25 Nov 2007

Why this publication exists

Read here.

Especially read the James Fallows link you'll find there.

16:23 - 25 Nov 2007 [/y7/no]

Wed, 21 Nov 2007

What motivates conservatives?

Have you seen "conservapedia"? This is a wikipedia for conservatives who feel somehow that wikipedia's definitions are warped by the godless mass. Herein a list of the most-viewed pages in this fine work. (via Atrios)

07:31 - 21 Nov 2007 [/y7/no]

Sat, 17 Nov 2007

Getting serious about state spending

[Appeared first in the Woonsocket Call, Pawtucket Times, etc.]

When you talk with people for any length about the state budget, unions are bound to come up. When you talk with people for any length about unions in the state, the Brotherhood of Corrections Officers is bound to come up.

In many ways,the Brotherhood is among the more militant of the state's public employee unions. Plus, a crowd of prison guards is just a teensy bit more imposing than a crowd of teachers, so they get press. They have been in the news over the last few years for helping prevent the establishment of halfway houses in Rhode Island and for contracted work rules that force the extensive use of overtime at the state prisons. As a result, few people find it surprising that, after accounting for inflation, we spend 160% more on the state prisons now than we did 20 years ago.

But what might be a surprise is that 160% is just about the increase we've seen in the number of inmates since then: from 1528 in 1988 to 3937 in September, about 95% of capacity. The number of people on probation and parole is up 170%, from 10,000 to 27,000. That is, after inflation, we spend about the same per prisoner now as we did 20 years ago. The real problem is that we have a lot more prisoners.

Why are there so many more? It's largely because in 1988, we passed legislation establishing a mandatory minimum sentence of 10 years for people convicted of possession of as little as one ounce of heroin or cocaine. That year we also amended the state constitution to deny bail for drug offenses where the potential sentence was 10 years or more. Not surprisingly, the prison populations shot up, fast. In 1988, we had 87 women in our prisons, and one year later there were 215.

But it sounds tough on crime, right? Well crime did go down in the 1990's, across the nation, and part of the reason was that lots of criminals were in prison. But it's a pretty expensive strategy for fighting crime. We could get a lot more bang for the buck by using that money to hire more police officers. We have expanded our police departments, but the towns who can afford to do it tend not to be where the crime is, so Glocester has three new police officers since 2000 while Woonsocket has only one.

Drug treatment programs would be another way to save money. It costs less to help someone get over a drug habit than it does to put him or her in prison. But there's "no money" for that, of course, and what few programs we do have in the state can handle only a tiny fraction of the demand. There's more: our probation system is huge and contains some serious injustices that fill up our prisons. Around 40% of our inmate population is probation violators.

So this is the way it works: You could try to blame the Brotherhood for the high cost of our prisons if you want to, and people do that all the time. But what the data shows is that the most you can blame them for is not letting us cut the cost of our prisons. There most certainly are work rules that should be addressed and the Brotherhood's definition of who is supervising prisoners is more restrictive than one I'd suggest, but the truth is that over the past 20 years, for all their strength, they have only been able to hold the line. As usual, the people who spend all their time blaming unions for our budget woes are just trying to distract you from the expensive decisions that have been made.

Some of these decisions were made a long time ago, but most have been endorsed recently. Last spring, the legislature repealed the 1988 mandatory minimum drug laws. The Governor vetoed the repeal, so the minimums remain on the books. The Assembly met a couple of weeks ago to override a bunch of vetoes, but this wasn't one of them.

And how about that I-way? Here's a hugely expensive project that gave us a new-and-improved bridge but only minor modifications to the capacity of our two biggest roads. Now that the first bit of it has opened, we've all enjoyed a week's worth of new-and-improved traffic jams. Projections are that the project will cost well over $700 million, and probably much more by the time it is done and its bonds are paid off. It was originally proposed as a more fiscally prudent choice than $50 million to repair the existing bridge over the Providence River. The Department of Transportation has some serious issues with the union work rules it has established over the years, but they are small beer compared to the mighty I-boondoggle.

So here's an easy way to tell whether people are serious about addressing the spending side of the state's budget crisis. If they want to talk about the expensive policy decisions we've made over the past twenty years, and also want to talk about contracted work rules or seniority provisions, then humor them. They might have a good list of suggestions. But if they tell you that unions are the big problem, they aren't serious. It's just that simple.

23:21 - 17 Nov 2007 [/y7/cols]

Sun, 11 Nov 2007

Taxes are taxes, until you ask who pays them.

[Appeared last week in the Woonsocket Call, Pawtucket Times and other RIMG papers.]

Are taxes just taxes? Does it matter when the state cuts the income tax and towns raise the property tax? As a matter of fact it makes a world of difference, and here's why: Like the federal income tax, the Rhode Island income tax rate gets higher as you earn more income. People who earn very little pay a very small fraction of their income in tax, while people who earn a lot pay a greater fraction. In Rhode Island now, the Greens who earn $50,000 a year will pay about 2% of their income in tax. The Browns earn around $200,000, so pay tax at around 7% most years.

