Anti-Tax Politics and Policy Inefficiency

The recent Gubernatorial debate illustrates how tax phobia and dumb political constraints lead to extremely inefficient policymaking. Here’s the key bit from Tom Infield’s piece:

Corbett, in what he said would be a surprise to the audience, agreed with Onorato that Pennsylvania needed to substantially increase its funding for prekindergarten schooling. That has been a plank in Onorato’s campaign platform for a long time.

Noting his position as attorney general, the state’s top law enforcement officer, Corbett said: “As somebody on the other end, who is putting people in jails, a lot of it has to do with education.”

Besides increasing funding for early-childhood education, Onorato proposed to continue a program through which the state has increased its support for basic public education little by little over several years. Stopping the program, he said, would add pressure on property taxes.

Corbett said he could not commit to increasing education support, to which Onorato retorted: “Tom is going to push it down to school districts and raise property taxes.”

The two men agreed that while facing billions of dollars in unfunded pension obligations, Pennsylvania could not afford to continue all benefits paid to teachers and state workers. But they disagreed on how to fix the problem.

Onorato said he would keep the sort of defined-benefit pension plans that workers have had for decades. But he said he would roll back the 25 percent hikes that he said a “greedy” legislature had given to itself and other state employees in 2001.

Corbett said full pensions would be out, at least for new employees. Workers would have defined-contribution plans similar to the 401(k) plans available to many workers in the private sector, he said.

Both candidates said court rulings appeared to make it difficult for the state to change the benefits promised to existing workers.

First of all, I don’t see how either candidate can promise to increase funding for early childhood education while simultaneously promising to balance a $5 billion deficit entirely throughout spending cuts. Remember that Corbett is talking about across the board cuts.

But back to the point, Onorato is exactly right about the effect on local property taxes. If the state keeps its education outlays constant, but school budgets still grow every year (as they should when the number of students grows)it’s obvious where schools are going to have to make up the difference. But local property taxes are much less efficient, and much less fair, way to pay for education. So the dumb anti-tax politics aren’t actually keeping taxes down – they’re just passing the buck and harming education outcomes in the same stroke.

It’s the same thing with pensions. Giving raises to state employees and politicians is terrible politics, so states have come up with a much more inefficient system of deferring that compensation with very generous defined-benefit pensions which they then proceeded to chronically underfund. The better policy would have been to ignore the bad politics and give public workers more take-home pay but less-generous defined-contribution pensions. Instead, political cowardice led state legislators to push pay raises into the future, creating a disaster that is now coming back to bite us in the ass.

Neither candidate is offering an adequate solution here. Onorato is clinging to defined benefit pensions, and Corbett wants to switch to defined-contribution plans without raises, which would be the equivalent of a huge back-door pay cut for public workers.

We also saw this with Corbett trying to get around the No-Tax Pledge on technicalities by claiming that fees aren’t taxes, or that payroll taxes aren’t taxes. This is insane. Bending over backward to avoid the anti-tax politics is producing worse outcomes, and isn’t even saving taxpayers money.