Baseball Crank
Covering the Front and Back Pages of the Newspaper
September 24, 2009
POLITICS: From The Department Of Completely Predictable Consequences

Governor Paterson discovers the gee-who-coulda-seen-this-coming fact that jacking up marginal tax rates is bad for the economy and not all that helpful to the budget:

[E]arly revenue figures suggest that taxing the wealthy more under this year's state budget may have driven away richer New Yorkers. That could make the economic comeback for the state even harder.

"You heard the mantra, 'Tax the rich, tax the rich,' " Gov. David Paterson said Wednesday at a gathering of newspaper editors at an Associated Press event in Syracuse. "We've done that. We've probably lost jobs and driven people out of the state."

In a similar we-told-you-so vein, the Wall Street Journal notes a GAO report saying that the stimulus has had precisely the effect on state budgets that its critics among the GOP Governors warned it would:

Stimulus money is helping states plug budget holes, but state officials are worried about how they will sustain programs after the federal funds run out, according to a new Government Accountability Office report released Wednesday.

Around $90 billion of the $787 billion stimulus package was dedicated to state Medicaid programs. The money, which goes out quarterly to the states and is known as FMAP funds, has moved faster than stimulus dollars allocated to many other spending categories.

The GAO, the congressional watchdog charged with monitoring how states are handling their share of the stimulus package, found that most states it studied were using the Medicaid funds to cover increased caseloads and to maintain their current services and eligibility criteria. Some states were also using the funds to avoid cutting payments to hospitals and doctors.

State officials "expressed concern about the longer-term sustainability of their Medicaid programs after the increased FMAP funds are no longer available, beginning in January 2011," the report said.

The report also found some states were using the money to free up other parts of their state budget that would otherwise have been used for Medicaid. Several states reported the funds were helping finance general state budget needs.

Posted by Baseball Crank at 1:00 PM | Politics 2009 | Comments (26) | TrackBack (0)
Comments

Gee, lets see if berto, et al will even address this.

Posted by: dch at September 24, 2009 3:18 PM

"Several states reported the funds were helping finance general state budget needs."

The GOP Governors did not warn that states would use the increased funds aimed at helping their Medicare to offset budget cuts in states. BTW - there were a number of Govs who stated outright that they would use this to avoid making cuts, back in March. And this was reported back in July that it was actually being done, by the NCSL. So, this is the least shocking information ever.

The GOP Govs warned that some programs - especially unemployment - would have to be changed, neglecting to mention it could be changed again later.

Please find me this concern expressed by any of them. Not generic 'oh noes', but specific.

"State officials "expressed concern about the longer-term sustainability of their Medicaid programs after the increased FMAP funds are no longer available"
This was not their concern. It's close to it, and it's made to sound like it - but it's not.
See, here's the thing - they complained about being made to change parts of their law in order to be able to qualify. Neglecting to mention it could be changed back later.

This Medicaid spending has no relation to that, and could have been directly changed by them with either income requirements or payment limitations. There was no requirements that they avoid this in the stimulus.
This is the traditional hard decision that politicians don't want to make, and the funds helped them to avoid it in a bad time - which (again) helped those most affected.

Lastly, you're missing out why they are concerned. They are concerned because their Medicaid budgets continue to grow, they get half contributed by the Federal Government, and they are worried about if they are going to find their half.

For example, Texas has increased their Medicaid enrollment by 8%, without being forced to by the Federal government. This increased spending is what they are talking about. The FMAP funds are providing a temporary buffer for their actions.

Look elsewhere to find your 'I told you so's', which all serious people view as necessary to the political process.

Posted by: Dave at September 24, 2009 4:13 PM

You're kidding, right? A major point made by Jindal, Sanford, and Palin was that taking the money would screw their budgets down the road by expanding their responsibilities going forward - especially on the Medicaid front - without the federal funds continuing, and that taking the money would just forestall making hard budget decisions that needed to be made. That's exactly what's happened.

Posted by: Crank at September 24, 2009 4:21 PM

I should add, moreover, that there was scads of conservative commentary at the time to the effect that states taking the money would spend it unwisely instead of making cuts. You seriously live in a universe where you didn't hear any of this?

Posted by: Crank at September 24, 2009 4:23 PM

The stimulus funds weren't supposed to bail out states indefinitely, but at least see them through the worst part of the downturn without forcing drastic cuts at time when the economy could ill-afford more contraction.

The fact that the states are still having fiscal problems is no surprise to me. This time, they'll have to change laws and make cuts. It certainly shouldn't be used as an excuse for a second stimulus.

