The problem with governments and excess revenue is that there are a lot of people, bureaucrats, legislators and special interest groups who have “great ideas” on how to spend it. The real difficulty is that legislators have a problem saying no. It is immensely easier to agree with spending when you have a lot of the tax payer’s money lying around.
Back in the 90’s we started to see an increase in North Dakota’s revenue picture. We were still cognizant of the revenue pictures of the late 80’s when the citizens successfully referred all three tax increases the legislature had passed. As a result our approach was to put money away in “Rainy Day Funds” in the hope that we would never have to make budget cuts. Much like purchasing insurance that approach has a limit as to how much is appropriate. As you increase spending the amount of insurance needed in those savings accounts also increases. It is much like having mortgage insurance. The amount of insurance needed to cover a 150,000.00 mortgage is much smaller then that needed for 500,000.00 loan.
From my conservative point of view the need to control spending was a function of two factors. First we didn’t need to grow government anymore than was necessary to provide service the citizens wanted and needed. Second we needed to make sure the revenue was there to sustain that level of government if the economy took a downturn.
By setting aside a certain amount of revenue that could only be accessed if the inevitable downturn came we assured ourselves we wouldn’t have to raise taxes at the worst possible time. Those set asides were only to be as much as a reasonable person would think was good insurance.
Given that legislators are besieged with requests for more funding from multiple sources we hoped to make the access to the “rainy day funds” more difficult than saying no to the rent seekers. That was my term for the folks who were always asking for more tax payer money.
With the revenue picture North Dakota faces today the legislature should be thinking in the same vein. The difference is the rainy day or savings funds are probably more than adequate to sustain state government when the downturn comes. If they are convinced that they have enough in savings and certainly they must believe they have funded enough growth in government what should they do? The best alternative is to quit collecting revenue from the citizens. If you don’t fill the state coffers with unneeded revenue it will be much easier to say no to the rent seekers in the next legislative session.
My advice to legislators is to make life easy on yourselves, reduce or eliminate the income tax burden. It is a lot easier to say no to the rent seekers then raise taxes. If I were in the House today my stand on HB 1250 when it gets to conference committee is “we want an elimination of the tax”. With the fresh revenue projections in front of them that would be a very reasonable approach.
The income tax should be suspended on January 1st of 2014 with a trigger mechanism that kicks it back in as of January 1st of 2015 if state revenue projections fall below a certain point on July 1st of 2014. Basically you would have an income tax holiday for one year that the legislature could reaffirm in the next session. Let’s see if it is easier for legislators to spend money then keep the tax holiday in place?