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McQuiston: Deficit Spending

01/19/11 7:55AM By Timothy McQuiston
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(HOST) Commentator Tim McQuiston has been thinking about spending deficits and the state budget.

(MCQUISTON) You'd think by now we could all agree that budget deficits are bad - Democrats, Republicans, tea partiers, left, right, center, Congress, the President, you name it.

But apparently we don't. The current federal deficit began with the massive tax cut enacted in June 2001. Back then, I was among those who said that the so-called Bush tax cut would not only not stimulate the economy to a sufficient level, but it would balloon the federal deficit.

And of course I was right. The terrorist attacks on September 11th sent the economy into a freefall. And because of the size of the tax cuts, little more could be done strategically on that end; so first President Bush and then President Obama tried desperately to stop the economic slide by trading more debt for a hoped-for economic stimulus. They just printed money and spread it around. And perhaps that did stave off the worst.

But then, inexplicably, Obama, the Republicans, tea partiers, and enough Democrats in Congress all decided to renew the Bush tax cut. The evils of budget deficits, debt and massive government no longer seemed to matter.

Now cut to this coming January 25th, when Governor Peter Shumlin will offer the Vermont Legislature his version of the state budget. The Legislature ultimately will decide - but the onus is on Shumlin - to find a way to balance a budget that as of now has a projected shortfall of between one hundred and one hundred fifty million dollars.

If it were up to me, I would enact a tax and cut plan, because the pain would be shared more broadly and the timeline to recovery would be shorter. If broad-based tax increases are truly not on board, as Shumlin has promised, then major program cuts need to be enacted. Would Shumlin suggest closing most of the state prisons and sending most prisoners out of state? Or a 10 percent across-the-board cut in all state programs - and let each agency figure it out? Or cut in half the general fund appropriation to public education and let the local school districts deal with it?

Perhaps he'll take some of the Tax Commission's recent suggestions by instituting a tax on some business services, while cutting the general sales tax down to 5 percent.

Most likely, the budget Shumlin will present will be much more complicated: suggesting cuts here and there; some bigger, some smaller. Making a few big cuts would be fiscally more efficient. But to me there is no single obvious choice - or even two or three. The sales tax probably will be in play. But don't worry: he won't propose a sales tax on clothes.

While Vermont does not have a constitutional mandate to balance the budget, the state cannot afford to run a deficit. Government debt is a waste of money that sucks the life out of an economy. Vermont has been much more prudent than the feds during the last 10 years, and just a few months ago I thought everyone understood that. Now we can only hope the Shumlin Administration and the Vermont Legislature understand it.
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