WATERS: Higher taxes plus more spending equals deeper hole

Published 1:31 pm Thursday, June 4, 2020

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“If you find yourself in a hole, stop digging,” Will Rogers advised.

That wisdom seems particularly relevant as the big spenders in charge of Congress clamor to deepen the hole of America’s debt with a vote-buying package thinly disguised as another economic-stimulus parcel.

Usually, such deepening of holes is accompanied by a lessening of perspective.

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Such is operating in full force as Chicken Little serves as grand marshal of the big-government crowd’s “parade of horribles, painting a picture of out-of-work teachers, devastated communities and an economic depression unless Congress rides to the rescue with a trillion-dollar stimulus to prop up state budgets,” writes former Deputy State Budget Director Andrew McNeill, a Bluegrass Institute Visiting Policy Fellow.

The political left wants to use this crisis to fatten government spending under the guise of “unusual times demand desperate measures.”

Actually, as McNeill states, while we may have unusual times, Kentucky’s COVID-19 budget shortfall projected by the state’s Consensus Forecasting Group represents “a management challenge, not an unmanageable crisis.”

The scenario’s most daunting aspect is that the budget year ends on June 30, leaving only a few weeks to close the gap and the year with a balanced spending plan.

It’s a chance for copy desk editors to insert panic in headlines.

Digging deeper, however, offers a much-clearer — and calmer — perspective.

A recent Lexington Herald-Leader headline shuddered: “State agencies planning for 12.5 percent budget cuts as shutdown costs hundreds of millions.”

Yet budget director John Hicks actually directed agencies to submit a plan to refrain from spending 1 percent of this year’s General Fund dollars.

With only a few weeks remaining in the current budget, obviously those dollars must be found in a short period of time.

The headline packaged the scenario as a 12.5 percent cut, which is likely to ramp up more jaw-dropping angst than the full perspective, which amounts to agencies facing a 1 percent reduction — a movie that’s played many times before.

“Reasonable people understand reducing state government spending by a penny of every dollar appropriated isn’t going to bring on Economic Armageddon,” McNeill surmised.

Besides, it’s not like the state doesn’t have additional dollars laying around it can use to fill the hole.  

Millions lie in restricted funds, which are monies obtained from miscellaneous fees collected from taxpayers who don’t have much of an idea of what they’re paying for — or why.

Such fees generally fund smaller initiatives or administrative overhead but also are commonly used to close end-of-the-year shortfalls.

Previous administrations, including those of both Republican Matt Bevin and Democrat Steve Beshear, have always used these monies to fill budget gaps.

Kentucky also has $300 million in the Rainy Day Fund. While it would be irresponsible to use the entire amount, applying at least some of those funds to close the budget gap is acceptable.

It would also be irresponsible to raise taxes on Kentuckians with a major chunk of Kentucky’s workforce struggling to find some unemployment-insurance monies and deal with future job and financial uncertainties.

Yet longtime proponents of increasing Kentucky’s gas tax, including chambers of commerce and highway contractors, will likely push hard during a special legislative session dealing with a $161 million shortfall in the Road Fund to finally get their way.

However, this shortfall wouldn’t exist if all current gas-tax revenues were being used for their intended purpose of investing in roads, bridges and infrastructure.

Until that happens, all discussions of increasing taxes — especially those on fuel, which would hit middle-class families already devasted by COVID-19’s effects — should be cleared off the table.

Besides, Kentucky’s never going to tax, spend or borrow its way out of the economic effects surrounding COVID-19.

The only viable option is to grow our way out of this hole.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bippson Twitter.