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WILL “AUSTERITY MEASURES” BRING BACK ECONOMIC GROWTH?
by Paul R. Hollrah, 2012
(Feb. 18, 2012) — For many years, conservatives have been warning the American people to keep at least one eye on the State of California. California’s fiscal problems are so great and so intractable that the long term future of the state as a viable political entity is impossible to predict. What is certain is that, with the growing influx of illegals across its southern border; with increased pressure on state-funded social, educational, and law enforcement services; with continued overregulation of business by federal and state governments; and with the growing outflow of jobs, businesses, and the middle class to Texas and surrounding states, it is difficult to predict what California will look like a decade from now. Those wishing to avoid the rush would be wise to leave now.
Whatever California will become, it will not be a pretty sight. It will be a perfect example of what happens to a state or a nation when liberals and Democrats are given free rein. However, as the world’s sixth largest economy, the sheer size and momentum of the California economy will likely postpone their demise. If the world wishes to see a side-by-side comparison of political jurisdictions… one committing economic suicide by following favored Democratic orthodoxy, the other reversing a downward trend by implementing tried and proven Republican free market principles… the competition to watch is the near term future of the states of Illinois and Indiana.
Illinois and Indiana share a straight-as-a-string border that runs from Hammond, Indiana, south to Terre Haute, and a meandering route along the Wabash River from Terre Haute to the Ohio River. But that’s about all the two states share in common.
On January 12, 2011, Investors Business Journal reported that the State of Illinois faced a budget deficit of $15 billion, “equivalent to more than half the state’s general fund.” According to the report, “(Illinois) officials warned that state government might not be able to pay its employees. It certainly would fall further behind in paying the businesses, charities, and schools that provide services on the state’s behalf.”
In response to that economic tsunami, the Governor of Illinois, Democrat Pat Quinn, and the Illinois legislature, controlled by Democrats (35-24 in the Senate and 64-54 in the House), developed a response that only a bunch of Democrats would see as a viable solution. In the midst of a major national recession they increased personal income taxes by 66% and corporate taxes by 46%, increases that were expected to produce an additional $6.8 billion per year… assuming, of course, that every employer currently in Illinois would remain in Illinois.
Reactions were predictable. According to the Journal, neighboring states immediately began plotting to “lure business away from Illinois.”
Governor Mitch Daniels (R-IN) said, “It’s like living next door to the ‘Simpsons’ – you know, the dysfunctional family down the block.”
Governor Scott Walker (R-WI) said, “Years ago, Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, ‘Escape to Wisconsin.’ Today we renew that call to Illinois businesses, ‘Escape to Wisconsin.’ You are welcome here.”
Ed Morrison, an economic policy advisor at the Purdue Center for Regional Development provided proof that some Indiana residents really deserve to live in Illinois. He said, “The idea of competing on state tax rates is… hopelessly out of date. It demonstrates that political leadership is really out of step with what the global competitive realities are.” Oh, really?
So how do things look in Illinois one year later?
According to a report by NPR reporter David Schaper, Dr. Abha Pandya is CEO of Asian Human Services, in Chicago, an organization that provides health care, education, jobs training, social skills, and mental health counseling for Asian immigrants, most of it paid for by Illinois taxpayers. Complaining that the state is still behind in their payments, Dr. Pandya said, “… we are owed $1.2 million… The providers are bankrolling the state when we have no money. And I think it’s completely… it’s the most ridiculous situation that one should be in.”
Schaper goes on to report that… “the state is up to four to six months behind in paying its bills to scores of service providers, including doctors, hospitals and nursing homes, as well as vendors providing everything from office furniture to vehicles.”
The Illinois Comptroller’s Office estimates that the backlog of unpaid bills is nearly $8 billion… and this after Democrats in Springfield loaded massive new taxes on the shoulders of taxpayers and corporations just a year earlier. The President of the Chicago-based Civic Federation, Laurence Msall, in making the case that the State of Illinois has unfunded pension liabilities of about $80 billion, states the obvious. He said, “There needs to be a very significant effort to reduce the pension liability.” It remains to be seen how that will be done with Democrats in charge of the governor’s mansion and both houses of the state legislature.
Across the state line in Indiana, where Republican governor Mitch Daniels occupies the governor’s mansion and Republicans control both houses of the legislature (37-13 in the Senate and 60-40 in the House), trends are all in the opposite direction.
On his first day in office in January 2005, Daniels created the Indiana Office of Management and Budget to identify inefficiencies and cost savings throughout state government. That same day, he decertified all government employee unions by executive order, rescinding an order signed by Democratic Governor Evan Bayh in 1989. Ninety percent of Indiana’s dues-paying members in the public employee unions subsequently stopped paying union dues.
During his first year in office, Daniels proposed a number of controversial plans to balance the state’s $24 billion budget through tax increases, budget cuts, and privatization plans. His proposed 1-year, 1% tax increase on people making over $100,000 was never considered by the legislature, but other austerity measures were and they were passed. Spending was reduced by $440 million through budget cuts and privatization plans, and the annual budget growth was cut to 2.8% from the previous 5.9%.
Wikipedia reports that, “In 2008, Daniels proposed a property tax ceiling of one percent on residential properties, two percent for rental properties and three percent for businesses. The plan was approved by the Indiana General Assembly and signed by Daniels on March 19, 2008. In 2008, Indiana homeowners had an average property tax cut of more than 30 percent; a total of $870 million in tax cuts.”
By July 2011 the Indiana budget was in surplus. According to the Louisville Courier-Journal, “The state had $1.33 billion in its main checking account and reserves when the fiscal year ended on June 30. That’s roughly the same as one year ago, even though state taxes brought in $1.2 billion less than originally projected.”
But now Daniels and legislative Republicans are taking one more giant step that will insure fiscal prosperity for the people of Indiana, compared to Democrat-dominated neighbors such as Illinois and Michigan. They have recently made Indiana the only right-to-work state in the rust-belt states of the industrial Midwest. The Indiana House approved the bill, which bars employers from signing contracts that require workers to pay union dues, by a 54-44 margin on Wednesday, January 25. The Senate passed right-to-work two days earlier by a vote of 28-22. Nine Senate Republicans and 6 House Republicans voted with Democrats in opposition to the measure… proving only that there are at least 15 RINO cowards in the Indiana legislature.
On February 1, Governor Daniels signed the Indiana right-to-work law and just three days later, on February 4, Caterpillar Corp. announced that it was closing its locomotive works in London, Ontario and that the 450 union jobs would likely be relocated to a non-union Caterpillar facility in Muncie, Indiana. It is exactly the same phenomenon we can expect to see on the evening of November 6, just minutes after the polls close and the people of America are assured that Barack Obama’s lease on the White House has not been renewed.
As much smaller economic entities than California, the future prospects for Illinois and Indiana will become clear in just a few short years. As other rust-belt states continue to suffer under the oppressive tyranny of labor bosses and Democratic politicians, the people of Indiana will receive a long-overdue lesson in the economics of supply-and-demand. As more and more corporations leave the non-right-to-work states in favor of the economic freedom of Indiana, the benefits of non-union labor will become immediately evident.
Just as it would be unthinkable for a husband or wife to bring a third person into their household to manage their marital relations, it is just as unthinkable to assume that workplace harmony can be achieved between a worker and his employer when a self-interested third party stands between them. The contest between Illinois and Indiana… a tale of two states… will represent the classic differences between Republican and Democratic ideology. There is no doubt which will come out on top… and which the people will prefer.