In our last installment, we introduced the Tea Party Group of Lodi and defined the group's tenets. This time, let us explore one of those tenets, "fiscally responsible government."
Kim: What is so complicated about fiscally responsible government? All federal, state and local governments need to do is balance their "checkbooks" each month like the rest of us. If my family borrowed 40 cents of every dollar it spent like the federal government does, we would be bankrupted!
Ed: Yes, that would be a very good common-sense approach to the subject. In fact, an extension of that logic would be that when the government has surplus revenues, it would cut taxes. Moreover, the opposite would be true; i.e., increase taxes for increasing deficits to maintain the balance. The problem with this approach is that government behavior would be unpredictable. Taxes on businesses and citizens would be changing constantly based on the state of the economy and government spending.
Kim: So, we are stuck with the present mess?
Ed: Well, no. Interestingly, some economists argue that some indebtedness is healthy and is a good barometer of the country's economic health. What they mean is, limited indebtedness provides stability and predictability in the tax rate and is a "growth-friendly policy." The ratio or comparison between the government debt and size of the economy (Gross Domestic Product or GDP) could be used to regulate the government's actions. In other words, if the debt to GDP ratio grows too large, economic growth is too small and government spending and taxing are likely stifling its growth, requiring corrective action. Alternately, if the debt to GDP ratio is too low, then government has a green light to spend and tax appropriately. Problem is that most career politicians follow their own self-interest and ideology, not what would contribute to the country's well being.
Kim: Besides corruption, what political spending patterns are fiscally irresponsible?
Ed: The greatest offenders are entitlements where someone, an individual or organization, becomes dependent and feels "entitled" to some government benefit. This includes social programs like Social Security but also any policies that are "crony-capitalism" or "crony-unionism" in nature. Social programs tend to be launched on a ballistic path of growth and eventually exceed the ability of taxpayers to pay for them. Crony-capitalism and crony-unionism is when businesses and unions are dependent on a close relationship with the government at all levels. Their success is not dependent on the free market or the rule of law but rather government favoritism in the form of mandating laws, tax breaks, grants, etc. In reality, crony-capitalism/unionism is a quasi-legal money-laundering system. The politicians provide the favorable rules and funding, the business/union provides political contributions, the politicians are re-elected, and the cycle repeats.
Kim: So that is how we get uncompetitive businesses and poor products forced on us like Solyndra and have to pay for over-priced public-sector union benefits.
Ed: Yes, the Lodi City Council, in a March 2012 "shirtsleeve" meeting, had to deal with one of the many public-sector union benefits, the unfunded liability of City employees converting untaken sick leave into retirement benefits. The present unfunded liability for the City is an impressive $17 million. For Stockton, it is a staggering $540 million. Fortunately, Lodi capped (prohibited for new hires) this benefit in 1994/95 and is paying the remaining liability down over time. Stockton has not capped theirs and their problem continues to grow.
Kim: How do regulations and mandates figure into this?
Ed: Regulations are the "hidden" taxes in the economy and bureaucrats, not elected politicians, set most regulations. The hidden tax cost of regulations is estimated to be $1.7 trillion per year and has a stifling effect on economic growth. California has the unenviable title of the state with the high level of regulation in the union — and we wonder why our unemployment is so high... Mandates, especially "unfunded" mandates, are problematic. These mandates are not funded by the level of government creating them — that problem is left to the victims, usually local government and businesses. Most of the City of Lodi's capital indebtedness is due to regulations and unfunded mandates.
Find out more by attending the Lodi Tea Party general meeting Monday, March 26 at 6:30 p.m. in the United Congregational Christian Church, 701 S Hutchins St., Lodi.