Tue, Sep 02, 2014 ●
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Policy Wonk: Contrary to right-wing opinion, the world is not flat

Opinion

Policy Wonk: Contrary to right-wing opinion, the world is not flat

The refusal to accept hard facts, truths that stare us in the face, has become the hallmark of the political right in the nation, and in Maine.

The insistence by right-of-center political leaders (Gov. Paul LePage is one among many) on policies that ignore facts and truth is stifling the U.S. and Maine economies.

Which policies? What untruths have we succumbed to? Here are some examples:

• "Cutting taxes for wealthy individuals and corporations will stimulate the economy and create jobs."

Not true. The federal tax rate on individuals making more than $400,000 was recently increased, but federal income tax burdens remain at a 60-year low. The massive (2001-2003) Bush tax cuts did not ward off the 2007-2009 recession; they did not bring us out of the recession. These cuts simply increased the nation’s debt.

Although the U.S. corporate tax rate (35 percent) seems high, the effective rate (by virtue of exemptions, loopholes, and tax credits) is less than half that. We rank 21st out of 25 industrial nations in corporate tax burden. This low effective rate did not prevent the recession – it has not facilitated a rapid recovery from recession. This low rate also raised the national debt.

In Maine, the LePage tax cuts – roughly $150 million dollars annually, largely benefiting the wealthy – have not turned the economy around. Maine’s job growth is non-existent; unemployment has not gone down; the quality of life is declining. The only effect these cuts have had is to produce revenue gaps that make it increasingly difficult to adequately fund schools, road maintenance, other infrastructure needs, and the needs of the poor, the elderly, and the handicapped.

These are the facts. They speak loudly. At national and state levels of government, tax cuts for the wealthy and corporations do not create jobs; they do not turn an economy around.

• "Austerity budgets and debt reduction will stimulate the economy and create jobs."

Not true. The lessons of Europe – England, Ireland, Spain, Portugal, Greece, Italy – shout out to us. For years, all of these nations have been drinking the Kool-Aid of austerity budgeting. All of them are mired in recession or double-dip recession. Unemployment in these countries has been prolonged, and higher than in the U.S. (in many cases much higher).

In the U.S., austerity budgeting in the form of the “sequester” will reduce the nation’s debt slightly. But all economists agree it will slow down the rate of economic recovery. People will remain unemployed, and for longer periods. We failed to distinguish between long-term debt reduction that must eventually be fashioned, and short-term debt that must grow to provide the needed stimulus to get out of recession.

In Maine, LePage’s austerity budgeting began by sharply reducing state employee and teacher retirement benefits; it moved to tightening eligibility for a wide range of welfare benefits; it is now focused on cutting off municipal revenue sharing, flat funding education, and allowing almost all of the state’s regulatory programs and infrastructure to deteriorate over time. He would allow municipalities to fund (where the state leaves off) what they choose to fund – but he knows that few municipalities have the resources to do so.

Again, these are the facts. Austerity budgets do not revive an economy; they do not produce jobs. Indeed, the evidence is to the contrary: in Europe, the U.S. and in Maine, austerity budgets prolong economic downturns and high unemployment.

• "Avoiding debt (bonding) during recessionary periods is good economic policy."

Not true. Contrary to the view of most economists, the governor (without any supporting evidence) has taken the position that bonding is inappropriate during tight fiscal times. It makes no sense.

The facts are that interest rates are low; that Maine is not overburdened with debt; that countless projects throughout the state are ready to go; that construction firms hit hard by the housing downturn, need and want the work; that bid prices on the few projects that have moved forward were well under engineering estimates. In spite of these facts, the governor blocked a bond package during his first two years in office and has frozen $100 million in approved bonds.

In sum, bonding to build needed infrastructure over the last several years would have been anti-recessionary: It would have reduced unemployment, and enabled us to acquire this infrastructure at write-down prices. We’ve lost these opportunities because of LePage’s “no-bonding” policy – a policy contrary to common sense and good economics.

The governor and the political right cannot continue to advance policies built on asserted facts that are untrue, essentially asserting the world is flat. In each of the examples I've cited, there is overwhelming evidence that the assertions made (and constantly repeated) are incorrect.

Maine is paying a heavy price for this obdurateness. It needs to end.