An odd thing happened at the state capital when the government closed its books on the fiscal year just past: Tax revenues are out of sight. Despite a faltering economy, taxpayers sent more of their money to state capitals and city halls than ever before. The politicians see no reason to quit blowing money as long as they can squeeze the taxpayers, so the Big Squeeze is on.
According to new figures from the Census Bureau, Americans shared more of their paychecks with their governments this year than at any time since 1962, when the government started keeping track of these data. In 2012, state and local individual income taxes spiked 7.3 percent from the previous record in 2008. Municipal sales and gross receipts taxes jumped 2.3 percent.
It’s a trend that has continued for 15 quarters in a row, with no sign of abating. When the average Joe and his family fall on tough times, they understand they must jettison nonessentials. Cable TV might be replaced by rabbit ears; instead of eating out, there will be more home cooking; buying a newer car will be postponed. These are the kinds of austerity measures state and local politicians never think to make because they can sail through the recession or an anemic recovery by squeezing everybody else.
John Maynard Keynes, the profligate inspiration for both Obamanomics and Carternomics, would think this a squeeze too far. Keynes, big spender that he was, nevertheless advocated cutting taxes to stimulate demand in a recession. Tax increases in the current downturn is depressing economic growth. Everyone can see that. Big spenders in the California Legislature, for example, posted an increase in the sales tax and a “soak the rich” tax on anyone earning more than $250,000, which helped bring sales tax revenue to $43 billion last year. Meanwhile, California has seen the private-sector workforce shrink. The Golden State has become the Imitation Pewter State, with the fifth-highest unemployment rate in the country.
Detroit and Stockton, Calif., for two municipal examples, are beyond the breaking point, declaring bankruptcy after tax increases couldn’t keep pace with the city’s insensate spending. The politicians’ appetite for spending other people’s money is insatiable, and the demands are soaring. Health care spending will continue to consume an ever larger share of state and local budgets. Medicaid already accounts for about a quarter of state budgets, on average, and that will increase under Obamacare. State and local pension obligations are grossly underfunded, all but guaranteeing additional municipal bankruptcies in the months ahead.
The time for all good men to come to the aid of their country is now. Taxpayers, like the proverbial turnip, can be squeezed for only so much blood until there isn’t any more. There are signs that’s already happening — revenues are projected to grow just a shade more than 1 percent next year. The way to prosperity is to reverse course and reduce the burden of government to enable private business and industry to grow. Politicians, like the rest of us, must realize that governments, like the rest of us, must spend less.