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Entries in Recession (3)

Wednesday
Nov302011

NH Sen. Jeb Bradley - Continued Frugality Necessary to Protect Taxpayers and Grow Jobs

By Jeb Bradley 11/28/2011

In passing the 2011 budget, the Legislature made tough decisions and difficult cuts to stabilize NH finances while also laying the groundwork for economic recovery.

Judging the 2011 budget must be made in the context of the previous two budgets which increased spending 23% from $9.36 billion to $11.5 billion. In those prior budgets, when tax revenue underperformed, Legislators resorted to unprecedented borrowing for operating expenses and Stimulus funds to close growing deficits. That gap from prior budgets was at least $800 million when current legislators began formulating the 2011 budget. Difficult choices could not be avoided!

Those of us tasked with producing a balanced budget also recognized that New Hampshire taxpayers, working families, and small business owners were still reeling from nearly 100 new or increased taxes and fees passed in the previous four years. Those new levies included the job killing LLC business owner income tax and the camping tax that proved to be so odious they were repealed. Given the negative impact that higher taxes would have on job growth and hardworking Granite Staters, higher taxes were an obvious non-starter.

Two of the more difficult decisions involved funding for hospitals and the University System. Due to the fact they are both large expenditure items, cuts in these line items could not be avoided if the budget was to be balanced. Very few legislators wanted to make these cuts, but unfortunately they were necessary.

Due to their not-for-profit status hospitals pay no business taxes and very little property taxes. Over the years these hospitals have absorbed numerous private physician practices that had previously paid taxes, but now don’t, because they are under the hospital umbrella.  Meanwhile, some of these not-for-profit hospitals act like large businesses by engaging in expensive advertising wars fighting for market share. Nevertheless, a provision in the budget allows some future funding for hospitals should revenue become available.

While virtually all state departments received less funding, the Senate retained funding for the mental-health system and for families that have disabled children.

Other budget cuts that generated much discussion were in the Department of Transportation and were made necessary by the expiration of the $30 (and in many instances higher) surcharge on motor vehicle registrations. The surcharge was enacted in the 2009 budget and promised to be a temporary measure.  New Hampshire residents complained about this surcharge as much as any of the nearly 100 taxes or fee increased in the previous four years -- rightly viewing it as a “fee” to get to work. 

Allowing it to expire as promised does have consequences in the Transportation budget however. Initially the Department proposed snow plowing cuts on secondary roads.  Several legislators led by Sen. Chuck Morse and Rep. Gene Chandler objected and the newly appointed Transportation Commissioner announced an alternative plan that will ensure the same level of plowing as in past winters.  Instead, reductions will be made in maintenance, mowing, road sweeping, tree trimming, and pavement markings in 2012 and the Department will work with the Legislature to meet budget constraints.

In my view, we must prioritize necessary maintenance over most new construction with the exception of projects such as Route 93 expansion, the Little Bay Bridge or Conway bypass that have  state-wide traffic significance.  There also must be recognition that maintaining our roads and highways costs money.

Because of realistic and conservative projections, revenue is somewhat ahead of expectations -- welcome news indeed.  Business taxes, the most important revenue source, are 12% above predicted. The rooms and meals tax, the communications tax, and the real estate transfer tax are all slightly ahead. It is a hopeful sign of possible light at the end of the recession tunnel, when business, real estate, and tourism revenue are improving.

A key priority, especially for the Senate, has been enacting legislation that improves the business climate for job creation. We passed bipartisan legislation (SB 125) that dramatically curtails the ability of the Department of Revenue to foist a de-facto income tax on the salary a business owner pays him or herself.  We passed legislation (SB-86) that restricts the Department of Labor from imposing large fines on business owners for rather minor paperwork violations without first warning the business.  We expanded net operating loss provisions to encourage start-up businesses and job creation by wrapping SB-126 into the next budget.   Also included in the budget, SB-154 made changes to development rules near rivers and lakes that will encourage a depressed home building industry by easing requirements while still protecting the environment.

Furthermore, the Senate sought to relieve future pressure for tax increases through a number of government reform efforts.  A new education funding formula sponsored by Senators Jim Rausch and Nancy Stiles ended donor downs and prevented unsustainable future cost increases while ensuring the cities and towns received the same level of funding in these difficult times.  SB-147 reforms Medicaid, the largest cost center in our budget, saving significant present and future costs while maintaining quality services for those in need.  And finally pension reform will save property taxpayers from skyrocketing costs.

This Senate legislation – much of which I was the primary sponsor of -- will pave the way for more cost effective, efficient government and a demonstrably improved business climate. New Hampshire’s unemployment rate -- while still too high -- has dropped from 5.7% in November 2010 to 5.3% today. However, the fact that nearly 40,000 of our friends and neighbors remain out of work gives added urgency to these measures.

