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When The Pigeons Come Home To Roost…

RadarHey! What do you know? The Ohio budget passed just last summer with a projected budget surplus of $53 million, is now projected to produce anywhere from a $733 million to $1.9 billion deficit. So how did this happen? How could there be a $786 million to 1.953 billion dollar mistake in a budget that this much work went into and was one vote shy of a unanimous passage (thank you, Rep. Diana Fessler)?

The answer is that, despite the obvious signs that the economy has been slowing for months, the state legislature and Ohio’s popular new governor ignored the signals, shook hands and promptly buried their heads in the sand. The signs have been there for longer than just a few months and, as Ken Blackwell pointed out in his ill-fated gubernatorial campaign nearly two years ago, Ohio has had one of the worst managed state economies in the United States for many years. Hey, Republicans! It was under the tenure of a Republican-controlled legislature with a Republican Governor.

Hide your wallets! It’s a RINO!The facts are that the previous two governors, Bob Taft and George Voinovich along with their sideshow act, the RINO’s in the Ohio legislature have created a business climate that is very near the bottom for new job creation and very near the top in taxes, “fees” (the tax pig in a tuxedo), “contributions” (called “voluntary” until you stop writing checks, then they suddenly become voluntarily mandatory) and tolls. And, as any economist will tell you, small business is the economic backbone as the largest employer in every state of the union. And it’s really bad for small business in Ohio. It’s not so hot here for bigger businesses, either.

The problem with Ohio’s budget is not a new one. A recent Columbus Dispatch article gives a rundown of the tax and spend policies that have helped create the current mess. The article also shows that the authors, Siegel and Johnson, can’t connect the dots for the full picture. Here’s the sequence the Dispatch put together

• In December 1971, Gov. John J. Gilligan didn’t face a budget shortfall as much as he faced embarrassment for the condition of Ohio’s schools, highways and facilities for the mentally ill. He persuaded the Republican-controlled General Assembly to enact the state’s first income tax.

Take note that Ohio’s first income tax became necessary because Gov. John Gilligan was “embarrassed” over the condition of Ohio’s highways (one of the first states to complete its interstate legs), Ohio’s state hospitals (most later closed to “save money,” creating the “homeless crisis” of the early 1980’s), and Ohio’s schools (which are supposed to be local responsibilities). We have been unable to determine if ex-Governor Gilligan is equally embarrassed by his grandson’s creation of an “adult-themed” board game called “Don’t Drop The Soap” about prison life. Apparently his mother, Gilligan’s daughter Governor Kathleen Sebelius of Kansas is quite proud.

• In 1983, his first year in office, Democratic Gov. Richard F. Celeste faced a $530 million deficit on a budget of $6.7 billion, a nearly 8 percent shortfall. Under Strickland’s worst-case scenario, today’s deficit would be 3.6 percent.

Celeste, with help from a Democratic-controlled legislature, made permanent a 50 percent income-tax surcharge imposed under Gov. James A. Rhodes, and added 40 percent to it.

Note that Ohio’s budget has at this juncture grown over 600% in the eleven years since the institution of the income tax, something that income tax opponents warned of and proponents derided as alarmist. Pay close attention as we move through Dick Celeste’s two terms to the beginning of Voinovich’s two terms which starts with a deficit- after a permanent 90% income tax increase only 7 years earlier.

• Trouble returned soon after Republican Gov. George V. Voinovich entered office in 1991 and inherited a state budget in the red. The fiscal crisis that engulfed his administration forced Voinovich to raise taxes, make Draconian budget cuts and at one point moved him to tears.

He faced a budget shortfall estimated at $262 million the first year and up to $1.5 billion for the two-year budget. The new governor had to lay off 600 employees. Another 500 layoffs would come later.

By the end of 1991, Voinovich asked the General Assembly to increase a host of taxes on alcohol, cigarettes and other tobacco items, to help what was then estimated at a $931 million budget shortfall. He also trimmed state spending by 3 percent to 6 percent.

Voinovich’s plan included $196 million in cuts and other adjustments to save $254 million. Among the victims: many state liquor stores were closed and the others privatized.

On April 1, 1992, Voinovich was talking with reporters in his Statehouse office. Outside his window, he could hear the impassioned chants of hundreds of protesters opposed to the cuts in general assistance he had ordered.

“Whether they believe it or not, George Voinovich really cares for his fellow man,” he said. “That’s why I’m in the business,” he added, his voice faltering before he broke into tears. “I’m doing the best I can with what we’ve got.”

The state of Ohio, he said, was bankrupt.

