More Numbers Nonsense: $1 billion tax cut

More Numbers Nonsense: $1 billion tax cut

Let me start by affirming that the numbers nonsense I’m addressing today is not unique to our current governor, nor is it the exclusive province of one party. The particular form of the nonsense I’ll be exploring tends to be a form Republicans favor more than Democrats, but that’s only because Democrats have other numbers, equally nonsensical, they like to play with.

But for today, let’s talk about tax cuts. Specifically, let’s talk about Governor Rick Scott’s “$1 billion tax cut commitment to Florida’s families over the next two years.”

These sorts of promises always raise a question in my mind. It’s simply this:

Are we really wasting all that money right now?

That’s an important question, of course. If, say, state and local governments in Florida are wasting $750 million a year, as opposed to $1 billion, the governor’s proposal would do $250 million in harm to Florida’s families every year after it is adopted. That’s only $12 or $13 per man, woman and child per year in the state on average, but of course the harm would not be distributed evenly. Some would “pay” a stiffer price in lost services than others . . . if, that is, the governor’s number is off.

Is there reason to think the number might be off? Well, yes, actually.

The $1 billion figure appears to be based on what could be saved in taxes by eliminating specific taxes or reducing them. Of the seven tax cuts in Governor Scott’s proposal, three involve immediate elimination or gradual phasing out of specific taxes on businesses and business activities. The reason for targeting these taxes in particular would seem to be part of a campaign to “make Florida the best state to start a business and create job.”

That’s all well and good, but cuts have consequences beyond leaving money in some people’s pockets. I don’t hear the campaign saying anything about what we won’t be spending money on in order to be able to afford $1 billion in tax cuts. I don’t see even a suggestive list of budget cuts to go along with the tax cuts.

So I went looking to see what a $1 billion tax cut might really mean to the future of Florida’s governments.

It’s just possible that it might not do any harm at all. We are looking at a projected increase in revenues for FY2015-16 of almost $1.1 billion, according to the Revenue Estimating Conference report on General Revenue from early in August. $1.1 billion more in revenue means we don’t have to actually cut anything on the service side, right? We just give back the excess.

Except, of course, that the costs of providing those services are likely to change as well.

The most recent projections for inflation in 2015 and 2016 by the Federal Reserve suggest around 2 percent per year.

In percentage terms, the identified $1.1 billion in additional revenue for FY2015-16 represents 3.8 percent growth over the projected revenue for FY2014-15.

So . . . keeping things very simple here, the projected growth in revenue would be expected to outpace inflation by roughly 1.8 percent, maybe a little more . . . or about $500 million.

But the tax cut proposal is for $1 billion. That’s twice as much as the “excess,” and that notion of “excess” is assuming (a) these governments are already providing an adequate level of service in all areas of concern and (b) prices rise at the rate of inflation.

The first point, while we still are recovering from the Great Recession, would be likely to stir some dissent. The second is not a bad guess, but is just a hope.

Meanwhile, even if both prove true, we’re a half billion dollars short.

My real point isn’t about $1 billion, or $500 million, or 2 percent inflation. It’s about the games we play with tax cuts and promises.

Specific, big, round numbers attract attention and enthusiasm. Promises rally the troops and encourage the fence sitters.

But the strategy of campaigning ultimately must give way to the work of governing.

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And it’s there, when real budgets are being adopted and implemented, that we learn the real impact of campaign promises for the lives of Florida’s families.

2 Responses to More Numbers Nonsense: $1 billion tax cut

  • jimfrishe

    Scott:

    The real question is not “Are we really wasting all that money right now?”

    The first question any legislator should ask is: “Is this a tax that furthers the goals of the state government?”

    In that context, you might also ask: “Is this expenditure the proper purview of state government?”
    Once you have answered those fundamental questions, the rest is execution.

    The best welfare check is a good paycheck. If we can continue to get the economy of Florida moving again, not only should fewer people need “state services” but the revenue pie will expand as business activity increases. Your analysis assumes a closed system. The Revenue Estimating Conference’s task is much more complicated. Their numbers tend to be conservative as a result.

    There are more issues here than time or space. For instance, do you really trust the Federal Reserve’s projections on inflation when so many of their others have been off?

    Will we lose more businesses to other states? (Like we did with the boat building industry a few years ago)

    Just some thoughts.

    • Dr. Scott Paine

      Good points, Jim. I think your framing of two key questions is right on.

      I’m not assuming a closed system, however. Tax cuts generally do not have significant short-term effects on the economy. While the long-term health of the state’s revenue stream, if tax cuts foster growth and generate revenue, and it’s ability, because of that stream, to fulfill proper state purposes (and perhaps to have less to do, if more folks get meaningful private sector pay checks)is a complex and hotly contested issue, there isn’t much real disagreement that tax cuts take time to affect the economy. In the interim, the state must balance its budget and meet whatever needs we conclude the state should meet. That’s my point.

      Thanks for reading and for writing!