Monday, March 9, 2009

Taxes and Fiscal Responsibility

City Controller and Mayoral candidate Annise Parker demonstrated one of her strong points in an OpEd in Sunday's Chronicle--the ability to write 800 words without saying much. But she does attempt to provide some comfort to anyone concerned about the city's finances:

I want to assure Houstonians that we are exploring every possible option and taking utmost care with your tax dollars during these difficult times.

This claim is simply untrue. The most viable, easy to implement, and moral option is not even being considered. The city should reduce spending by limiting itself to its proper function--the protection of rights. But this would mean cutting government services through privatization, reducing taxes, and allowing individuals more freedom. This would be virtually impossible for a politician like Parker, for she would have to cede most of her power.

Politicians like to talk about how responsible they are with taxpayer money. But the truth is, the most responsible thing a politician can do in that regard is to let taxpayers keep more of their money--that is, cut taxes. It is condescending to talk about responsible stewardship while advocating ideas that require confiscatory taxes.

Parker's article is little more than a self-congratulatory pat on the back. She prattles on about the "innovative" and "responsible" measures she has taken--like having the city buy the debt of other government entities, such as Metro and the Harris County Flood Control District. But the real kicker is the city buying its own debt, a process which she claims is profitable to the city because it receives an interest payment of 1.5 percent to 2 percent.

Where I come from, a profit is the result of income minus expenses. If the city is receiving an interest payment on the debt it has purchased from itself, the city is also making that interest payment. Whatever interest the city is receiving it is also spending, which makes the entire deal a wash. And, if the city has the money to purchase its own debt, why incur the debt? Why not just use the cash, instead of creating needless steps to shift the money from one pocket to another?

Such financial voodoo is not uncommon in politics. Politicians frequently believe that they can suspend the basic laws of economics and accounting, not to mention reality. They believe that if they wish it to be, passing a law will make it so. And they can always find an expert or two who will pander to them.

Municipal finance can be very complex, but the overriding principle is simple: a disciplined focus on the long-term financial health of the city. Experts in the industry agree with our strategies, giving the city an excellent credit rating and characterizing our decisions as “fiscally responsible.”

Continuing to rack up debt is certainly not responsible. It is a mortgage on future Houstonians, and Parker and her ilk have no qualms about piling more debt onto that mortgage. More importantly, the reason municipal finance is complex is because government must resort to all types of schemes in order to finance its profligate spending.

The city's budget for fiscal 2009 is nearly $4 billion. Approximately 60% of this money is spent on functions that are not proper for government--such as parks, airports, building code enforcement, etc. And of the money spent on legitimate government functions--the police and courts--a large percentage is consumed by the enforcement of laws that violate individual rights by restricting the voluntary actions of adults.

In short, if Parker (or any politician for that matter) is truly concerned about the city's financial health, she should begin by reducing government to its proper sphere. Doing so would not only greatly reduce the funds required by government, it would allow citizens to keep more of their money. And in the end, the financial health of individuals will determine the financial health of the city.

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