Low Taxes and Privatization: Failure Squared

Molly used to tell the story of her first day covering the Texas legislature for the Observer. She sat in the press box that morning watching the most powerful men in the state (they were all men in those days) enter the chamber, slap each other on the butt, and commence talking about what “a fine piece o’ tail” they had last night, you shoulda seen ‘er, some of them packing guns under their suit coats, and she thought, “This is going to be fun.” It was due to her reporting, at least in part, that the Texas legislature became a national joke.

It isn’t all that funny now. As one of the posters on a BBS forum I used to inhabit liked to point out, the agenda Bush brought with him to Washington originally was less a neocon agenda than the agenda of the Texas Republican Party, lifted from that quirky, ignorant, arrogant collection of blockheads, blind ideologues, batshit whackos, and corrupt “bidnissmen” to be transferred whole and unedited to the national stage like a small town minstrel show suddenly invading Broadway. That it has been an embarrassment to anyone who doesn’t piss in a box and a disgrace to what America used to stand for was, in hindsight, entirely predictable.

The two dumbest ideas Bush brought with him from Texas have to be a) the belief that you can slash taxes to the bone – especially corporate taxes – without hurting core social services like education and maintenance of the infrastructure, and b) the conviction that privatization of core govt responsibilities – like education and maintaining the infrastructure – would somehow be cheaper and more efficient despite the abysmal record of the corporatocracy in both areas, and despite the need to show massive profits to investors, a need the govt doesn’t have.

After nearly 7 years of untrammeled experimentation in both areas, what should have been clear from the beginning has now been proven beyond doubt: both these “policies” are dismal failures.

A. The Low-Tax Experiment

Mark Gisleson at Norwegianity links to a piece by Minneapolis Star-Tribune columnist Dave Hage titled “The damage done” in which Hage examines the effect of Minnesota’s experiment with a low-tax fiscal structure. It isn’t, as they say, a pretty picture.

Between 1997 and 2001, the Legislature passed five major tax cuts — not just temporary rebates but permanent rate reductions that reduced the state’s revenue stream by $1 billion annually and left state government, measured against the Minnesota economy, 10 percent smaller than it was in the mid-1990s.


Now an outside study has put Minnesota in a national context and confirmed those doubts about the low-tax experiment. Two analysts at the Center on Budget and Policy Priorities in Washington identified 16 states that passed major tax cuts during the late 1990s, then studied their economic performance in the 2001-2006 recovery.

The results? On key measures such as job creation and unemployment, virtually all of the 16 lagged behind the 34 states that didn’t pass major tax cuts. Minnesota, though its economy picked up steam in 2006, still posted weaker job creation and income growth than the U.S. average over the five-year span.

“There’s just no evidence that moving to lower tax levels boosts your economic performance,” says Nicholas Johnson, one of the study’s authors.

But that isn’t all. Hage goes on to say that the price paid by citizens for a state run on the cheap extends way beyond the fact that it drains the economy of its potential vibrancy.

“While a low tax rate can be important, other things such as investment in education and health care also matter for the long run,” says James Nguyen of the Corporation for Enterprise Development, a business-sponsored research group that publishes a respected annual report card on the states. Minnesota routinely wound up on the group’s “honor roll,” even during its high-tax years.

This is precisely where Minnesota has paid a high price for the low-tax experiment. One reason Minnesota produced a surplus last year is simple austerity: General fund outlays are actually lower today than they were seven years ago, when adjusted for population growth and inflation. State aid to the public schools, adjusted for inflation, has gone down four years in a row. Thousands of families have lost eligibility for subsidized health insurance, and major transportation projects have been put on hold indefinitely.

No tax money invested in a state means less healthy citizens, more hungry ones, an education system that can’t afford to be much more than a baby-sitting service at the primary and secondary levels and a corporate job-training seminar at the college level, and an infrastructure that is falling apart due a lack of maintenance.

And all of those lacks have huge if invisible price tags attached to them: higher medical costs from the uninsured or underinsured being forced to wait until an illness reaches its critical stage to seek health care at an emergency room – the most outrageously expensive of all options; primary schools without nurses or arts programs and short on basic supplies (in the poorer communities in Massachusetts it has become fairly common for teachers to buy things like paper and pencils out of their own pockets because their schools can’t squeeze any more money past the 2 1/2% cap anti-taxers put into law 25 years ago); high schools with outdated textbooks, outdated lab equipment, outdated and inadequate computer resources, no arts programs, no elective courses, band and sports programs where parents have to pay for their kids’ uniforms and protective equipment; bridges collapsing, roads untravelable, local hospitals and clinics closing down, sewer leaks, water mains busting, and on and on and on.

This squeeze goes on even in smaller areas. The last time we had a bad winter, for example, the skimpy appropriations for road salt and plowing that are all the tax cap would allow in most communities ran out right after the first of the year. Towns and cities all over the state had to pay premium, height-of-the-season prices for salt and sand, as well as being forced to hire private construction companies at sky-high prices to clear the roads because so many municipal workers had been laid off that there weren’t enough available to do the job.

