RALEIGH – Here’s your Monday Morning Quiz Question. Please give me your best guess of which North Carolina politician recently said these words:
“Let me assure you, we will not raise taxes. We simply will not add more economic distress to our community through additional taxes in an economy with an unemployment rate over 12 percent.”
If you guessed a Republican state legislator, you are wrong. If you guessed a Republican county commissioner, you are wrong. If you guessed a crusty legislative Democrat with a longtime reputation for hard-nosed fiscal conservatism, you are also wrong.
These words came from Jennifer Roberts, who chairs the Mecklenburg County Board of Commissioners. She made the statement to reporters right after her State of the County Address, during which she laid bare Mecklenburg’s daunting fiscal challenges and the need for significant reductions in personnel and other expenses to bring the budget into balance.
Roberts happens to be a personal friend of mine, but she and I are poles apart politically. She is a liberal Democrat. So how did she end up making such a clear statement ruling out a tax increase, citing the deleterious consequences it would have for the local economy? Because she has some sense. Too many of her ideological kin in Raleigh are lacking in this department.
There are both political and economic reasons to oppose state or local tax increases to close government deficits this year. For incumbents in the General Assembly or a county commission, it’s an election year. North Carolina voters are already upset with the tax hikes foisted on them in 2009. All the evidence suggests that legislators or commissioners voting to raise taxes in 2010 may well find themselves involuntarily retired after November.
The economic case against raising taxes during recessions is also strong. Recessions are the inevitable result of a boom-and-bust cycle created in large part by government manipulation of the money supply. When central banks hold interest rates below the market price for loans, as the Federal Reserve did during much of the Bush presidency, they encourage excessive borrowing. Households, businesses, and governments all take on additional debt to fund investment or consumption expenditures of increasingly marginal value. Eventually, market realities intrude. Borrowers find themselves overextended, financing assets that are neither producing the income nor appreciating in value as expected.
You can delay the financial reckoning for a time, but you can’t wish it away. Borrowers have to shed unaffordable, unproductive assets. Households sell, move, or endure foreclosure. Businesses sell assets, end product lines, close stores, and lay off workers. These are painful but necessary adjustments to reality. Collectively, these actions are known as a recession.
Governments don’t get to pretend that they’re immune from the same realities, or funded in some manner that is “off the books” from the standpoint of the economy as a whole. If governments raise taxes in order to forestall budget cuts, they simply export the problem to households and businesses. The governments may appear to save jobs, because you can see the positions that aren’t eliminated in the public sector. But two plus two still equals four. Government taxes collected are simultaneously private expenditures foregone. Taxes kill at least as many private-sector jobs as they “save” in the public sector.
The economic case against recessionary tax hikes ought to be more compelling to our leaders than the political case, of course. But when you are a fiscal conservative, you take what you can get.
Hood is president of the John Locke Foundation.