Friday, February 17, 2006

Reading Reschovsky

The Dems are all aflutter about the analysis by UW Professor Andrew Reschovsky of the "devastating impact" of the Taxpayer Protection Amendment. Basically, Reschovsky calculates that, had TPA been enacted in 1985 and its revenure caps had never been exceed, state government would have to spend 30% (or 5 billion dollars)less than it actually spent in 2005. You can read some of our liberal friends being impressed by this here and here.That this would be a disaster is assumed, if not proven. What would you cut, they ask, and some conservatives have tried to provide an answer.

More fundamentally, Reschovsky argues that, by capping revenue growth by the rate of inflation, the TPA would have reduced government as a percentage of the state's economy which, over the period in question, grew in real terms (i.e., personal income growth beat inflation). Thus, he concludes, the TPA is a ruse to reduce the percentage of the income that goes to government.

My initial response to this is sort of along the lines of "No s***, Sherlock." As income grows faster than inflation (something which doesn't necessarily happen and which might not happen over the next twenty years), we are generally able to devote that additional income to new things. Over time, the percentage of income that human beings spend on meeting their basic needs has declined. That's progress.

So there is no Platonic Ideal that says that the percentage of income that goes to government must remain the same at all times and in all places. Reschovsky's answer seems to be little more than "we can afford it" and therein lies the rub. If the money is there, it will be spent.

What have we gained by allowing government to grow at a rate greater than the rate of inflation. If goverment has gotten a "real" (after inflation) increase in income, has it delivered more to the taxpayers? Are the roads better? Are the schools more effective? Have we pulled more people out of poverty? I am skeptical.

And Reschovsky, unwittingly, provides the reason that none of this has happened. The reason, in his view, that government has "had to" grow at a rate higher than the rate of inflation is that the things which government must pay for have increased at a faster rate.

What are those things? Here is the money line:

"A substantial share of their budgets goes to pay for the services of highly-skilled labor, for example, police officers, teachers and doctors.>" Although throwing doctors in there is misleading (the state doesn't employ a lot of doctors and its reimbursements for medical services apart from its employee benefit packages are well below market), he's got it exactly right. The state's cost have increased at a pace above the rate of inflation because its labor costs - what it pays to state employees in wages and benefits - have done so. Reschovsky makes this sound like it is the result of the inexorable operation of the free market, but that just isn't so. The wages of these particular "highly-skilled" laborers is set through negotiations with politically powerful public employee unions; special and highly-invested interests who exert a disproportionate influence over the political process.

And that's the rationale for the TPA. Its an attempt to redress an imbalance on the playing field by requiring that increases that exceed the general increase in the cost of living and in the number of citizens to be served should be taken to the people.

Personally, I'd prefer that the authorization to exceed caps be undertaken by a legislative super-majority since I dislike referenda. But the idea that there must be greater intentionality to permit government to simply expand to take the next available money has merit. As Reschovsky's study unintentionally demonstrates.


Dad29 said...

For that matter, what "high skills" are required to fix potholes, plow snow, pick up garbage, or move paper around in a city office?

What "high skills" are REALLY included in police or fire work? Hell, volunteer fire departments still exist, which ipso facto calls into question the "high" part of the "skills."

Seth Zlotocha said...

The premise of Reschovsky's analysis is actually that an amendment to restrict government revenue in Wisconsin is not necessary. Wisconsin ranks 23rd in the country in local and state revenue relative to personal income--just slightly above the national average.

Also, the main concern expressed by Reschovsky isn't that personal income will outstrip revenue if this amendment is enacted--it's that government will become an increasingly smaller part of the state's economy each year. Many Wisconsinites--mostly lower and middle class--rely on government to be a strong player in the state's economy.

And we have gained as a state by allowing government to grow at a rate that's necessary--regardless of whether that's below, at, or above inflation. Our K-16 public schools are among the best in the nation, we have excellent protective services, our transportation system is solid, our state parks are excellent, programs like BadgerCare are vital...the list could go on and on.

If you want to argue some public service is not necessary or too bloated, then make that public service the debate. Don't side-step the issue by tying a noose around revenue.

