The State of Idaho is facing a $400 million budget shortfall. This could mean a further reduction in k-12 funding of up to $200 million and $175 million reduction in the Department of Health and Welfare (DHW). Why are tax revenues down? What can be done?
Tax revenues are down because the private sector of the economy has contracted. Idaho once had a $54 billion economy that generated $3 billion in tax revenues at a 5.5 percent average tax rate. A $45 billion state economy at the same 5.5 percent generates only $2.4 billion in taxes.
It is obviously better to have a bigger economy than a smaller economy. A $60 billion economy would generate more taxes for public education, roads, and social programs than a $40 billion economy.
Fact: higher taxes and more regulations act like a brake and slow the economy while lower taxes and fewer regulations stimulate the economy.
We have one of three choices:
1. Do nothing to reduce taxes and regulations and hope the economy improves by itself. This is called the Titanic Approach; hang on long enough and it will come back up.
2. Raise taxes to protect the state budgets like education and DHW and run the risk of slowing the economy even more. A smaller economy at a higher tax rate will result in less tax revenue than a larger economy at a lower tax rate. ($40 billion x .06% = $2.4 billion: $60 billion x .05% = $3 billion)
3. Reduce taxes and regulations to stimulate the economy.
Which is the wisest policy to adopt?
The Titanic Approach is a passive approach. It is doomed for two important reasons. First, according to Americans for Tax Reform, the cost of government is 48 percent of the GDP (Gross Domestic Product) plus another 15 percent of the GDP to pay the cost of regulations. The cost of taxation and regulations is too high in order for the economy to significantly improve. Second, environment regulations are killing natural resources and manufacturing jobs which form the foundation of any strong, stable economy. The strategy of doing nothing runs the real risk of condemning the average Idahoan to a steadily declining standard of living for years to come.
Raising taxes will guarantee a smaller economy and a prolonged recession. Who would make this choice?
The last choice, our only real choice, is to reduce taxes and/or the cost of regulations to allow the private sector of the economy to expand and regain its strength. I see a real opportunity for the State Legislature to reduce the cost of regulation which has the same effect as a tax cut and getting more money into the private sector without reducing tax rates. While it will not be easy to reduce spending and still maintain services, for far too long the legislature has taken the easy approach of raising taxes when the going got tough. What will happen this year? What will the legislature do? What do the citizens of Idaho support?
Friday, December 10, 2010
Monday, December 6, 2010
Cut Spending or Raise Taxes?
The Prime Issue of the 2011 Legislative session is what to do about a shortfall of $400 million in the general fund. The legislature has two basic choices:
1. Raise taxes rates
2. Cut spending
I would like to explain why I cannot support a sales, corporate or individual tax increase. I fear that too much time will be spent debating if we should raise taxes or not. The answer is unequivocal: no tax increases. The sooner the legislature comes to this conclusion, the sooner real solutions can be found. Here are a few reasons not to raise taxes.
First: current tax rates are too high and should be cut by 30 percent. According to the Americans for Tax Reform Foundation, 63 percent of all wealth created each year in the United States goes to federal, state, local taxes and/or pay for the cost of regulation. The cost of taxation and regulation should never exceed 40 percent of the GDP. In 1900, the percent of the GDP that was needed to fund all levels of government was only 8 percent! Government is getting plenty of money. Government does not need any more taxes. Government needs to use its current funds more efficiently.
Second: The private sector is struggling. Taxes come from private sector economic activity. State tax revenues have fallen from $3 billion two years ago to $2.3 billion this year. An increase in taxes would further reduce private sector activity and stifle the economy.
Third: Unemployment is up because there is not enough work or wealth in the private sector. If the legislature raises tax rates on the private sector, there will be less money left for businesses to hire workers and tax collections will drop even further.
Fourth: The legislature needs to fund public education. Public education cannot be funded with a shrinking private sector which is the source of public school funding. In order to fund public schools, the health of the private sector must be the 2011 legislature’s main focus. A $56 billion Idaho economy will raise $3 billion while a $45 billion economy will raise closer to $2 billion.
