Editorial: Higher taxes now part of our destiny
That’s the reality of the projected $385 million deficit in the state’s general operating fund of about $4 billion.
And some insiders think even those numbers are hopeful and that the shortfall for the 2017-18 fiscal year beginning July 1 could be even worse. And little reason exists to think the shortfall is temporary.
As creative as Gov. John Carney may be, he has a finite number of tools in his toolkit for addressing the grenade-quality financial peril he inherited from his friend Gov. Jack Markell and the Delaware General Assembly.
The biggest opportunity – once he gets past the spending “entitlements” such as Medicaid – is to cut the state’s personnel costs, which he can do in four ways:
“¢ Cut jobs and positions, although the crisis in corrections is forcing him to increase them.
“¢ Cut public sector salaries and benefits.
“¢ Cut the gold-plated public-sector pensions (against which private sector taxpayer 401(k) plans pale by comparison), including abrogation of pension commitments that state and local governments have made but not funded with payments into pension funds that represent the new realities of return on investment.
“¢ “Privatization,” or outsourcing work to the private sector where, even after a 10 percent or so profit margin, the lower costs and increased efficiencies can result in savings.
The governor’s electoral indebtedness to public employee unions – despite their minuscule size as part of Delaware’s overall workforce – makes it difficult for him to take any of those alternatives.
What’s left for Gov. Carney?
“¢ Increase existing taxes, e.g., the state’s personal income tax, which he already has proposed, and various licenses, user fees, and permits.
“¢ Put the Delaware in the property tax business, and begin to enact state levies on real estate, joining the counties, municipalities and school districts, or pushing more costs from the state to the local level, forcing them to increase real estate taxes.
“¢ Add Delaware’s second “consumption tax,” a variable point-of-purchase general sales tax that would supplement Delaware’s by-law hidden sales tax, which it calls the Gross Receipts Tax.
And none of this factors into the increased costs that come with America’s broad antipathy to “big government;” that is, the costs that will rightfully be pushed to state and local government as ambitions at the federal level shrink a bit. That’s why Americans – over the resistance of Delawareans – have been electing more Republicans to Congress and the executive branch.
Support of the arts, for example, will be returned to the community from the federal level by the Trump Administration. And that’s a good thing.
I’m not against art. Our family likely is in the top 2 or 3 percentile of Delaware families supporting the arts, as patron members (at the Delaware Art Museum and the Grand Opera House), consumers as ticket buyers and purchasers of art, and related support. One of our sons graduated Cab Calloway School for the Arts, and later earned a bachelor of fine arts degree at the University of Delaware.
But when government struggles to even accomplish the minimal at the federal level, where every incremental dollar spent immorally adds to the $20 trillion deficit that doubled under President Obama from $10 trillion, then funding public art should be made by us at the local level, where I’d support them, as would thousands of other Delaware families. There, we volunteer to pay through today’s taxes, rather than transfer the costs by federal repayment by future generations.
And what does this big picture portend for business in Delaware and elsewhere?
On one level, this is an issue that states across the country will face as a structural issue and have to resolve. My own native Illinois, for example, by any measure, is virtually bankrupt, saddled with huge debts piled up by successive Democrat administrations’ spending without raising the revenue to fund, e.g., a public sector pension system that is a joke.
On another level, in Delaware, some of this is self-inflicted by the state’s continuing voluntary and unnecessary tribute to organized labor by “prevailing wage” policies that make it impossible for the taxpayers to get a break by having the state pay “market” rather than exponentially higher “prevailing” wage rates for work it buys.
Policymakers have voluntarily given up the alternatives such as “enterprise zones” that would give our state the opportunity to creatively incubate next generation businesses.
And, as a Blue State, we take too many alternatives off the table, assuring that Delaware is among financially fragile and high-cost states like Illinois, New Jersey and New York, instead of the robustly growing Carolinas, Tennessee, Florida and others.
Higher taxes are the only alternative that remains for Delaware, because that’s the path the state has chosen by omission as well as by commission.