By Austin Snedden
Contributor, Valley Ag Voice
In the private sector, income and growth generally correspond with each other. However, in government, economic contraction has historically resulted in government growth. The greatest example of government growth during economic contraction is FDR’s “New Deal” in the 1930s. It was a period of massive expansion of federal power and growth through many social safety net programs that were intended to bring us out of the Great Depression. There are many alternative views on the effectiveness of this approach and whether it truly helped in the recovery since we didn’t see full recovery until WWII. The overall result, right or wrong, was a general acceptance that it was the government’s responsibility and, in particular, the federal government’s responsibility to bail us out of economic downturns. If it is the government’s responsibility to prop up our financial situation, why do we always look to the federal government to get it done?
Are state and local governments exempt from responsibility of economic stimulus? We are giving state and local governments a pass because they don’t have a printing press called the Federal Reserve, but handouts and payments aren’t the only form of economic stimulus. I can’t speak for all state and local regions, but as a California resident and business owner, my largest tax bill goes to state and local government. A lot of times we get fixated on our April 15 tax bill that we pay to the state and federal government, but that is just a small piece of the taxes we pay year-round. If you have the time or interest, add up the gas tax, sales tax, property tax, and state income tax you pay every year. You might find that it results in a much larger sum than what you pay the IRS, and that doesn’t even account for the multitude of other fees and taxes you pay to state and local government. Others include unemployment insurance, and the employment training tax that you pay for every employee, building permits, inspection fees, health permits, liquor licenses, and county weights and measures fees. Don’t forget the multitude of bonds that are stacked on every property tax bill to fund all the special districts from water, schools, and recreation.
So, what kind of economic stimulus should we see from state and local government in a dire economy? Since state and local governments lack the ability to print money, and most have shown the inability or lack of fortitude to sit on a monetary surplus, we should not expect a cash influx. Rolling back regulation and easing state and local tax burdens could prove to be a more effective strategy than a bailout to stimulate the economy. A reduction in regulation and taxes should be accompanied by a corresponding streamlining of state and local government. A reduction in regulation and fees would incentivize private sector growth in a challenging economy, and since state and local governments harvest their existence off the production of the private sector, an unhindered private sector is in the best interest of government.
For example, a flat gas tax of 58.3 cents per gallon is harvested by California State government off the production of energy companies and the businesses that buy that fuel to distribute goods and services. Maybe that tax should be cut in half to incentivize economic growth. Maybe gas tax should be linked to the market price of fuel or oil with a corresponding reduction or increase? When crude oil prices for a 42-gallon barrel of oil are in the $20-$30 range, does the 58.3 cent tax on a gallon of refined fuel harvested by the state seem fair? In recent weeks when oil companies have received around 60 cents per gallon of crude product, the State of California needed to think proactively about the 58.3 cent burden and deterrent they place on every gallon of refined product.
Locally, counties should consider property tax reduction incentives and not just ones to multinational corporations like Amazon and L’Oreal, like we have seen in Kern County, but rather across the board to benefit all businesses. When we put ourselves in a position where politicians are picking winners and losers, we further reduce competition. Mega corporations like Amazon definitely have their place, but they are no more important than the local retailer that the county has decided should still pay their full fare on property tax while an out of state competitor gets a tax break. Across the board regulatory reduction and tax reduction would be beneficial to a recovery in a challenging economic time.
We should continue to question the validity of federal stimulus actions including the costs and effectiveness, but we should also let state and local leaders know that they have a role to play in recovery. There will be budget challenges for state and local governments associated with my suggestions until the tax base regrows, but keep in mind, almost all private sector businesses and individuals are facing budget challenges right now too. Until the percentage of unpaid furloughs and layoffs for non-essential employees in state and local governments matches the percentage we are seeing in the private sector, we may be facing a situation where the amount that the government harvests off the private sector is too large for the economic times.