But though one family earns four times as much as the other, they probably don't live in a house four times as expensive. The Greens might live in a house assessed for $250,000, and the Browns in one that's worth $500,000. The Browns have four times as much money as the Greens, but pay only twice as much in property tax. But their bill reflects the value of their property, so fair enough, maybe.

Now let's change things. Say we cut income taxes by half, and make up the difference by raising property taxes by a third, which is very roughly the same amount of money in the real Rhode Island. From the income tax cut, the Greens get $500 back and the Browns get $7,000. But the property tax rates in their town go up, from $12 to $16. The Greens get hit for $1000, and the Browns for $2000. The result is that the Browns are richer by $5000 and the Greens poorer by $500. Meanwhile, the total collected from the two taxes hasn't changed at all. The only difference is who pays.

Over the past dozen years, our state has done exactly that. We've cut the income tax several times, in a few different ways. At the same time, the state (and federal government, too, but to a smaller extent) has piled responsibilities onto our cities and towns. Special education requirements, ADA requirements, transportation to private schools, textbooks for private schools, curriculum requirements, testing requirements and fire code requirements are all recent additions to an already long list. After all that, it's no surprise that municipal budgets have gone up 6% a year since 1996, before accounting for inflation. Outrageous, no?

But over that same period, the state budget (not counting the money given to cities and towns) has gone up 6.8% a year. The take from the state sales tax has gone up 6.7% a year and -- despite several tax cuts -- the money we collect from the state income tax has grown 7.1% a year over that period. Meanwhile, total property tax collections have only grown 4.4% per year. In 1996, the income tax raised about half of the property tax. Today it's about 60%. The income tax is bringing in much more money, with a lower rate, while the property tax rates have gone up and up over that time. The state gets credit for cutting taxes, while the cities and towns have had to suck it up and endure lectures from the Assembly leaders and Governors about fiscal responsibility, not to mention the occasional tax riot.

Does it surprise you that property taxes play a smaller part in the picture than they did ten years ago? For eight out of ten of you reading this, it might. That's because you're the ones paying higher taxes to finance cuts for the other two.

So this is the situation: Governor Carcieri and the Assembly leadership won't say what services are to be cut, but both insist that lower taxes are possible. On what evidence they think this, they won't say. Along with the tax cuts from last year and the year before, we're on schedule to give another $12 million cut to the wealthiest citizens in our state this year, and tens of millions more in the following three years.

To get there, the Governor thinks he can slash a bit here and there in contractors and "back office" positions, and from employee benefits, and the state can keep on merrily building bridges and jailing prisoners like before, and no one will notice. On their side, the Assembly leadership thinks it can stiff the cities and towns, who will keep on merrily educating our children and policing our streets like before, and no one will notice.

They are both doing the same thing: pretending that we can have lower taxes for the same services, year after year. The Governor does it by pretending his Sweeney Todd "trim" of only a couple hundred million dollars won't make a difference, and the leadership does it by forcing town councils and school committees to make the real decisions. I am happy to know that people in positions of such heavy responsibility can enjoy such rich fantasy lives, but I'd be happier still if I didn't have to beg my school committee not to cut the music program each year.

22:31 - 11 Nov 2007 [/y7/cols]

Sat, 10 Nov 2007

Pouring gas on the fire

As the dollar continues its tumble, here's something to keep it falling: oil. Oil is still priced in dollars, so it remains one of the important reasons why other countries want dollars. But it's also a way in which the US bleeds money out to oil-producing states, like Venezuela and Iran, not to mention Saudi Arabia. Because the two effects push in opposite directions, the net effect on the dollar's value isn't clear. But the effect on the net wealth of our country vs. the oil-producing states is very clear.

15:35 - 10 Nov 2007 [/y7/no]

Fri, 09 Nov 2007

The Tax Foundation

We hear a lot from the Tax Foundation, a group in DC whose goal is essentially to lobby against all taxes, whatever they pay for. They publish rankings of the state tax burdens every year, and Rhode Island's ranking on their lists is a source of concern for state lawmakers, who use it as a blunt instrument to beat about the head and shoulders of anyone who suggests that one possible reason for our state budget crisis is all the money we've given away recently.

I've written too much about the Tax Foundation and their bizarre methodology. But here (via Pat Crowley at RI Future) is a much more systematic and thorough takedown of their statistical work.

People who rely on data like this should be laughed out of any position of responsibility they hold.

17:37 - 09 Nov 2007 [/y7/no]

Wed, 07 Nov 2007

The state budget: choosing a crisis

[Appeared last week in the Woonsocket Call, Pawtucket Times, etc.]

In 2006, when the legislature passed its tax cap for rich people (also known as the alternative ``flat'' tax), they did it without saying what services would be cut to pay for it. The way the tax cut game is usually played, the cut has to be phased in over several years, leaving. the harsh spending decisions to some future legislature. Naturally we're all supposed to pretend not to notice how cowardly it is to propose a tax cut without saying what will be sacrificed to pay for it. Are you in favor of lower taxes? Put that way, who isn't? Where it becomes hard is after we understand what we're giving up.

