Even the birds will have a hard time understanding these taxes
Published 12:00 am Wednesday, May 14, 2003
Normally, letters sent to The Demopolis Times appear in the space just to the right of this column. But a faithful reader had a request this week, and thus I’ll run his brief letter right here.
Dear Mr. McElvy:
I read your newspaper; don’t just line the bird cage with it. I am impressed by your knowledge of politics and economics. Would you explain to this simple-minded economist one thing: Why is it that when the United States government finds itself with a failing economy, President George Bush proposes a tax cut is needed to fix everything? And when the State of Alabama finds its economy in bad shape, our Gov. Riley wants to rewrite the Alabama Constitution so he can raise taxes on the Alabama people. I don’t understand, if a tax cut will work in one case, why we need to raise taxes in the other one. Please explain.
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Alfred P. Warren
First of all, it’s refreshing to hear that our paper gets read before the bird uses my mug as target practice. Secondly, I wouldn’t go so far to say that I have much knowledge of politics and economics. For that matter, the word "economics" makes my skin shrivel into bird seed.
But, Mr. Warren, I appreciate your letter and believe others might be interested in one humble writer’s take on the contrasting opinions of President Bush and Gov. Bob Riley.
For those who don’t understand the specifics of Mr. Warren’s concern, President Bush will likely get a $350 billion tax cut passed through both the House and Senate. With a slumping economy, Bush believes a tax cut will do more to invigorate the economy than anything else.
On the other hand, Alabama Gov. Bob Riley (also a Republican) has decided Alabama’s funding crisis is so bad that the only solution is a tax increase. Currently, the economists in Alabama have projected a budget shortfall of nearly $600 million, and the only way Riley believes that shortfall can be made up is by asking Alabamians to give the state more money.
In order to answer this question &045;&045; and there is a logical answer &045;&045; we need to look at a couple of numbers. And yes, I like looking at numbers about as much as I like staring at the sun.
The U.S. Government’s revenue budget this year equals somewhere around $27 trillion. Alabama’s revenue budget equals just more than $6 billion.
Got that? U.S.: $27 trillion; Alabama: $6 billion.
Now, Alabama operates under a constitutional law that it must always have a balanced budget. In other words, if Alabama spends $6 billion this year, it also must collect $6 billion. If Alabama only collects $5 billion this year, then it must cut its expenditures, or prorate (big word over the last couple of years) the amount of money it spends by $1 million.
Have I lost you yet?
Basically, Alabama is set up like any other business. If your business spends more money than it takes in, your business either closes down or you file for bankruptcy.
That’s Alabama. As for the U.S. Government, things operate quite differently.
The U.S. Government is under no constitutional law requiring it to maintain a balanced budget. If you can print it, you can spend it &045;&045; and the federal government can print all the George Washingtons it wants.
With that basic understanding, let’s look back at Alabama’s budget and at the U.S. Government’s budget.
If Alabama has a $6 billion budget, and Riley has projected a $600 million shortfall, that means Alabama will miss its budget by 10 percent. That’s a pretty crummy margin for any business.
On the other hand, if President Bush grants a $350 billion tax cut &045;&045; based on a $27 trillion budget &045;&045; we’re only talking about giving Americans 1.29 percent of the revenue back to them.
If that doesn’t calculate for you, there’s a big difference in what Alabama is lacking and what Bush wants to give citizens.
Here’s the key, and I’ve got to hurry because the birds are getting restless.
Alabama has no choice but to find more revenue. If we don’t find the $600 million state economists have forecasted, then we’re up a creek. In reality, we have two options: We either find more money, or we lay off more teachers and state employees. Riley has already made cuts nearing $200 million, and we’re still $600 million short.
That’s why Riley has no other option than to propose a tax increase (not to mention, we’re one of the least-taxed states in all of America.)
Bush has a different theory, and to understand it, you must realize that Bush isn’t worried about the federal budget; he’s worried about the economy, and the stock markets and Americans’ peace of mind.
The BUDGET is what the U.S. Government is supposed to spend. The ECONOMY is the amount of money being passed around this country through gas stations and grocery stores and Sears.
Bush believes that if citizens get more money in their hands, they’ll spend more money, which is what we need to fix the ECONOMY. Mr. Warren, if you had $1,000 more dollars in your hand, would you be a little more liberal when you walk past the ice cream in the grocery store? I would.
There’s no need for the federal government to worry about the budget right now. The U.S. is already in debt, and 1.29 percent more debt really won’t matter in a decade from now.
All told, Alabama and the United States don’t face the same crisis. Alabama needs money in order to operate. The United States simply needs Americans to spend more money (or invigorate the economy).
Those two problems are completely different, and there are two correct ways to pluck that bird.