FUNNY. IT’S usually Democrats who think you can get something for nothing. You know, a chicken in every pot, a car in every garage. It was libertarian economist Milton Friedman who had to come along and remind the Keynesians that there’s no such thing as a free lunch.
And people sort of seemed to get that.
Then came Gov. Nikki Haley, who promised us for months that she was putting together a plan to patch our pock-marked highways and bolster our deteriorating bridges. And instead she offered us … a tax cut. Which she called a road-repair plan.
Last week, in a blizzard of interviews apparently aimed at tamping down any traction that could be building for plans to actually fix our roads, the governor told reporters that she would only accept a road-repair plan that was packaged with “a significant” income tax cut. And then, in a jaw-dropping elaboration, she added: “It can’t be revenue neutral.”
Not to put too fine a point on it, but what the governor is saying is that she will oppose a road-repair plan that does not cut taxes. Massively.
What’s next? No legislation to toughen penalties for domestic violence unless it includes a significant income tax cut? No ethics reform unless it includes a significant income tax cut? That makes every bit as much sense as what she’s saying.
She didn’t stop there. She also told reporters: “We’ll let everything fall by the wayside before we allow the people of South Carolina to see a tax increase.”
Note what she didn’t say. She didn’t say, “We’ll let everything fall by the wayside before we subject the people of South Carolina to a tax increase.” She said “before we allow the people of South Carolina to see a tax increase”
And I know this might seem like I’m playing with semantics, but you know, at some point, words matter. At some point, the governor is acknowledging that there are a lot of people in this state who want the Legislature to raise taxes to pay for road repairs, because they understand math, and they know that’s the only way to catch up after decades of neglect. And the governor is not going to let them see that.
Worse: She’s been taken seriously.
Oh, there’s no danger that the Legislature is going to pass her pixie-dust plan. Even if the House goes along — and there’s some effort to try to appease her with a merely huge tax cut instead of a budget-busting tax cut — the Senate won’t.
It’s simply too irresponsible, and the Senate rules make it easy for a minority of senators to block something they really hate.
Road repairs? Forget about it
The danger isn’t that Gov Haley will succeed in making it impossible for our state to continue providing even the current sub-par level of services The danger is that her plan will prevent any improvement of our roads.
As I’ve written before, I’m not certain that our roads ought to be our No. 1 priority. But a lot of people are convinced of that, and the fact is that if they want to improve them, it’s going to mean either raising taxes or else making substantial cuts to the rest of government.
And that’s the problem with the Haley plan: It pretends — based on absolutely nothing but that pixie dust — that we can have something for nothing. It pretends that we can fill a $400 million-per-year pothole not by raising taxes by $400 million but by cuting them by $1.4 billion.
It’s such a nutty idea that reasonable people can react by saying, “Oh, it must be that I just don’t understand; there must be some other parts I’m missing, because no one would propose something that insane.”
And yet, that is precisely what our governor has done. And she’s not backing down.
The governor argues that state revenue increases every year, and that we can afford to cut taxes by $1.4 billion a year because state projections show annual state revenue will have grown by $3.2 billion a year by the time her tax cut is fully phased in, in 2025.
That means we could take all that money out of the budget without having to cut the budget: The total general fund revenue will be $7.3 billion next year, and with her tax cut, it would be $8.7 billion in 2025.
Of course, that projection relies on our economy growing at 4.1 percent per year — about the same rate it’s grown in the past few years — for the next decade, which certainly is no certainty. But even if state revenue does grow that much, that doesn’t mean there wouldn’t be cuts. And it doesn’t mean services wouldn’t be diminished. There would be, and they would be.
Inflation + population
There are three general approaches to government budgeting. You can keep providing the same level of services, you can provide more services, or you can provide fewer services. But those three options don’t translate into spending the same amount of money, spending more money or spending less money.
The way to keep government the same size is to limit spending increases to the growth of population plus inflation. That way you can keep paying the bills — just like you keep buying gas and groceries and other necessities — while costs increase. You also can keep providing the same level of services as you have more people demanding those services.
And frankly, if your government is providing all the services that it needs to provide, then you ought to be able to continue to run it on the basis of inflation plus population growth. And over time, that’s generally how much revenue grows if you neither raise nor lower taxes. That natural revenue growth, as it’s called, is what Gov. Haley is referring to when she says we’ll have $3.2 billion a year more to spend in 2025 than we do today.
But if you don’t have that natural revenue growth — if you cut taxes so much that revenue remains flat or grows by a much lower rate than population and inflation rather than increasing naturally as the population rises and people make more money and spend more on taxable goods — then every year, the level of service you’re able to provide per person shrinks.
Not only are you unable to hire another teacher when you get an extra 30 first-graders in your school, but you can’t give any teachers a raise, even to keep up with inflation; so eventually all the good teachers will leave, or else you’ll have to give them a raise, which means you have to reduce the number of teachers even more.
And that repeats throughout the government — fewer Highway Patrol troopers, fewer clerks to process the papers when you want to adopt a child or get a divorce, fewer SLED agents to catch bad guys, fewer case workers to investigate parents who might be abusing their children, and on and on.
That’s what Nikki Haley is proposing.
The governor says we’ll be able to “absorb” that loss, but she doesn’t say how. And here’s the best thing, from her perspective: She won’t have to say how, not really. Her plan would phase in over 10 years, with the bulk of the cuts coming long after she has left the governor’s mansion, spreading her trail of pixie dust behind her.
Ms. Scoppe can be reached