Tom Sgouros: Fiscal Responsibility: Where Does It Lie
Monday, July 18, 2011
As we watch Republicans in Congress toy with economic armageddon, I think it's worth reviewing what we know about government finance and the various parties involved in the debate.
Failure to pay any US bonds, a possibility blithely acknowledged by Republican leaders in both the House and Senate, will constitute a disaster for the whole world. In case you haven't noticed, interest rates are extremely low here, and have been for a while, and yet the US has no trouble financing its debt. Five-year Treasury bonds are essentially paying a negative interest rate just now. Think about that: people have been paying us to hold our debt. The reason is that ours are the world's safest investments, or at least they were. Our debt has been the foundation under the entire world's economy for a generation and has resisted attempts to supplant it. In recent years, China, OPEC, and the Eurozone have all tried to create an alternative, and failed -- so far.
It may already be too late to avoid the consequences of a loss of trust. The international currency markets have seen a run on the dollar over the past few weeks. A weaker dollar could be a good thing for our exporters, but the collateral wreckage will be immense. That policy makers can contemplate this kind of thing without horror is appalling enough. But what's truly astonishing thing to me is that anyone takes seriously Republicans who want to claim the mantle of fiscal responsibility. We've seen this, for example, in the applause for Paul Ryan's travesty of a budget, and in the public positions of John Boehner, the House speaker, and Eric Cantor, the Majority Leader.
Let's be real, after the Clinton surplus, we have a deficit because George W. Bush chose to prosecute two wars without paying for them, allowing our soldiers and their families to be the only ones to sacrifice for war. He also proposed and saw passed a Medicare drug benefit that predominantly benefited drug companies, and cut taxes by a tremendous amount long after it was clear that the other policies were going to cause the annual deficit to balloon. He squandered that surplus with the able assistance of a Republican-controlled House and Senate. He did it with the help of some Democrats, of course, but they weren't in control of any branch of the government.
To imagine that this is just national politics is not right, either. In our little state, you so often hear the cry that it's our labor-controlled Democratic legislature that has brought us to such a sorry fiscal pass. But that's also absurd. It's been years since organized labor won a high-profile fight in the Assembly, and I'm so old I can remember the last broad-based tax hike passed by the Assembly -- almost two decades ago, in 1992, when the income tax went up to accompany all the state budget cuts necessitated by the recession of the Bush I years and the reckless income tax cuts with which Ed DiPrete had hoped to save his governorship.
That was under Bruce Sundlun, a governor whose fiscal policies I didn't support, but who was at least committed to paying the bills. In addition to the income tax, he also prevented a decrease in the sales tax in order to deal with the implosion of the RISDIC private bank insurance fund, with the result that we paid off that debt years ahead of schedule and clawed our way out of the recession without the kinds of widespread and brutal cuts in municipal services now under consideration.
Who's in charge here?
Oh, and about the Democratic control of the legislature? Apart from the four Sundlun years and despite our Blue State reputation, we've had a Republican governor from 1985 until this year. So there's some shared responsibility for our budget mess. I've been reading the budgets since 1990, and the idea that the legislature rewrites what the governor submits is largely a myth. In a handful of those 22 years (this past session was an example) there has been a wholesale rewriting, but for the most part, the Assembly only does some trimming around the margins. Governors routinely hide behind the legislature, but it's usually a sham.
Under Republican Lincoln Almond, we undertook two monumental tax cuts that would have constituted more than a 15% cut in all tax revenue, but Almond never came close to presenting spending cuts to match them, and so the car tax cut was never fully phased in. (Compare this to Eric Cantor, who is calling for trillions in spending cuts, but has yet to present recommendations for more than a small fraction of that.) He also oversaw the transformation of a debt problem into a crisis at DOT, and even created a paper Department of Debt Service without any staff to hide that debt. It was only a windfall of hundreds of millions from the tobacco settlement that provided camouflage for this calamitous mismanagement.
Then under ex-businessman Don Carcieri, we more than doubled our state's debt, repeatedly stiffed the cities and towns of aid they counted on to keep property taxes down, and stood by while Central Falls went into receivership. Carcieri's true coup de grace was to trigger the 2008 retirement rush that added $145 million dollars to the annual pension system deficit in order to save less than ten million from the budget. Now that's mismanagement to be proud of.
All this mismanagement was certainly enabled by the Democratic Assembly, but it will be a cold day in, um, July, before I again let Republican claims of fiscal responsibility go unchallenged. The history is clear: the people who say the problems are simple are the ones you can count on to make them much, much worse.
Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].
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