In this case, the phase-in strategy is especially nasty because the cuts get successively more severe each year. The way the cut works is this: taxpayers can choose between using the tax tables you and I use to calculate our taxes, or using a flat percentage of taxable income. Because of the way our income tax is structured, only the richest taxpayers will save any money by choosing the flat tax. Starting in 2006, the tax limit ratchets down by half a percentage point each year, until it rests at 5.5% in 2011. As of this coming year, the limit is 7%, so it affects married taxpayers earning more than around $260,000 per year.

Another exciting feature of this cut is that it was made on the basis of false estimates of how much it would cost. The Tax Division declined to provide projections about the cost in future years. Instead, they provided an analysis of 2005 income tax data that showed what the cut would have cost in that year. This is not the same thing, but it's all they could be persuaded to do. By their count, when fully phased in, the cut would have been worth $73.1 million, in 2005.

But incomes grow over time, and at this point in 21st-century America, the evidence mostly shows that incomes at the top end are growing faster than incomes at the bottom. In other words, this number can't possibly be a good estimate of how much the flat tax cut will cost. Unfortunately, because there were no other numbers available, legislators and advocates seized on these, and in speeches and in discussions, you'd hear them speak as if this were the true cost.

Projections aren't that hard, though like any prediction of the future, you have to remember to be humble. Using income growth statistics and past tax data to simulate half a million taxpayers like ours, I wrote a computer program to fill out an imaginary tax form for each of them. This used to be the kind of number-crunching that could only be done by government researchers and others who could command lots of computer horsepower. But one of the great things about the march of technology is that any computer with enough oomph to run World of Warcraft has the speed to fill out a measly few hundred thousand tax forms, and I only played a couple of Freecell games before it was done crunching through them all. It gave good results for past years, so then I asked about the future. The predictions that burped out showed the tax cut will cost $27 million in fiscal 2009, an increase of about $12 million from this year. But in 2012, when it's fully phased in, it will cost around $110 million. This is a lot of money to be giving back to rich people in a state where no music teacher is safe.

This year, you're going to hear a lot of people say we shouldn't raise taxes to balance the state budget. Those people are trying to mislead you by ignoring the fact that the biggest reason our state budget isn't in balance is the huge tax cuts we've given and are still giving. If we were to magically transform the income tax back to the rates of the bad old days of 1996 -- reversing the 1996 capital gains cuts, the 1997 Almond income tax cuts, the 2001 capital gains cuts and the 2006 flat-tax cuts -- we'd be collecting over $200 million more than we are expecting next year, and that's only the cuts in the income tax. By itself, restoring these cuts wouldn't be a particularly good idea, since property taxes have shot up to take the place of the lost revenue, but it gives you a good idea about how we got into this mess: we chose it. It was the completely predictable result of conscious policy decisions made by people in charge. Ten years ago, I asked Michael O'Keefe, then as now the guy in charge of fiscal advice to the House Finance Committee, how on earth he thought we could afford the tax cuts the committee was about to pass. His reply: "The Chairman [then-rep. Tony Pires] feels that the state would benefit from increased fiscal constraints in future years." Well here we are.

I know what you're thinking: taxes are taxes and it's a darn good thing we did cut them. But there are very important differences between income taxes and property taxes that won't fit in the rest of this column, so I'm going save that for next week. In the meantime, consider this: Maybe you think these cuts are all necessary. Maybe you don't. Either way, does that mean we should pretend they didn't happen?

06:46 - 07 Nov 2007 [/y7/cols]

Mon, 05 Nov 2007

Wondering about the subprime market?

A very clear (and funny) explanation of what constitutes a "Structured Investment Vehicle" and the subprime mess can be found here.

15:59 - 05 Nov 2007 [/y7/no]

How long will the dollar last?

Another huge loss to overseas investors from dollar-denominated investments. At this rate, the dollar won't remain the world's reserve currency for much longer. And the Fed has shown it will respond to the domestic economy's need for lower interest rates, rather than the high interest rates needed to keep dollars attractive, so bond investment yields aren't going anywhere. If you lived in another country, why would you want dollars?

09:31 - 05 Nov 2007 [/y7/no]

Thu, 01 Nov 2007

Issue 28

Is out. Apologies for the long delay.

• Adding police where there isn't crime, losing police where they're needed: fighting crime in Rhode Island
• Estimating the true cost of the alternative "flat" tax cut for the rich.
• IRS coverup -- income statistics are no longer being provided.
• Review of Against Prediction by Bernard Harcourt, about the dangers of using profiling to fight crime.

Didn't you mean to subscribe?

10:05 - 01 Nov 2007 [/y7/no]

Presidential Health Care Plans

Want to get an idea of how candidate health care plans actually compare? The National Journal circulated a survey among several health care policy types, and presents a compilation of their comments about the various plans in this article.

I'm not sure it is wise to dignify a couple of the Republican plans with the company they keep (Giuliani's "plan", for example, should be embarrassing -- see comments in issue 27), but it is useful to see them all lined up like this.

10:05 - 01 Nov 2007 [/y7/no]

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