The Boston Herald
Saturday, August 31, 2002
A Boston Herald editorial
Seen any capital gains?
The Legislature just can't stop shooting itself in the foot.
It serves it right if acting Gov. Jane Swift vetoes an attempt to rule "Nevermind" on the latest boo-boo.
During the recent debate over taxes, Republicans challenged
the tax-raisers to accept an amendment permitting a voluntary income tax rate of 5.85 percent instead of the mandatory
5.3 percent rate. The Democratic majority took the dare. But all failed to realize that
taxpayers could choose the option for ordinary income and get a 5.85 percent rate (instead
of 12 percent) for capital gains on assets held less than a year.
In a recent supplemental budget the mistake was corrected -
but Swift plans to veto the correction. She is in a good position to make it stick since in the current informal
sessions it takes only a single member to prevent an override vote. The revenue loss to the state is
estimated at $7 million. But judging by the moans of investors wounded in the stock
market decline, it's hard to see that there'll be more than 79 cents owed in taxes on all short-term
capital gains come April 15.
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The Boston Globe
Saturday, August 31, 2002
Losses prompt debate on pension fund
By Chris Tangney
Globe Correspondent
With gubernatorial candidate Shannon P. O'Brien coming under
fire for billions of dollars in losses incurred by the state's $27 billion pension fund, candidates vying to replace her as
treasurer are being pushed to show how they will protect the fund and still generate healthy
returns.
The fund has lost $4.7 billion in the last two years,
according to the state pension board, leading critics to say that the state should reduce the amount it invests in a
volatile stock market....
The state Legislature has established a benchmark annual
return rate of 8.25 percent for the pension investments in order to fully fund the account by 2018. That's the deadline
the state has set to have enough money in the fund to fulfill its obligation to government employees....
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The Salem News
Wednesday, August 28, 2002
Liberals value big government at any cost
By Robert E. Kelly
Political parties attempt to project a certain image of who
they are. From the standpoint of salesmanship, Democrats are good at this; Republicans are out to lunch. But in the last
analysis, it is the media in power centers like Washington, D.C, New York City, Boston,
Chicago and Los Angeles who invent the labels that fix party identification. They, after all,
are ultimately in charge of the word game.
Liberals dominate academia, major newspapers and network TV.
They think liberal, vote liberal and project information that way to their audiences. In effect, they operate as the
public relations arms of the Democrats and it is they who establish the political rapids that
Republicans, in order to survive, must constantly negotiate.
Democrats are, for example, portrayed as the party of women,
children, and workers. That is their positive image. Republicans have none. They are depicted as being against
whatever Democrats are for.
It is therefore remarkable Republicans are elected to
anything. That they are is a tribute to the common sense of average Americans, talk radio shows, conservative authors and
the hundreds of smaller members of the media who dispense information in a more evenhanded
way.
Democrats project the image of caring for the little guy and
gal despite the fact that they oppose the elimination of the death tax (the government robber at the funeral), support
duplicate taxes on interest and dividends, oppose the structural reform of Social Security and
Medicare, oppose income tax reform, support taxes on Social Security pensions
and, wherever possible, oppose general tax reduction. Not one of these attitudes helps the little
guy; all increase the size of government and decrease the personal liberty of the taxed
target.
The successful hypocrisy of Democrats hit a new low recently
here in the Peoples Republic of Massachusetts. Citizens were comfortable when state spending in 1991 was $13.7 billion.
Today, no safer, no warmer, no better educated, they support spending of $22.8 billion (FY
2002). It is perhaps this growth in the size of government that led voters, by an 18-point
margin, to demand a gradual drop in the income tax rate on ordinary income to 5 percent.
To a liberal, of course, dropping tax rates is something to
be opposed with vigor and imagination. And the ultra-liberal legislature of the People's Republic needed an excuse to
avoid that fate.
Presto! The threat of declining receipts related to the
recent recession gave it to them. The usual alarms went out: Collections will drop; babies will starve; schools will
collapse; policemen and firemen will be fired.
Did the thought arise that belt-tightening was indicated?
Never! Wise politicos knew that the illusion of cost-cutting was necessary; the reality was not. And it is estimated by the
Beacon Hill Institute that when all the posing is done, actual spending in FY 2003 may be as high as
last year. Many believe it will be higher.
The much-publicized, draconian spending cuts are an
illusion. But the tax increases are as real as rain.