There are also budget storm clouds on the horizon. The federal government seeks to recoup $35 million of excess Medicaid payments made to New Hampshire several years ago. This calls for continued careful budgeting and living within our means.  Governor Lynch was able to save $26 million from the previous budget through carefully managing each department’s expenditures. 

A budget provision supported by Governor Lynch as well as Senate and House budget writers would curtail welfare eligibility saving $8million per year. Though almost most legislators agree with this change, a drafting mistake was made and the language was not reflected in the final budget. 

Realizing this, the Senate met in early September to pass fix-it legislation before more money was spent. Unfortunately, the House waited for a month to address the issue which cost nearly a million dollars.  The House then added a non-germane amendment that will foolishly cost another two million dollars.

The State needs to continue to practice frugality to protect hard pressed New Hampshire taxpayers and to help our economy weather the national recession.

 

Monday
Aug092010

Two Approaches For Solving Depression. Pick One!

Depression of 1920-1921 (duration about 18 months)

When President Harding assumed office on March 4, 1921 the United States was in the midst of a post war economic depression. By 1920, unemployment had jumped up to 12 percent and the GNP had dropped by 17 percent. Harding ignored Secretary of Commerce Herbert Hoovers recommendation for proactive federal intervention; rather Harding cut tax rates for all groups, including the reduction of the top rate from 75% to 25%. His efforts to reduce the national debt also involved cutting Government spending by 50% over the next 2 years. The resultant climate of low Government spending and low taxes allowed the private sector the room it needed to add jobs at a rate not seen in modern times. Recovery began to take place in summer of 1921; by 1922 unemployment receded to 6.4 percent; by 1923 the unemployment rate was 2.4 percent. The continuation of his policies by his Vice President, after his death (only 2 years into his Presidency) laid the foundation for the era known as the "Roaring Twenty's", and by 1926 unemployment had reached a record low of 1.8%, the lowest ever recorded in peacetime. Economist Benjamin Andersen writes,

"In 1920–21 we [the U.S.] took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. . . . The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.”

By Contrast

The Great Depression of 1930-1941 (duration 11+ years)

7 years after
President Franklin Delano Roosevelt started the New Deal, in an effort to increase jobs during the period of depression, spending more borrowed government money than ever before, creating over 15 brand new government agencies to handle all the spending, creating a huge government debt, increasing taxes, his very own Secretary of Treasury shared these following words:

“We have tried spending money. We are spending more than we have ever spent before, and it does not work. And I have just one interest, and now if I am wrong, somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I saw after eight years of this administration, we have just as much unemployment as we started - and an enormous debt to boot.”

 Henry Morgenthau, Franklin Delano Roosevelt’s Secretary of the Treasury
 
1941- Japan attacks Pearl Harbor. US manufacturing increased to supply the war effort and the employment required to satisfy all the war effort needs began and eventually pulled the US out of the depression that had been prolonged by government spending and government intervention.

 
So here we are in 2010, $700 Billion for Wall Street, $780 Billion for ARRA, $13 Trillion in debt, $1.4 Trillion budget deficit and unemployment at about 10%.
 
Is the current Administration and Congress trying to prove that Roosevelt was right? Or are they trying to prove that he was wrong? Either way they are spending lots of your money attempting to prove something. Perhaps they should try the 1920 approach that resulted in the quickest recovery and highest employment in the history of our country.

Now that’s an idea.
 
Tom Peters
Average American
Ashland, NH

Monday
Aug022010

Learn from History 

Depression of 1920-1921

When President Harding assumed office on March 4, 1921 the United States was in the midst of a post war economic depression. By 1920, unemployment had jumped up to 12 percent and the GNP had dropped by 17 percent. Harding ignored Secretary of Commerce Herbert Hoover's recommendation for proactive federal intervention; rather Harding cut tax rates for all groups, including the reduction of the top rate from 75% to 25%. His efforts to reduce the national debt also involved cutting Government spending by 50% over the next 2 years. The resultant climate of low Government spending and low taxes allowed the private sector the room it needed to add jobs at a rate not seen in modern times. Recovery began to take place in summer of 1921; by 1922 unemployment receded to 6.4 percent; by 1923 the unemployment rate was 2.4 percent. The continuation of his policies by his Vice President, after his death (only 2 years into his Presidency) laid the foundation for the era known as the "Roaring Twenty's", and by 1926 unemployment had reached a record low of 1.8%, the lowest ever recorded in peacetime. Economist Benjamin Anderson writes, "In 1920–21 we [the U.S.] took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. . . . The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.

History provides the best lessons of all, if we let it.

Tom Peters
Ashland NH
(reprinted from Wikipedia Historical Facts)