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Common Currency: Budgetary conundrums require new finance models

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news Park Rapids, 56470
Park Rapids Minnesota PO Box 111 56470

I have a question for our state legislators: What is it with you people?

Some 36,000 state workers are currently receiving layoff notices with their paychecks, and we are now two weeks from a shut down of the state government because apparently, the legislative branch and the executive branch can't get a budget deal done.

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Most likely, this means a state judge will decide which jobs are critical for continuing "essential services" until a budget appropriation is ultimately approved. Nice work.

For the Republicans, champions of accountability, I say, congratulations! You have managed to abdicate your responsibility to govern and failed the accountability test. Now the courts, and not the representatives of the people, will decide how taxpayer money is allocated and spent. Yeah, nice work, guys.

For the Democrats, champions of social justice, I say congratulations! By failing to come to terms with the fiscal realities of the New Economy you have managed to ensure that millions of taxpayer dollars will be wasted in unnecessary expenses and lost opportunities and more social pain when construction projects stop mid-shovel, schools can't open, vendors don't get paid, and government services aren't delivered.

Way to go, people!

And for the Tea Party folks, I have always wondered: What is your next move after you march on the Capitol and burn the place down? Then what? Good grief, folks, I mean, really? Is this really the best we can do?

Do you perhaps, dear reader; detect just a mere touch of frustration with our political process? I can already hear on both sides principled and articulate arguments in passionate defense of their beliefs, because that is what is at the heart of the debate. It is fundamentally about what you believe. If it was just about the money a deal would have been struck already. Funny thing about beliefs, though. Just because you believe it, it doesn't make it true. In the immortal words of George Gershwin, "It ain't necessarily so."

"Increasing marginal income tax rates will cause the economic recovery to stall." Maybe, and then again, maybe not. The marginal income tax rate during World War II was 93 percent, yet the economy doubled in size in two years.

"Cutting education and social spending will have disastrous consequences for the competitiveness of our workforce and our ability to expand prosperity in the future." Maybe, and then again, maybe not.

Fifty years after the Great Society programs of the 1960s we have spent trillions on education and social programs, yet the educational achievement level of our young people remains stagnant, and the competitive advantage of our workforce continues to erode in the new global economy, particularly in the key areas of science, technology, engineering and math. So it can't be just the money spent.

So how did we get so polarized and paralyzed? There is a fine line between "principled" and "pig headed," but in fairness to both sides, I think part of the reason may just be a reflection of how quickly the ground is moving under our feet. It is a brave new world.

Here is what I mean. In the 1950s, building the interstate highway system was considered a vital national security interest. The federal highway trust fund scheme was set up to finance new construction for thousands of miles of new highways and countless bridges through taxes levied on the consumption of gasoline and other fuels.

More roads built meant more miles driven, meant more gasoline consumed, meant more revenue for the government to build and maintain the system. It was a virtuous cycle of tax and spend that employed tens of thousands of workers and built a vast transportation system that today we take completely for granted.

It was all paid for through what is essentially a national sales tax on the consumption of gasoline. It was "Drill Baby Drill" meets "Tax Baby Tax" and "Spend Baby Spend." And it worked. The automobile industry soared. Housing construction soared. Union employment numbers soared. Incomes grew and prosperity flourished.

Today, the finance scheme that built the interstate highway system is starting to break down. The interstate highway system needs billions of dollars for maintenance and repairs every year. Yet the greater national interest today is more clearly reducing the consumption of motor fuels to relieve our dependence on foreign sources of oil. Greater fuel efficiency in the transportation sector means greater economic efficiency and improved national security.

But reducing the consumption of motor fuels chokes off the revenue stream the federal highway trust fund needs for reinvestment in the system. Gasoline consumption in the U.S. actually peaked in 2006 and has already fallen by 10 percent.

It is likely that gasoline consumption will continue to fall for years to come.

I have a theory why our political process has become so paralyzed. For the last 50 years many of our models for public finance were primarily production and consumption oriented, and our tax policies reflected this.

Farm subsidies, oil subsidies, and revenue streams for the government were based on volumes sold. More consumption in the economy meant more tax revenue for the government. In many ways, the housing bubble that turned a mundane market in residential mortgages into high stakes casino gambling was the culmination of 50 years of consumption-oriented government policy.

Today, by competitive necessity in the global economy, we are beginning a transition away from consumption-oriented revenue schemes towards more efficiency- oriented revenue schemes.

More frequently, tax policy will become oriented towards conservation and efficiency, and will penalize production and consumption. The problem is, we haven't figured out how to make it work yet. A tax rebate for the purchase of an electric car is a great thing, except that same electric car now gets a free ride down the highway that everyone else with a gasoline engine is paying for through fuel taxes.

No wonder our politicians are paralyzed. The old public finance models aren't working any more and we are not even sure yet what the new models are going to look like. But I can say to those politicians who believe they are standing on "principle" that "It ain't necessarily so."

So do your job and cut a deal already.

Alan J. Zemek is a Park Rapids area developer and author of "Generation Busted: How America Went Broke in the Age of Prosperity." You can follow his blog, or comment on this article on his website, www.genera tion busted.com.

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