Fifth: The economy is stimulated by private sector production; not by government sector spending. The private sector produces wealth. The private sector is a perpetual wealth producing machine. It does not need government to continue producing wealth.
The government, on the other hand, does not produce wealth. It consumes wealth and gets in the way of the privates sector’s efforts to produce wealth by creating regulations. Regulations and taxes are a burden on the private sector. Proof that the government consumes wealth is to answer this simple question. How long would any government worker receive a paycheck if all taxes were suspended for one year? Government cannot survive without taxes paid by the private sector. (Inflation and printing money is a type of taxation.)
If raising taxes is not an option, then how will the legislature fund public schools and still provide essential government services? Two budgets (Education and Health and Welfare) must be the focus of the legislature’s deliberations because these two budgets consume 85 percent of state general funds. Two separate efforts need to proceed simultaneously. First reduce the cost of government. The second is to reduce the cost of regulations. I would offer several suggestions in the next post.
1. Raise taxes rates
2. Cut spending
I would like to explain why I cannot support a sales, corporate or individual tax increase. I fear that too much time will be spent debating if we should raise taxes or not. The answer is unequivocal: no tax increases. The sooner the legislature comes to this conclusion, the sooner real solutions can be found. Here are a few reasons not to raise taxes.
First: current tax rates are too high and should be cut by 30 percent. According to the Americans for Tax Reform Foundation, 63 percent of all wealth created each year in the United States goes to federal, state, local taxes and/or pay for the cost of regulation. The cost of taxation and regulation should never exceed 40 percent of the GDP. In 1900, the percent of the GDP that was needed to fund all levels of government was only 8 percent! Government is getting plenty of money. Government does not need any more taxes. Government needs to use its current funds more efficiently.
Second: The private sector is struggling. Taxes come from private sector economic activity. State tax revenues have fallen from $3 billion two years ago to $2.3 billion this year. An increase in taxes would further reduce private sector activity and stifle the economy.
Third: Unemployment is up because there is not enough work or wealth in the private sector. If the legislature raises tax rates on the private sector, there will be less money left for businesses to hire workers and tax collections will drop even further.
Fourth: The legislature needs to fund public education. Public education cannot be funded with a shrinking private sector which is the source of public school funding. In order to fund public schools, the health of the private sector must be the 2011 legislature’s main focus. A $56 billion Idaho economy will raise $3 billion while a $45 billion economy will raise closer to $2 billion.
Fifth: The economy is stimulated by private sector production; not by government sector spending. The private sector produces wealth. The private sector is a perpetual wealth producing machine. It does not need government to continue producing wealth.
The government, on the other hand, does not produce wealth. It consumes wealth and gets in the way of the privates sector’s efforts to produce wealth by creating regulations. Regulations and taxes are a burden on the private sector. Proof that the government consumes wealth is to answer this simple question. How long would any government worker receive a paycheck if all taxes were suspended for one year? Government cannot survive without taxes paid by the private sector. (Inflation and printing money is a type of taxation.)
If raising taxes is not an option, then how will the legislature fund public schools and still provide essential government services? Two budgets (Education and Health and Welfare) must be the focus of the legislature’s deliberations because these two budgets consume 85 percent of state general funds. Two separate efforts need to proceed simultaneously. First reduce the cost of government. The second is to reduce the cost of regulations. I would offer several suggestions in the next post.
Friday, November 12, 2010
EPA's Proposed $1.3 billion plan for Silver Valley in Idaho
EPA Coeur d’Alene Basin Team
1200 6th Avenue
Suite 900
ECL-113
Seattle, WA 98101
RE: Proposed Record of Decision Amendment – Upper Coeur d’Alene River Basin
To Whom It May Concern:
I appreciate the opportunity to comment on the EPA’s proposed Amendment to the Record of Decision for the Upper Coeur d’Alene River Basin.
I have several concerns about the proposed ROD.
1. Past cleanup efforts have significantly reduced the threat to human health. The current plan does little to improve human health while expending financial resources in consumptive activities that will not improve human standard of living.