George Voinovich had a lot to cry about. But he wasn’t really upset with the real problem. In fact, he was completely ignoring it. The 1991 budget, only 19 years after the institution of Ohio’s income tax had ballooned to a proposed $27 billion; 2700% higher than the first budget after the institution of the income tax and more than 400% higher than the budget which required a permanent 90% increase in order to cover a deficit only 8 years before. How did Weepin’ George fix the problem? Did he cut spending? Well, to be fair, he cut a little bit but what he did mostly was raise taxes and fees. Seeing the trend yet?

• Facing skyrocketing Medicaid costs, a bursting tech bubble, a national recession and economic reverberations from the attack on Sept. 11, 2001, Gov. Bob Taft trimmed state budgets in five straight years from 2001 to 2005, and signed a series of bills to fill more than $4 billion in budget shortfalls.

Husted said that from the time Taft introduced his budget in early 2001 to the time the House took action on it a few months later, the plan already was $700 million out of balance.

In December 2001, Taft signed a $1.5 billion budget-correction bill. The plan included about $500 million in agency cuts, $250 million from the rainy-day fund, $260 million raided from the tobacco-settlement fund, and joining the new multistate Mega Millions lottery.

But revenue quickly diverged again from projections. In June 2002, Taft signed a bill filling a $1.9 billion budget hole. It contained $1.54 billion worth of additional revenue, including a 31-cent cigarette-tax hike, more tobacco money and $600 million from the state rainy-day fund, plus $455 million in spending reductions.

In February 2003, the legislature passed another $566 million budget fix, which was added to another $162 million in state spending cuts — on top of $121 million in cuts ordered by Taft two months earlier.

Just as Taft and legislative leaders finished fixing the 2002-03 budget, they had to wrap up a new two-year budget. Thanks to several factors including the previous use of one-time money to balance books, lawmakers passed and Taft signed a temporary penny sales-tax increase, half of which still exists today.

By 2001, 29 years after Ohio’s first billion dollar budget and the institution of the state’s income tax the Ohio budget stands at 45 billion dollars; 4500% greater than the 1972 budget and 180% higher than the 1991 budget which caused George so many tears.

Flash forward to 2008 and we are in the midst of yet another “budget crisis.” The 2008 budget stands at $49.5 billion; 4950% of the first income tax budget and 10% higher than the last “budget crisis” of 2001, just 7 years ago. The internet contains several inflation calculators that allow you to calculate the change in the value of the dollar over time via the Consumer Price Index (CPI). Those calculators tell us that the CPI has increased by 512-519% since 1971, yet the cost of Ohio’s government has increased by nearly 5000% in the same time frame. Ten times the rate. And what is the reason for the constant budget shortfalls? Is it that our taxes are too low, as many leftist think tanks and some media outlets would have you believe? That is a ludicrous assertion. As the rate of spending has increased so has the rate of revenue generation to pay for the spending increases. And where does the increase in revenues come from? Well, don’t buy the argument that it comes from taxes and fees levied against businesses, corporations, etc. Yes, corporations pay taxes, fees assessments, etc. and yes it’s a significant portion of Ohio’s revenue. But the facts are that it is taxpaying consumers who pay corporate taxes. Taxes are passed along to consumers as a cost of doing business. Lawmakers know this, but like to hide behind the false conception that it is those “greedy businessmen” who are the culprits in rising prices. All businesses do it. Most politicians blame them for it.

Take for example Ohio’s Commercial Activity Tax (CAT) which was ostensibly instituted to eliminate the hated Inventory tax, a tax which allowed the state to tax unsold inventory year after year after year as long as it remained in inventory. The CAT’s real purpose was to allow lawmakers the ability to tap into the gigantic revenue pool from grocery sales. Groceries were exempt from the Inventory tax. Groceries now pay the CAT which is a straight percentage of the total commercial activity The result? A large increase in revenue to the state and a significant increase in the cost of groceries. Who pays? We all do.

What are the consequences of allowing government to grow at a rate 10 times greater than inflation? You can probably answer that question for yourself, especially if you are over 40. Ask yourself if you have more liberty now or did you have more in 1971? It is an inevitable and undeniable corollary that the growth of government necessarily means increase in the cost of government and the control of government over citizens’ lives. It follows that uncontrolled growth of government fueled by uncontrolled access to revenue allowed by failing to constitutionally limit legislative methods of raising it inevitably lead to uncontrolled loss of liberty.

When will taxpayers demand an end? The threshold may be nearer than anyone thinks.

Posted in Commentary, Public Policy Radar.