Our local politicians, both Republican and Democrat, have ignored the often tested concept that lower taxes beget a brisk economy. In
Most people are not old enough to remember the high mortgage rates of 16.5% in 1981. They can not perceive of the impact of rates falling to 5% by 2006. The high rate limited a buyer who could afford a $1000 payment, to a $72,000 home purchase in 1981. While sellers were unable to move up being locked into existing homes that were priced as little as $30 per square foot versus new home prices costing nearly $100. With a 5% rate, buyers could afford a $186,000 home and those $50,000 homes with 1500 square feet jumped to $150 per square foot and a $225,000 price tag. Home owners rushed to cash in on their smaller homes so as to “move up” in the market. They gave up their low real taxes and paid significant increases whose outlay was left to the politician’s “wisdom”.
During these 25 years the politicians, who fanaticize themselves as the ones responsible for the value increases, spent the bounty like busy little beavers with no thought of a fall. Building permits went from the 100s of dollars to 10s of thousands per home and government managed costs like Workers Compensation insurance increased from 5 and 10% of an employees’ wage to 50 and 60%. Since then law changes have lowered rates. Before that happened, however, many builders and construction workers went bankrupt or just left the business because buyers couldn’t afford the increases and workers could no longer cut their incomes to compensate for the government’s burden.
Obviously, politicians were ecstatic about the windfall from new construction and property value increases. They spent like drunken sailors on a Paradise Island vacation. Most have good intentions but they neglect to monitor the economic health of the private sector and hand out wage and benefit increases that are unmatched for private sector employees. Simple inflation increases in the early 80s ran as much as 10 and 12%. Today, wage and benefits are now 51% higher for public sector employees than in the private sector and going higher.
The private sector has had to suck it up. Small businesses and businesses whose fate is not tied to government’s approval for rate increases are struggling to maintain profits and must either eliminate wage increases, cut workers, cut wages, move operations or go out of business. Meanwhile politicians are handing out inflation plus wage increases and increasing pensions and bonuses for employees who are already paid compensation and benefits above their private sector brethren. Many in the private sector are losing jobs or foregoing inflation increases. Taxes must be paid, so for private employers to pay wage increases, maintain profitability and stay in business they must first make up for the added costs of government
Politicians and government employees are never to blame for a bad economy so rather than looking for ways to cut spending they are looking for ways to raise revenue so they can party on. We have a “VENUE” to build and those relying on government expect wage increases and “WE” don’t want to “REDUCE SERVICES”. “Reduce services” being code for not cutting wage and benefit increases for government workers. Should we ask if they should share in the added cost of government and should wages and benefits be on a par with the private sector?
Besides your local government, there are private sector business and pseudo government agencies that follow and often exceed government patterns for spending. For example; government approves insurance industry rate increases which allow for inflation, the courts allow attorneys an annual increase in their $300-$400 fees and pseudo government organizations such as the local toll authority or your government owned utility raise benefits incrementally. Government impacts many daily expenses.
It may be unpopular to attack the largess handed out by politicians and these pseudo government beneficiaries to employees, however, there are serious implications. We are currently witness to the mini-struggle in our auto industry as it fights off bankruptcy caused by its pricey payroll and the high cost to carry retired employees. It is a mini-struggle, one that is minor compared to the time when baby boomers throughout the workforce begin to receive their social security in mass along with the many double dippers who will also receive other government pensions. It will be like Dracula meets Frankenstein as those remaining in the private sector struggle to pay the unprecedented historical costs burden. It is an occurrence that we either face up to now or fall to later, and no one, not even government workers, will avoid the anguish. The solution lies in strengthening the private sector and limiting the burden of government and not increasing taxes.
Written by EW Dedelow
Author of soon to be published
“Why Capitalism Works and Government Doesn’t”
1 Source for mortgage rates: http://www.huduser.org/periodicals/ushmc/summer2000/histdat4.html
2 as per Sentinel and date