2. The federal government is experiencing huge budget deficits which threaten the nation’s monetary system unless they are brought under control. The plan being proposed with a price tag of $1.3 billion is not prudent because of its price tag.
3. Opportunity costs. The $1.3 billion proposed budget for this project could be used in other, more effective ways. For example, there are 2,080 students in Shoshone County Idaho schools. If $7,000 were spent per child, the $1.3 billion could fund public schools in Shoshone County for 89 years. I see this as a clear example of growing a bureaucracy without regard to the children and families of the Silver Valley.
4. The proposed plan does nothing to produce wealth or stabilize the tax base. Taxes are paid by those that produce wealth. Current declines in the state of Idaho and national tax revenues are caused by a contraction in the private sector of the economy. The private sector of the economy cannot grow without access to natural resources and capital. To simulate the economy, we need to focus on five industries: mining, logging, manufacturing, energy production, and agriculture. Current environmental regulations and, specifically, this proposed plan will hamper access to natural resources, drive up costs to businesses, and reduce the standard of living in the Silver Valley and the whole nation.
5. Finally, the proposed plan severely restricts private property rights. As private property rights are restricted, the control by government over its citizens increases. The proposed plan runs the risk of undermining the very principles upon which limited government is based.
Thank you for the opportunity to comment on this very important matter.
Sincerely,
Steven Thayn
State Representative
District 11
1200 6th Avenue
Suite 900
ECL-113
Seattle, WA 98101
RE: Proposed Record of Decision Amendment – Upper Coeur d’Alene River Basin
To Whom It May Concern:
I appreciate the opportunity to comment on the EPA’s proposed Amendment to the Record of Decision for the Upper Coeur d’Alene River Basin.
I have several concerns about the proposed ROD.
1. Past cleanup efforts have significantly reduced the threat to human health. The current plan does little to improve human health while expending financial resources in consumptive activities that will not improve human standard of living.
2. The federal government is experiencing huge budget deficits which threaten the nation’s monetary system unless they are brought under control. The plan being proposed with a price tag of $1.3 billion is not prudent because of its price tag.
3. Opportunity costs. The $1.3 billion proposed budget for this project could be used in other, more effective ways. For example, there are 2,080 students in Shoshone County Idaho schools. If $7,000 were spent per child, the $1.3 billion could fund public schools in Shoshone County for 89 years. I see this as a clear example of growing a bureaucracy without regard to the children and families of the Silver Valley.
4. The proposed plan does nothing to produce wealth or stabilize the tax base. Taxes are paid by those that produce wealth. Current declines in the state of Idaho and national tax revenues are caused by a contraction in the private sector of the economy. The private sector of the economy cannot grow without access to natural resources and capital. To simulate the economy, we need to focus on five industries: mining, logging, manufacturing, energy production, and agriculture. Current environmental regulations and, specifically, this proposed plan will hamper access to natural resources, drive up costs to businesses, and reduce the standard of living in the Silver Valley and the whole nation.
5. Finally, the proposed plan severely restricts private property rights. As private property rights are restricted, the control by government over its citizens increases. The proposed plan runs the risk of undermining the very principles upon which limited government is based.
Thank you for the opportunity to comment on this very important matter.
Sincerely,
Steven Thayn
State Representative
District 11
Monday, November 1, 2010
How to Stimulate the Economy and Environmentalism
Tax revenues to the state government are down in Idaho. Leaving less money for schools and other social programs.
Who pays taxes anyway? People who work pay taxes. Specifically people who work in the private sector and produce things pay taxes. True, government workers pay taxes; but, they are paying taxes on money that was first collected from the private sector worker.
The way to get the economy going is to stimulate the private sector; especially, mining, logging, agriculture, manufacturing, and energy production. All other private sector economic activity services these 5 industries. Limit these 5 industries and the economy cannot recover.
What is stopping these 5 industries from thriving and growing? Environmental regulations that keep them from using natural resources and high taxes. The way to stabilize the tax base is to reform environmental regulations. How? Next time, I'll give a few ideas.
