The Day of Reckoning Fallacy

It’s hard to understand why Bernie thinks Doug Reichley’s political cowardice is a “reality check.” Consider the following quote from Reichley:

I was at a candidates’ night last week of school board candidates where four of them promised they will not raise property taxes to abounding applause from, primarily, seniors. So we’re gonna’ have the Armageddon of school district battles in East Penn of people who are opposed to tax increases against people who have kids in school. And that’s as it should be. There’s no more ducking this issue. We overspent the last few years.

First of all, if the state raised income taxes, or replaced the state’s regressive flat income tax with a progressive rate structure, or raised taxes on investment income like capital gains, that would also protect seniors from property taxes. Instead, the Corbett budget cowardly kicks state debt down to local governments and school districts, creating the need for property tax increases. By rejecting state level income tax increases out of hand, Reichley will be directly responsible for the property tax increases he says he opposes.

The other problem with Reichley’s comments is that he apparently subscribes to the same Day of Reckoning Fallacy that Tom Corbett and Bernie believe. The story goes like this: the state budget is out of balance because “we overspent.” We thought we could afford to increase education spending, but then the recession happened so we’re screwed. We’ve reached a Day of Reckoning where we have to atone for the “sins of the past”. We’ve made our bed and now we have to lie in it.

If that story misrepresents Bernie’s views, I’ll be happy to amend it, but as it stands, it is a very very stupid story.

Pennsylvania did not suffer a tsunami in 2008 that ruined that state’s ability to produce goods and services. There was no earthquake or terrorist attack or famine outbreak. In other words, the economy did not suffer a real shock, it suffered a nominal shock – a temporary flight to safety where households and firms decided they wanted to buy fewer goods and services and horde more cash money and safe assets. The drop in buying and sellling meant lower tax receipts. But now that tax collections are returning to normal, the deficit is shrinking and PA now has a surplus six times larger than projected.

That’s all just to say that there is no Day of Reckoning – as demand for goods and services continues to return to normal, revenue collections will also go back to normal and the state’s deficit will disappear all on its own.

Corbett, Reichley and Bernie appear to think the budget is some kind of morality play where the state is doomed to slow growth forever, but really it’s just a temporary, totally avoidable waste of our productive capacity with needless human consequences. Reichley’s not being brave, he’s not speaking hard truths, and this is certainly not a “reality check”: it’s a fundamental misunderstanding of where the budget deficit came from.