There's a reason every local government organization in the state--from municipalities to school boards to fire fighters to police officers--have come out against this amendment, and it has nothing to do with being liberal or conservative because there are plenty of both in all of those groups.

One last note, claiming unions "exert a disproportionate influence over the political process" as evidence for the need for this amendment is supremely ironic when the biggest spending special interest in the state--Wisconsin Manufacturers & Commerce--is at the forefront of pushing this amendment.

Rick Esenberg said...


I anticipated the Reschovsky "It ain't so bad" argument in a column. I wrote last June. I said then:

If we spend roughly 21.4% of our personal income on state and local government while the surrounding states spend 19.6%, what's roughly two little points among friends ? (Answer: About $2 billion.)

The problem with the "we're so much better" argument is that we're not. Other states educate their kids, build roads and do all manner of things with less money.

Seth Zlotocha said...

I'm sure some of our neighbors provide higher-level public services for some things and not-so-much for others. But they also do so without a state constitutional amendment that restricts revenue as severely as the one being pushed today in Wisconsin.

This amendment is not about bringing Wisconsin revenue in line with our neighbors or even the rest of the country--it's far too extreme for such a modest goal.

Also, just out of curiosity, could you site where you got the numbers for how much Wisconsinites put toward government in relation to our neighbors?

Rick Esenberg said...

The numbers I cited came from a September 2004 WPRI study.

Seth Zlotocha said...

The numbers in the WPRI study you cite deal with state and local spending relative to personal income, not the collection of revenue, which is what this amendment is all about. Government spending and revenue collections are not the same.

According to Reschovsky's study, Wisconsin only lands "a few tenths of a percentage point above the national average" in terms of state and local revenue collections in relation to personal income. This hardly requires such a drastic measure as a constitutional amendment to restrict revenue to a rate that has nothing to do with the actual costs of operating governmental units.

Rick Esenberg said...

They're not the same but over time they have to come together. If that weren't so, then why be upset over revenue limits.

I'm not sure about the 23rd place ranking. Last year, the La Follette School was saying that we rank 6th in the nation in tax burden and 15th when you factor in all taxes and fees. Given that we do not have above average income, I think some further examination of the data is in order.

Seth Zlotocha said...

Thanks for pointing out that info from the La Follette School. It actually has some interesting info: WI tax burden is the same today as 15 years ago, WI businesses experience lower taxes than businesses in neighboring states, total WI governmental revenue has not fluctuated in relation to personal income in recent years, local taxes do not determine where people live, among many others.

In terms of WI having the "15th highest burden" of taxes and fees in relation to personal income, my response would be that taxes and fees don't encompass all of the revenue generated by the government. You really need to also consider revenue generated through assessments, licenses, permits, fines, and forfeitures to get a complete picture. Besides, the Republican proposed amendment deals with total revenue, not just taxes and fees, so it's more accurate to assess the amendment's need based upon analyses that consider total revenue.

Seth Zlotocha said...

If you want to see another defense of Reschovsky's numbers, check out this informational paper by the Legislative Fiscal Bureau in January 2005.

According to the report, Wisconsin ranked 23rd in the nation in general revenue in relation to person income during the 2001-2002 fiscal year (the most recent data at the time from the Census Bureau was from that year).

When factoring in utility, liquor store, and insurance trust revenues to the general revenues, forming total revenues in relation to personal income, Wisconsin drops in rank to 37th in the nation--4.5% below the national average.

Rick Esenberg said...

Its an interesting report and it tells pretty much the same story.
General revenue from our own sources (which is what the WTPA would address) places us at 14th per capita and 15th per $1000 of personal income. Above average in both categories.

Seth Zlotocha said...

Right. I plan to contact Reschovsky tomorrow to see if he was using more up-to-date data or if this is as recent as it gets.

Either way, the information in the report doesn't support the revenue restrictions amendment. That 15th place ranking is higher than we were as a state for much of the past twenty-plus years. But more importantly, the report shows fluctuations in government revenue (from WI sources & w/ federal money) from year to year that demonstrates how important it is for government to be allowed flexibility in the budget process--something this amendment would largely take away.