Who pays taxes anyway? People who work pay taxes. Specifically people who work in the private sector and produce things pay taxes. True, government workers pay taxes; but, they are paying taxes on money that was first collected from the private sector worker.
The way to get the economy going is to stimulate the private sector; especially, mining, logging, agriculture, manufacturing, and energy production. All other private sector economic activity services these 5 industries. Limit these 5 industries and the economy cannot recover.
What is stopping these 5 industries from thriving and growing? Environmental regulations that keep them from using natural resources and high taxes. The way to stabilize the tax base is to reform environmental regulations. How? Next time, I'll give a few ideas.
Thursday, October 28, 2010
Key to Economic Recovery
The economy is on everyone's mind. How do we get people back to work? There are two choices. First, have the government spend more money. Second, grow the private sector through tax reduction and government spending cuts. Which works?
Let's go back in time to 1847 when the Mormon pioneers entered the Salt Lake Valley. They were experiencing a profound depression. The Salt Lake Valley was a desert; no homes, no businesses, and no farms. What did the Mormon pioneers do? Did they start printing money or start working?
The answer is obvious. They started working, building homes, planting gardens, cutting timber etc. Money would have served no purpose. There was nothing to buy. The solution to our current deep recession is the same. Start working. How? Read the next post.
Let's go back in time to 1847 when the Mormon pioneers entered the Salt Lake Valley. They were experiencing a profound depression. The Salt Lake Valley was a desert; no homes, no businesses, and no farms. What did the Mormon pioneers do? Did they start printing money or start working?
The answer is obvious. They started working, building homes, planting gardens, cutting timber etc. Money would have served no purpose. There was nothing to buy. The solution to our current deep recession is the same. Start working. How? Read the next post.
Tuesday, October 5, 2010
The Fall Election Cycle
A common thread is developing in this year’s election cycle between the Republicans and the Democrats.
• The Republican position is the economy is struggling and government must live within its means without raising taxes just like everyone else is doing.
• The Democrat position is that more money needs to be taken from the private sector of the economy to protect government programs.
The Republican position appeals to those that pay taxes (farmers, workers, small businessman, manufacturers, loggers, miners, etc.) while the Democrat position appeals to those that live off of tax revenues (public employees, teachers, social workers, welfare recipients, etc.)
You need to ask yourself this question: “Will the economy and everyone’s standard of living improve if taxes go up and government grows or will the economy improve for everyone if taxes are reduced and government growth is reduced?” This question is the basic issue of the campaign. Let me give you a couple of facts to clarify the issue.
• Government now spends 48 percent of the Gross Domestic Product (GDP)). This means that government consumes 48 percent of all wealth in the United States.
• In 1900, local, state, and federal governments combined only consumed 8 percent of all wealth.
It is my position that high taxation is a form of slavery. Freedom is only possible when taxes are low and the laborer is able to keep the fruits of his labor. Redistribution of the wealth and high taxes favored by Democrats violates this basic principle of freedom and prosperity. For these reasons, I cannot vote for any Democrat.
The top of the Democrat ticket (Allred/Olsen/Minnick) has an almost identical view of government and taxes – taxes need to be increased to protect government programs. They are concerned about the health of government.
The top of the Republican ticket (Otter/Luna/ Labrador) also has a similar view – government must live within the tax revenues now being generated. Government must learn to do more with less. They are concerned about the wellbeing of the taxpayer.
The choice is clear. Will you vote to protect the private sector and vote Republican or will you vote to protect the government and vote Democrat?
• The Republican position is the economy is struggling and government must live within its means without raising taxes just like everyone else is doing.
• The Democrat position is that more money needs to be taken from the private sector of the economy to protect government programs.
The Republican position appeals to those that pay taxes (farmers, workers, small businessman, manufacturers, loggers, miners, etc.) while the Democrat position appeals to those that live off of tax revenues (public employees, teachers, social workers, welfare recipients, etc.)
You need to ask yourself this question: “Will the economy and everyone’s standard of living improve if taxes go up and government grows or will the economy improve for everyone if taxes are reduced and government growth is reduced?” This question is the basic issue of the campaign. Let me give you a couple of facts to clarify the issue.