Posted by: MVH at September 24, 2009 4:40 PM

Limbaugh left NY because of the taxes. Told this, Patterson famously joked that if he knew that'd be the result, he'd have raised them sooner.

Revel in your bravado, Governor Patterson. You deserve what you're getting. Can't say I'd shed a tear if more left, to be honest.

Posted by: RW at September 24, 2009 7:31 PM

Ok guys-tax rate increases passed on the rich, you know so they pay "their fair share" resulted in less tax revenue..........never, ever again question us regarding whether lower tax rates leads to more tax revenue....ever.

Posted by: dch at September 24, 2009 9:48 PM

"You're kidding, right? A major point made by Jindal, Sanford, and Palin was that taking the money would screw their budgets down the road by expanding their responsibilities going forward"
Their comments were largely about unemployment, not Medicaid, since there were requirements about changing unemployment laws. Minor changes to some Medicaid programs too - but not for the bulk of the funds, and they could opt out of changing their laws for this.

Please find quotes directly about Medicaid. Not generic statements. And not the small amounts for minor programs, but the large bulk gifts which are the majority of cash given out. Most of this money was unrelated to future higher spending.

"- especially on the Medicaid front - without the federal funds continuing, and that taking the money would just forestall making hard budget decisions that needed to be made."
Nothing in the Medicaid stimulus forced upward spending to the level it has grown, and they could have refused partial funds for what they chose not to meet, as Jindal did, I think $10m out of $2B for homeless families. Nothing forced them to delay making hard choices. They chose to.
The bulk of the Medicaid funds they have received were not in response to Fed mandated program changes, or changed future budgets by expending it down the road.

"That's exactly what's happened."
Very few people didn't expect this, so I'm not sure who you're arguing with. This was part of the goal, and you can find extensive documentation and quotes on this. There is a difference between:
1) A controlled cut that can be measured, expected, and negotiated, and delayed from one of the worst moments to do this
2) An uncontrolled cut where desperate measures need to be taken either where constrained by law, financial markets, or anything else.

Most rational people would always prefer (1), but each one was free to do 2 - they chose not to, and in some case escaped to Argentina or just quit. Most rational people argued 50 states doing (2) would have been quite bad.
And as MVH says, it was meant to help them out through the downturn. Can you find one person who didn't believe this?

"You seriously live in a universe where you didn't hear any of this?"
What are you talking about? I already said that I knew states were going to use these funds to avoid making too many cuts. Here's my quote above 'BTW - there were a number of Govs who stated outright that they would use this to avoid making cuts, back in March. '
I don't need to have heard conservative commentators on it, they were saying it directly!

Posted by: Dave at September 24, 2009 10:11 PM

dch -my position on the laffer curve still stands - it's an "it depends" proposition. Maybe it's responsible for NY's revenue problem, maybe it's not. Even it works in NY, it may not work elsewhere. It depends on a number of variables, and measuring its effects is empirically difficult. You guys believe in it as a matter of faith. Unfortunately, it's not that simple.

Posted by: MVH at September 24, 2009 10:12 PM

".never, ever again question us regarding whether lower tax rates leads to more tax revenue....ever."
dch, I've given you many links about why you are wrong on this. I won't post the links here, for fear they are eaten up by the filter (if Crank gives the Ok he'll do a clear, I will)

Here's simple terms you can search for, that give you as the first result an easy counter. From Republicans.
"time magazine laffer"
Here's actual quotes from him:
"When you talk about the Bush tax cuts, which were tax cuts across the board, all the inframarginal tax cuts were dead-weight revenue losers, period."
"So you talk about a Bush tax cut, he had two sets, the first one I wrote not only wasn't going to pay for itself, but probably wasn't going to stimulate anything."
From the interviewer: 'But obviously there are diminishing returns as you get down that scale.' Answer "Of course there are."

"laffer lines nugent", which has a nice chart showing how revenue can easily decline outside of the prohibitive area

"Dynamic Analysis mankiw", about a 2006 study of the lower revenues caused by permanent extension of Bush's tax cuts.

I'm not questioning you dch. Mankiw, Laffer, and any number of economists on the right are. You just choose not to hear them.
Do you have anything to counter Laffer's first or second statement? Are you saying that Mankiw and Laffer are wrong when they says not all tax cuts pay for themselves?

Posted by: Dave at September 25, 2009 1:07 AM

If you want to say the rich are paying their fair share, then rely on this from the article:

"According to the Manhattan Institute, the wealthiest 1 percent of New Yorkers paid 41 percent of all state income taxes before the new tax rates were approved."

At the very least, this is a verifiable statistic, and it makes your political point without relying on a macroeconomic argument that is flawed.