The tax on cigarettes and cigars was increased 100 percent;
chewing tobacco, 20 percent; the personal income tax exemption, went down 25 percent (the same as increasing tax rates);
the tax on automobile registration and driver's licenses, went up about 20 percent; fees for
restraining orders and for state bar examinations, rose 40-50 percent; and the state
surcharge on speeding tickets went up 20 percent.
The plan to drop income tax rates to 5 percent was abandoned. The 5.3 percent rate was
set in cement and long-term capital gains will be taxed at the same rate.
And the greediest tax of all is the imposition of a $3,300
fee on residents of nursing homes who are not on Medicaid. This is a sick, corrupt, immoral tax.
How much is enough? There is a relationship between the size
of a government and the freedom of its citizens. When will the people vote against the rascals who, at every turn,
ignore their will?
Robert Kelly of Peabody is a regular contributor to the opinion
pages of the Salem News.
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The Worcester Telegram & Gazette
Friday, August 30, 2002
A recent report from the National Conference of State
Legislatures shouted "State Budget Gap Deepens to $58 billion." The media have dutifully amplified this sense of fiscal crisis
portrayed by state officials. It appears that we are being softened up for a new round of state
tax increases in coming months -- and that should come as no surprise. This year, state
governments gave us the biggest combined tax hike since 1994, with tobacco consumers
being the favorite target.
What are behind the "budget gaps" that states are using to
justify tax increases? In a sense, the gaps are fictions created by previous budget forecasts that were far too
optimistic -- sort of like sales growth forecasts for telecom companies in the 1990s. Suppose that a year ago
Gov. Spendthrift planned for a 10 percent rise in tax revenues and spending, but Gov. Frugal
planned for increases of just 5 percent. Suppose that actual revenue growth in both states
turned out to be 5 percent. No problem for Frugal. But Spendthrift is said to have a 5
percent "revenue shortfall." He decides to hike taxes, and is heralded in the media for boldly
solving the state fiscal "crisis."
A better picture of state finances can be obtained by
looking at actual revenues and spending, as estimated by the U.S. Department of Commerce. Data for the first two quarters
of 2002 show that total state and local receipts rose about 2 percent from the same period in
2001. (Income taxes are down, but sales taxes, property taxes and federal grants to states
are up). This is slower than the swift revenue growth of the 1990s, but is it too much to ask
governments to restrain budget growth to roughly the inflation rate during economic
slowdowns?
State politicians are like car drivers who have a tough time
slowing down to 40 mph on a local road after a long highway cruise at 60 mph. Total state and local spending rose 4.7
percent in the first two quarters of 2002 over the same period in 2001. That only seems slow
to state officials who got used to spending growth of more than 7 percent annually during the
late 1990s.
To avoid budget crunches during slowdowns, states should
limit spending growth during booms, sort of like setting a lower highway speed limit. States can do this with a budget cap
like Colorado's, which provides automatic refunds when state revenues grow faster than
inflation plus population growth. Such a cap prevents governments from starting too many
new spending programs in good times, thus making it easier to balance their budgets during
the next downturn.
The state "budget gap" story is also being stretched into a
long-term "structural gap" theory. The Wall Street Journal has reported that "states face emerging structural budget
problems," which supposedly will prevent them from raising enough tax money in the future. For
example, some analysts worry that the sales tax base is being eroded by the rise in
consumption of untaxed services. It is true that state sales tax bases now represent just 42
percent of state income, but many governments have themselves to blame for carving out
large exemptions to the sales tax base, such as for food.
The new bogeyman is untaxed Internet transactions, which are
supposed to be eating away at taxable retail sales. Yet Internet sales, still only 1.3 percent of all retail sales, are
not increasing much, according to Department of Commerce data. All in all, state sales tax
revenues rose at a similar pace as personal income during the past decade, so it is hard to
see where the crisis is.
If there is a structural problem in state tax systems, it is
that individual income taxes raise too much money in boom years, thus causing states to overspend. Most states have
progressive tax systems that burden people with higher rates as incomes rise. Also, most states do not
index their income taxes for inflation, as the federal government has done since the
1980s. As a result, families need a state income tax cut every few years just to keep equal with the tax
man.
State budget numbers can certainly be interpreted in
different ways. Recent news stories have implied that state officials are innocent victims of sinister "budget gaps."
However, I think a more accurate news report would read: "Huge budget forecasting errors cause
massive overspending by the states."
Chris Edwards is director of fiscal policy at the Cato
Institute.
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