Sometimes being wrong is better than being right.
Take the state budget, for example. It turns out that actual state revenue will exceed the original forecast, leaving a surplus of about $332 million when the fiscal year ends on June 30.
That’s typically a good problem to have, but some conservatives are outraged. They say it proves that Arkansans are overtaxed, and they are calling for the entire surplus to be refunded to taxpayers.
It’s a compelling argument, to be sure. If the government got through the year and has some money left over, why not send it back to where it came from? Especially since legislators are likely to spend it on unnecessary pork projects.
Gov. Mike Huckabee sounded that theme last week to curry favor with the right-wing Washington Times as he prepares to run for president. With groups like the Club for Growth relentlessly attacking his fiscal record, Huckabee needs to shore up his conservative credentials to compete for the Republican nomination.
“He will devote full time to [preparing a presidential candidacy], however, only after he finishes his last full term this year by rebating to taxpayers a large part of the $600 million [sic] budget surplus that he expects the state to ring up come July,” the Times gushed.
Back in Arkansas only two days later, Huckabee was less definite about the matter.
“I’ve not given up, [but] I’m not going to stir it up,” Huckabee said on AETN’s “Ask the Governor” program. “It’s going to happen when people contact their legislators.”
If that doesn’t have the same ring of decisive leadership that Huckabee exhibited for the Washington Times, at least it’s a step in a more responsible direction, because a surplus isn’t the only thing that can happen when projections are wrong.
Deficits can happen, too, when revenue is less than expected. And the state’s revenue stabilization act requires a balanced budget, so a deficit would lead to either budget cuts or tax increases. A significant event or economic downturn almost guarantees additional taxes, like in 2003, when the Lakeview school funding decision forced a special session that resulted in a tax surcharge for education.
That means if we receive rebate checks this year, we could just as easily end up returning the money in the form of taxes next year if things don’t go as well.
A better idea would be to create a “rainy day fund,” as most of us were taught to do as children. It’s the perfect compromise, because it shelters the surplus from greedy legislators and provides a cushion when a deficit inevitably occurs.
Richard Weiss, the state’s finance director, says that he would like to see such a fund, and that a law already exists to get it started. However, the legislature still would need to act to deposit the surplus there and create the provisions by which it would be distributed in tougher times.
“What I’d like to see happen,” Weiss said, “is during fat years we’d put in the money, and in lean years we’d take some out to supplement cash flow.”
Sounds simple enough to anyone who’s ever had a bank account. Weiss added that the econometric firms used to prepare state revenue forecasts do not have the ability to anticipate major changes in the overall economy, including the beginning and ending points of recession, which makes a rainy day fund that much more essential.
Unless you think a state government should live only for the present, distributing tax rebates one year and imposing tax surcharges the next. A growing number of Americans see the folly in such an approach, as evidenced by the reaction to U.S. Sen. Bill Frist’s recent proposal to issue $100 tax refunds in response to higher gas prices. The idea was met with instant widespread ridicule, with even conservative commentator Rush Limbaugh saying, “What kind of insult is this? Instead of buying us off and treating us like we’re a bunch of whores, just solve the problem.”
Indeed. Arkansans would prefer a rainy day fund to a one-time rebate if they understood it would prevent both reckless spending and additional taxes over the long term. Unfortunately most politicians prefer to go for the easy pander, or they want to get their hands on the surplus for the next round of pork projects.
The rest of us are stuck in the middle, waiting for a sensible leader who knows that you keep an umbrella in the car, just in case.