This "tax cuts always result in revenue growth" mantra is one of the reasons I shy away from republican candidates. They think they know economics, but they don't, and we're likely to wind up with more debt because they rely on this effect rather than tackling the more difficult job of cutting government spending. If you want to cut spending, then cut spending, but don't rely on this stuff.

Posted by: MVH at September 25, 2009 6:24 AM

I have never heard a single GOP politician say that "tax cuts always result in revenue growth". That would be idiotic.

I'm sure you can find a reasonably similar statement from some yahoo somewhere, but I'd be pretty surprised if said yahoo didn't qualify his statement at some point or if it wasn't made in a tax environment where that was practicably true.

All that said, a very defensible statement would be that in the tax regime most democrats seem to favor, long-term increases in receipts are possible by cutting marginal rates. It's difficult to combat Donk "tax the rich! Fair share!" boob-baiting with actual, provable economics.

Posted by: spongeworthy at September 25, 2009 8:54 AM

Guys, people react to incentives and disincentives-that is the most basic response of human nature. When you decide to punish people in place A, they will move to place B, C, D whatever. The soak the rich/class warfare that the left always engages in has been proven time and time again to fail because the rich just move their assets elsewhere, to another state or another country where they can keep a greater portion of their assets that , oh yeah that they earned. This is 100% predictable. Maryland did the same thing last year and predictably a number of Maryland millionaires moved out of state and now even though the tax rates are higher they are getting less tax revenue. Conversely, the states with the lower tax rates are now getting more rich people moving there because of the lower tax rates and those states are getting more tax revenue. Example- the british Rock stars in the 60s and 70s-they all became citizens of other countries because Britain had ridiculously high tax rates.

It is fascinating listening to you people deny the obvious, deny human nature.

Posted by: dch at September 25, 2009 10:21 AM

MVH,
I know of no human being that says "tax cuts always means more revenue growth" (or some facsimile thereof). The gist, though, is that tax cuts GENERALLY means increased economic activity which GENERALLY means increased GDP, thus giving greater inlays. Stuff can sometimes happen (attacks, housing crashes, stock market dips) that cause SNAFUs, but in general, they've worked. JFK's' tax cuts led to economic growth. Reagans tax cuts led to economic growth. If only we can simulate another MSFT recreating the technological changes that we saw in the 90s & couple that with a fake tech bubble, then we can have growth plus tax cuts, as we had during the Clinton years (where we also had a dip in the growth of gov't spending, thanks Newt).

Posted by: RW at September 25, 2009 11:17 AM

I'll take these one by one:

"I know of no human being that says "tax cuts always means more revenue growth" (or some facsimile thereof)."

I was responding to this statement by dch: "never, ever again question us regarding whether lower tax rates leads to more tax revenue....ever." Maybe that's not what he meant, but that's how I read it.

"I have never heard a single GOP politician say that "tax cuts always result in revenue growth." It wasn't my intention to quote a GOP politician, but would you deny that this Laffer curve argument has been a major theoretical underpinning of republican tax policy? If it bothers you, you can take the "always" out of the statement, and my opinion is the same. The answer is: it depends.

"It's difficult to combat Donk "tax the rich! Fair share!" boob-baiting with actual, provable economics." Actually, it's not. I gave you one statistic which helps. Another one which is much more likely to move the chains than millionaires moving is that lower taxes, particularly capital gains, is an incentive for millionaires within the state to spend. Think of all the money tied up in trusts, for example. It's not a clear winner, of course, because it really hard to separate out relative contributors to lower (or higher) tax revenue. It's not even worth trying, as far as I am concerned.

"JFK's' tax cuts led to economic growth. Reagans tax cuts led to economic growth"

JFK is an extreme example - rates were 91%. There is no doubt, at that end of the Laffer curve, that lower taxes will generally increases revenues. That I'll believe with a study.

Reagan is much more complicated. We weren't at the high end of the curve, we don't know the shape of the curve, and there was a ton of government spending under Reagan. How did that all net out? Impossible to prove with any reasonable certainty.

Posted by: MVH at September 25, 2009 1:41 PM

Woops - that last post should say: That I'll believe withOUT a study.

Posted by: MVH at September 25, 2009 1:43 PM

One more thing:

"Guys, people react to incentives and disincentives-that is the most basic response of human nature. "

That's fine to recognize, and I have no problem with that argument if you leave it there. The problem becomes when you try to attribute a macroeconomic outcome to a particular microeconomic incentive. Microeconomics is a fairly well-understood field, macroeconomics is a mess and always will be. There are too many variables. Arguing that US economic growth during a certain period is attributable to a certain president's policies by way of the microeconomic incentives they provided is empirically impossible to establish with any confidence.