The only reason right-wing tax radicals have gotten away with this short-sighted and selfish insistence on putting their own pocketbooks ahead of the public good is that for years liberals consistently put tax money into improving education, health care, the infrastructure, etc. When the virulent anti-taxers came along, all those things were in pretty good shape and the amount of money it took to keep them up to spec was falling, allowing more investment in growth and improvements at all sectors of the economy. Instead of improving, though, we have suffered a long-term deterioration in the public sphere that is going to wind up costing us 20 times as much as maintaining what we had would have. Mark notes the sheer childishness of this approach to public un-spending:

Constructive conservatives have always known better, but the head in the sand CUT TAXES NOW! folks can’t see anything past their own bottom line, and they don’t even see that very clearly. Like children allowed to pick their own food, they can’t seem to understand that a diet of candy and cake washed down with soda pop will exact a price down the road.

And in this case, it isn’t even a price they’re paying. It’s a price they’re making us pay.

B. Privatization

A long, must-read article by Scott Shane and Ron Nixon in today’s NYT explains in exhaustive detail what outsourcing govt responsibilities to private contractors has meant.

In June, short of people to process cases of incompetence and fraud by federal contractors, officials at the General Services Administration responded with what has become the government’s reflexive answer to almost every problem.

They hired another contractor.

It did not matter that the company they chose, CACI International, had itself recently avoided a suspension from federal contracting; or that the work, delving into investigative files on other contractors, appeared to pose a conflict of interest; or that each person supplied by the company would cost taxpayers $104 an hour. Six CACI workers soon joined hundreds of other private-sector workers at the G.S.A., the government’s management agency.

Without a public debate or formal policy decision, contractors have become a virtual fourth branch of government. On the rise for decades, spending on federal contracts has soared during the Bush administration, to about $400 billion last year from $207 billion in 2000, fueled by the war in Iraq, domestic security and Hurricane Katrina, but also by a philosophy that encourages outsourcing almost everything government does.

The results?

¶Competition, intended to produce savings, appears to have sharply eroded. An analysis by The New York Times shows that fewer than half of all “contract actions” — new contracts and payments against existing contracts — are now subject to full and open competition. Just 48 percent were competitive in 2005, down from 79 percent in 2001.

¶The most secret and politically delicate government jobs, like intelligence collection and budget preparation, are increasingly contracted out, despite regulations forbidding the outsourcing of “inherently governmental” work. Scott Amey, general counsel at the Project on Government Oversight, a watchdog group, said allowing CACI workers to review other contractors captured in microcosm “a government that’s run by corporations.”

¶Agencies are crippled in their ability to seek low prices, supervise contractors and intervene when work goes off course because the number of government workers overseeing contracts has remained level as spending has shot up. One federal contractor explained candidly in a conference call with industry analysts last May that “one of the side benefits of the contracting officers being so overwhelmed” was that existing contracts were extended rather than put up for new competitive bidding.

¶The most successful contractors are not necessarily those doing the best work, but those who have mastered the special skill of selling to Uncle Sam. The top 20 service contractors have spent nearly $300 million since 2000 on lobbying and have donated $23 million to political campaigns. “We’ve created huge behemoths that are doing 90 or 95 percent of their business with the government,” said Peter W. Singer, who wrote a book on military outsourcing. “They’re not really companies, they’re quasi agencies.” Indeed, the biggest federal contractor, Lockheed Martin, which has spent $53 million on lobbying and $6 million on donations since 2000, gets more federal money each year than the Departments of Justice or Energy.

¶Contracting almost always leads to less public scrutiny, as government programs are hidden behind closed corporate doors. Companies, unlike agencies, are not subject to the Freedom of Information Act. Members of Congress have sought unsuccessfully for two years to get the Army to explain the contracts for Blackwater USA security officers in Iraq, which involved several costly layers of subcontractors.

Yet in spite of abundant proof that privatization is a miserable and expensive failure, radical Republicans simply won’t learn from their mistake. They’re pushing for even more privatization.

Let’s return for a moment to Texas, the birthplace of mindless corporate control of govt. Gov Rick Perry announced last week that he wants to sell off to a private company the single most lucrative revenue stream in Texas history: the state lottery. San Antonio Express-News columnist Carlos Guerra explains why this is such a dumb notion.

[T]he idea is to sell the Texas Lottery for a huge wad of cash, all at once. Of course, the state would also relinquish Lottery revenues forever — or, at best, for a very long time.


[H]ow wise would it be to sell a lottery that has generated more than $13 billion for the state since 1992, $5 billion of which has gone to schools since 1997, when all of its revenues were earmarked for schooling Texas’ children?

That $5 billion may be only a small part of the miserly sum Texas spends on public schools.

But if we sell the lottery, how exactly will we replace that money once the big up-front payment has been blown? What will be next?

Will we then sell off future property tax or sales-tax revenues, or future revenues from hunting and fishing licenses?

That may sound silly but to Texas conservatives like Perry and Bush, nothing’s off the table. It is an article of faith with them that all privatization, no matter how idiotic or counter-productive, is ipso facto better than govt control.

Caught between these two deadly conservative illusions, we – the people, the taxpayers – are going to be stuck with the bills for boosting stratospheric corporate earnings out of our pockets that the investor class will transfer to its own already-bulging wallet while at the same time suffering a steady decline in services and programs for us and our kids. In other words, we pay a lot more and get a lot less.

That’s insane.

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