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July 9, 2010

It's Friday!  

Quotable

- "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." - Thomas Jefferson

- Big business seems to be recovering from its Stockholm Syndrome: "We see a host of laws, regulations and other policies being enacted that impose a government prescription of how individual industries ought to be structured, rather than produce an environment in which the private sector can innovate, invest and create jobs in this modern global economy. In our judgment, we have reached a point where the negative effects of these policies are simply too significant to ignore. In the search for short-term revenue fixes, we're doing long-term damage to growth. By reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses." - Verizon CEO and Business Roundtable Chairman Ivan Seidenberg speaking at the Economic Club of Washington, June 22, 2010

Health
- The Society of Actuaries released a survey last week showing that actuaries and consumers both believe that more transparency within the U.S. healthcare system is the key to bending the cost curve downward. The Georgia State Health Benefit Plan, which insures over 600,000 lives across the state, is well positioned to jump start price transparency in Georgia.

Taxes
- Applying a sales tax to business inputs is "the most egregious flaw embedded in the state tax system. Everyone who has ever studied the issue will tell you that the sales tax should not be imposed on business purchases. That is, when a business purchases a product or service, it should not pay tax on the purchase. There is near unanimity among public finance scholars on the issue. The sales tax is supposed to be imposed on the final consumer. Taxing business purchases causes the tax to be passed on to consumers without their knowledge." - David Brunori, contributing editor of State Tax Notes

- Georgia State University estimates the total value of tax exemptions and tax credits in the Georgia tax code is just over $10 billion. The largest three account for 90 percent of the total. Business inputs, which should not be taxed (see quote above), account for $4.2 billion. (Unfortunately, Georgia does tax many business purchases including the energy used in manufacturing as well as the networking equipment used for broadband Internet access.) Government purchases of $2.4 billion and household purchases, including education, of $2.7 billion are also excluded. Health care, nonprofits and retirees account for $805 million. Another $96 million of exemptions are provided to incentivize environmental actions, conservation and low-income housing. Other business exemptions and tax credits - mainly economic development incentives - amount to $156 million.

State budgets
As Georgia looks at what could be a $1.6 billion budget deficit for next year, Greg Scandlen reports on the good news and bad news as other states struggle to balance their budgets:

- California is $19.1 billion in the red and the legislature has gone home without passing a budget. Governor Schwarzenegger has said he will cut the wages of state employees to the federal minimum of $7.25/hour, at least for those employees whose unions are not willing to negotiate new contracts.

- In Illinois the Comptroller has stopped paying bills because the state is $12 billion in deficit. The cash balance for the state is minus $5 billion and it is taking nearly 250 days to pay bills that are due.

- In Oregon they tried raising taxes on "the rich." The state passed a referendum in January to substantially raise taxes on those making over $125,000 per year and on corporations, but the hoped-for revenues never materialized, so Governor Kulongoski is calling for a 9 percent across-the-board cut in state spending.

- Indiana has balanced its budget by not relying on federal funds. Governor Mitch Daniels said, "It would have never entered our mind to put funny money like that into the budget."

- In New Jersey, Governor Chris Christie managed to cut spending by 8.8 percent from last year and refused demands to raise taxes on "millionaires." Now he has called for a special session of the legislature to limit property tax hikes to no more than 2.5 percent per year.

Have a great weekend.

Kelly McCutchen

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