Let’s acknowledge something that everyone knows to be true: You can’t cut taxes every single year. And then let’s face up to the fact that, in Georgia, this is one of those years when holding the line will be a win for taxpayers.
The state budget that has already been cut by $3 billion, or about 14 percent, over the past two years. Now it stands to be slashed by another $1.5 billion. Trying to reach that point while also cutting taxes is too much for lawmakers to bite off.
Look, with unemployment still creeping higher, I’d love to see a growth- and jobs-spurring tax cut just as much as the next supply-sider. Incentives matter, and capital is still on strike. The theory is still right.
That said, money is sitting idly today because of the regulation, spending and (future) taxes coming from Washington. People aren’t investing in future growth because the uncertainty is too great.
State policy is playing a much smaller role in these decisions right now. We can’t compete with other states for investments that simply aren’t being made right now.
Lt. Gov. Casey Cagle called for tax cuts nonetheless on Tuesday morning. Yet he seems to understand these dynamics. Speaking with me later that day, Cagle said he’s “not naïve enough to think what is done at the state level equals what’s done at the federal level.”
So, he and other state leaders face a dilemma. “What we do know is that we can’t simply sit by idle, and you can’t be unbridled in your pursuit of growth,” Cagle told me. “It has to be measured.”
Maybe the budget shortfall can be our ally here. Forget tax cuts for this year. Focus on spending — and reducing it in a way that will pay dividends even when times aren’t so lean.
The $3 billion in spending reductions so far have been achieved mostly with the rather crude tool of across-the-board cuts. That approach only works up to a point. What we need is a more strategic approach to “right-sizing” government and prioritizing limited state funds.
This is the path to more fundamental change. And, as Cagle said, “The use of one-time funds and particularly furloughs and the agency cuts are not foundational in that they can be sustained for the long term.”
This kind of effort will take time, elbow grease and, most of all, political will. So, don’t spend political will and capital — whose quantities are limited during an election year like this one — devising a way to cut taxes.
The budget cuts have to be made anyway: A $1.5 billion tax hike would be not just political suicide but economic roulette. By making them in a sustainable way, legislators can avoid some of this cyclical feast-and-famine approach to budgeting in the future.
They could also take an important step toward future tax cuts. They might even agree now to a cut that would be implemented in a couple of years, or gradually over a few years.
After all, the types of investments they are – or should be – seeking are the ones made for the long haul. So, setting out a plan for rates in the future, when the gains from such long-range decisions will be realized anyway, could still be just as big an encouragement for investment now.
With so much upheaval in the budget, the conservative – that is, prudent and far-sighted – strategy is to get some stability. Then we can make the changes that will leave us stronger, not craving another binge, down the road.