Maryland State Government Is an Abject Failure

Maryland State Government is an abject failure.  Why?  Because no elected representative wants to own up to the simple fact about our structural deficit:  raising revenue will not fix it. And when I say "no one elected representative", I include everyone on the political spectrum, not just the lefty Dems that hold court right now.

Barry Rascovar laid that out in an excellent article in The Gazette yesterday.  I recommend everyone read it, because I can't do any better than he did.  But let me expound on it.

From an economic standpoint, a structural deficit is about spending vs revenue.  It goes to the actual structure of the state budget, where planned spending over a number of years outpaces actual projected revenue (either through taxes, fees, or other fundraising).  The real bogeymen here have been two things:  the Thornton commission spending plan for education, and transportation.

The reason that a structural deficit exists is that there is a limit to taxation.  It is called, in the economic world, the "Laffer Curve".  In the mid 1970s, Arthur Laffer postulated that there is a point of diminishing returns in taxation where increasing marginal tax rates actually results in declining tax revenues.  Lowering marginal tax rates actually increases tax revenues.

Here is a rought approximation of the concept:

The problem here in Maryland is that our elected representatives have chosen to commit the state to a level of spending that it can never possibly achieve without a massive deficit, and that is unconstitutional under our state constitution.  To put it simply, no matter how high you raise taxes, fees, penalties, et al, you cannot achieve the level of spending.  In fact, there will come a point where you cannot achieve a fraction of that spending.

Leftists like to argue that the Laffer Curve is fictional, unfortunately, the historical record does not support their contention.  

• For example, after the 1982 Kemp-Roth tax cuts, the Federal Government received RECORD tax revenues over the next seven years.  Unfortunately, spending continued to outpace even these record revenues, and so -- combined with the Rostenkowski-inspired Black Tuesday of 1987 -- we ended up in both recession and massive deficits.  (Rostenkowski was threatening to raise the Capital Gains tax in 1987 again, which led to the massive selloff in October 1987.  Put simply, faced with a higher marginal tax rate, stockholders said "Let's take those gains under the lower tax rate.")
• After the Bush the First tax increase of 1990-1991, tax revenues fell to lows not seen since the 70s, and probably extended the recession and deficit problems.  Higher tax rates generally discourage investment, and push people not to engage in risk investing, but in short term, low-gain savings.  Or worse, it forces them to move money they might normally save into places which are more liquid so they can actually pay their taxes.
• Tax revenues remained relatively stagnant during the Clinton years.  The slight rise in tax revenues was attributable largely to increased economic activity that occurred as the Republicans (when they still believed in small government) reduced the deficit, and credit became cheaper.  With the Federal Government paying off gobs of short term Treasuries, the credit markets were opened wide up, providing gas for the economic engine.  China -- benefitting largely from the collapse of the "Asian Tiger" economies -- was also coming into its own, and a flood of cheap products from China was making it easier for citizens at all levels to improve their quality of living.
• The Bush 43 tax cuts have resulted in new record-setting levels of tax revenues.  This April saw the single largest day of tax collection in this history of the Republic-- $75 billion in one day from capital gains taxes.  Income tax revenues have been accelerating too, as economic activity has continued on a sustainable growth curve without the need for massive government payouts.  Where the "Bush economy" falters is the complete lack of discipline in Congress.  In this, Congress is the perfect mirror of the Maryland statehouse.

Maryland's problem ultimately is that it is a small state with a big-state ego.  Our economy is too tied to the Federal Government to become innovative.  Unions have far too much power -- AFSCME runs the state government, because it elects the vast number of members of the General Assembly from D.C. area counties.  Maryland has also allowed unrestratined growth in the I-95 and I-70 corridors.  Unrestrained growth puts immense pressure on schools and roads.  What are the key areas of our budget killing the state?  Schools and roads.  The situation with the Base Realignment Commission will only balloon this problem.  Baltimore City and Baltimore County have the oldest school facilities per capita in the nation.  They are two of the top three jurisdictions that will be impacted the most by 70,000 new jobs being created by BRAC.  Who will pay to bring these facilities up to spec?

It should be noted that this isn't an old problem.  When I attended Loch Raven Elementary School in the 70s/80s (long since closed, by the way), that school was already 30 years old, and falling apart.  One day in 5th grade, the entire ceiling our class room collapsed on the class.  Luckily, a) I was out sick, and b) the techer had arranged the desks in a giant horshoe pattern.  The ceiling fell perfectly in the middle of the horseshoe.

But, this problem exists all across the state.  Wicomico County will be spending vast amounts in the next decade-- despite a stupid revenue cap that is the result of mistrust on the part of its citizens of the County Council -- to bring those schools up to standard.  Parkside High School is now 31 years old, and has never had its mechanical systems replaced.  A failure in the air conditioning system -- the school has almost no windows -- would mean closing that school until repair could be effected.  The other high schools aren't in much better shape.

Our elected representatives in Annapolis need to refocus their efforts from a "how do we raise revenue" focus to a "what should the state actually be spending money on" focus.  They will quickly reach the limit of maximum tax revenues, and fall far short of the deficit.  Ultimately, they are going to have to re-prioritize spending and bring it more inline with the state's capabilities.

That is the function of responsible government officials.  Maybe they will learn that lesson, but probably not.