• Government now spends 48 percent of the Gross Domestic Product (GDP)). This means that government consumes 48 percent of all wealth in the United States.
• In 1900, local, state, and federal governments combined only consumed 8 percent of all wealth.
It is my position that high taxation is a form of slavery. Freedom is only possible when taxes are low and the laborer is able to keep the fruits of his labor. Redistribution of the wealth and high taxes favored by Democrats violates this basic principle of freedom and prosperity. For these reasons, I cannot vote for any Democrat.
The top of the Democrat ticket (Allred/Olsen/Minnick) has an almost identical view of government and taxes – taxes need to be increased to protect government programs. They are concerned about the health of government.
The top of the Republican ticket (Otter/Luna/ Labrador) also has a similar view – government must live within the tax revenues now being generated. Government must learn to do more with less. They are concerned about the wellbeing of the taxpayer.
The choice is clear. Will you vote to protect the private sector and vote Republican or will you vote to protect the government and vote Democrat?
Monday, September 27, 2010
The Governor Race in Idaho
The Problem with Spending More Money on Education:
The failure of the “Allred Reasoning”
During the last four years under Governor Otter, Superintendent Tom Luna, and the Republican legislature student achievement has improved, test scores are on the rise, and the number of schools reaching AYP have more than doubled. Getting better results with less money
Gubernatorial candidate Keith Allred wants more funding for education without identifying any specific area where the money should go; neither has Allred identified any specific problem that needs to be addressed. Judging by Allred’s statements, the real problem is the budget was reduced. How can an efficient, low cost education system be a problem?
Allred’s vagueness on funding sources is even more troubling. He claims that cuts to education were not necessary; yet, he gives only one indication where the money will come from – the repeal of sales tax exemptions that could raise an additional $1.7 billion or a 73 percent increase in state taxes. How can Allred say this is not an increase in taxes?
If Allred has a solution that will increase funding to education without raising taxes, I want to hear what it is and so would every other Idahoan. I hope he is right. I would love to be wrong. If, however, Allred can’t explain his plan to restore education funding without raising taxes, he should be viewed as a political pretender instead of the smartest man in Idaho.
We have a right to know a few details of his plan. As voters, we have the right to judge his plan before he gets elected. Personally, I don’t want to take on faith the details of a nonexistent plan.
I have done the math. I don’t believe a short term solution to restore funding exists without raising taxes. Long term education funding can be increased without raising taxes by increasing the size of the private sector of the economy. This is exactly what Governor Otter is trying to do.
The failure of the “Allred Reasoning”
During the last four years under Governor Otter, Superintendent Tom Luna, and the Republican legislature student achievement has improved, test scores are on the rise, and the number of schools reaching AYP have more than doubled. Getting better results with less money
Gubernatorial candidate Keith Allred wants more funding for education without identifying any specific area where the money should go; neither has Allred identified any specific problem that needs to be addressed. Judging by Allred’s statements, the real problem is the budget was reduced. How can an efficient, low cost education system be a problem?
Allred’s vagueness on funding sources is even more troubling. He claims that cuts to education were not necessary; yet, he gives only one indication where the money will come from – the repeal of sales tax exemptions that could raise an additional $1.7 billion or a 73 percent increase in state taxes. How can Allred say this is not an increase in taxes?
If Allred has a solution that will increase funding to education without raising taxes, I want to hear what it is and so would every other Idahoan. I hope he is right. I would love to be wrong. If, however, Allred can’t explain his plan to restore education funding without raising taxes, he should be viewed as a political pretender instead of the smartest man in Idaho.
We have a right to know a few details of his plan. As voters, we have the right to judge his plan before he gets elected. Personally, I don’t want to take on faith the details of a nonexistent plan.
I have done the math. I don’t believe a short term solution to restore funding exists without raising taxes. Long term education funding can be increased without raising taxes by increasing the size of the private sector of the economy. This is exactly what Governor Otter is trying to do.
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