Posted by: MVH at September 25, 2009 3:01 PM

"I have never heard a single GOP politician say that "tax cuts always result in revenue growth". That would be idiotic."
George Bush, '"You cut taxes, and the tax revenues increase,"'
Dick Cheney, ' "does produce more revenue for the Federal Government." '
John McCain, 'tax cuts ... as we all know, increase revenues.'
Rudy Guiliani, 'I know that reducing taxes produces more revenues'

You should review what they are saying more - Guiliani said it in an ad, it's trivial to find online, and no qualifiers. Romney said it. Fred Thompson said it. You could find hundreds, without much effort. It's the reason why people like dch respond with his 'never ever' - repetition works, and no one steps up to dispute it aside from those on the other side of the fence. And conservatives don't worry about these minor factual corrections of their guys.

Why? Because it's easy to say, and thousands will eat it up and repeat it without knowing the background, and hard to educate people on what tax cuts really do. It is an article of faith by now, regardless of how it needs to be applied only in specific situations instead of generic.

And all I can hope for is smaller increases in knowledge, since no Republican will come out and say this - and be embraced by the masses. BTW, there's a new paper (haven't read yet) which indicates which we may be on the declining edge.

"It is fascinating listening to you people deny the obvious, deny human nature."
Sweet, I got you to backtrack off your tax receipt claims. Score one for increasing knowledge in the world.

"Maryland millionaires moved out of state"
There is no proof they moved out of state, just that there are no longer as many millionaires. This is expected in an environment with falling revenues and a crashing economy. Review the WSJ article where you got this from, they actually say (paraphrased) 'we don't know where they are, they may have moved or are no longer millionaires'.

" The gist, though, is that tax cuts GENERALLY means increased economic activity which GENERALLY means increased GDP, thus giving greater inlays."
Again, this is not true either. There are plenty of tax cuts which produce no greater activity and can lower GDP (really, check Laffer's statements).
People also put too much emphasis on tax cuts over a 10 year cycle of business cycles/tech changes/efficiency/monetary policy. And that's without going into increasing GDP may not increase revenue, which is the whole point of my earlier statements. Generally is no more true than always.

Posted by: Dave at September 25, 2009 3:37 PM

Dave, you should learn to hyoerlink. As it stands, I'm pretty sure you either created those quotes out of whole cloth or omitted the context. I also note the elipses that scream "Dowd-ified" splitting McCain "quote".

Hear, I'll try one. Obama "Michelle and I have two children...for breakfast every day."

Sorry. People with facts hyperlink.

Posted by: spongeworthy at September 25, 2009 4:54 PM

"Dave, you should learn to hyoerlink."
I know how to hyperlink. They get caught in Crank's spam filter, and spend anywhere from an hour to weeks in there. Often by then, the discussion has moved on.

Read above where I also mention the filter, and I have in previous comments as well.

I'm not willing to spend time hyperlinking, and writing content backing these up, only to have it never be seen.

Posted by: Dave at September 25, 2009 7:05 PM

But here's Guiliani's comment from his ad

Hey, you never know, it works from time to time.

And also, being that Crank is doing this on his own time for his own pleasure (including seeing me pop up, I'm sure) - I'm not going to harass him about this.

Posted by: Dave at September 25, 2009 7:08 PM

Heh, just added a hyperlink, and got the "thanks for posting' message.

Posted by: Dave at September 25, 2009 7:09 PM

Hey sponge. Looks like you're calling the powers of the GOP a bunch of idiots. At last, we agree.
My only question is, "What took you so long?"

Posted by: Berto at September 26, 2009 3:00 PM

From the Department of Completely Predictable:
Those who would never, ever actually put their lives on the line for their country will loudly advocate for more war.

Posted by: Berto at September 27, 2009 11:59 AM

I always felt that that the Republican Party's affinity with Milton Friedman-style macroeconomics and Laffer-influenced tax policy had more to do with their political values rather than the merits of the economic theories. The idea of no gov't interference, the incentives to have people work to better themselves, the freedom to use income earned for whatever you want, etc.

None of these macroeconomic theories have done much good in predicting economic events, basically because the assumptions underlying the theories are completely unrealistic and make no account for the fact that we live in a world of political states. Keynesianism is no better than Friedman-style capitalism, but why adhere to either flawed model?

Note to Berto: this is about competing theories of capitalism - it is not a defense of socialism.

Posted by: MVH at September 28, 2009 12:05 PM

Got it, MVH.
Agreed. Socialism, like Conservativism, is indefensible (and non-sustainable).

Posted by: Berto at September 28, 2009 8:33 PM
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