The link brings you to a story about a political stand-off in Louisiana's state government fiscal problem. They are spending more money than they take in. One side wants to increase taxes (an increase of record proportions apparently) and one side does not want the increase.
So the one side uses a crowd favorite, the Louisiana State University's football team (the Tigers) as a HOSTAGE! Is it a real threat, or just demagoguery? The article lists other areas that would be hit...but the main point is this; aren't there always TWO means to balance a budget? Increase revenues or cut spending right?
The dirty little secret here is that spending is ASSUMED (the Federal Government calls it 'base line budgeting') to always increase at a specified rate. So, any increase in spending that is less than that assumed increase would be considered a CUT??? Like illustrated below, the BLUE line, is it a cut? Or is it growth?
According to base-line budgeting, it is a CUT!
Like in Flint, where they have decided to spend over $2,000,000.00 on park renovations instead of using that money to address their existential water issue? Wow...
If a family has less money coming in than it spends, priorities must be determined. Which is more important? Cutting grass in a park, or getting clean drinking water? Welfare payments to marginal individuals or a state-wide loved football team? (Please understand that it is NOT an all-or-nothing proposition regarding the marginal welfare recipients. We're talking here about the person that is able-bodied, just discouraged from finding work after years of looking.) Given that we are talking about spending public funds, shouldn't the calculus of MB greater or equal to MC be considered?
LASTLY...it is as true as daytime being lighter than nighttime. Taxes reduce economic activity. Everytime. Never not.
http://www.foxnews.com/politics/2016/02/13/louisiana-dem-gov-edwards-warns-agree-to-proposed-tax-hikes-or-lsu-football-could-be-sacked.html
This situation shows one of the ten principles of economics; people face trade-offs. The Louisiana government has to examine the different ways to pay off their debt. Their two options, decreasing spending or increasing taxes, both have unfortunate effects. If they decrease their spending, they would be cutting things that the people of Louisiana value. A “potential deep [cut] to health care and other public services” would cause a lot of complaints from the people. The producers (the government) would not be able to give the demanders (the people) the amount that they want, and there would be a chronic shortage. This shortage would also include the Louisiana Tigers. The people want to see their state football team continue to compete, and a cut in spending would eliminate this. This shortage means that the economy is not at equilibrium and therefore not efficient. The other option, increasing taxes, is also not a desirable route. Taxes discourage activity in the market, therefore hurting the economy. In the article it said that these tax increases would include “sales and personal income taxes”. People will not want to buy as much stuff if they have to pay more tax on it. Also, people will not want to work as much if they are being taxed more on their income, which would result in a drop in the productivity of markets. These consequences would cause the economy to lose activity. In short, it is clear that neither of these routes are desirable. If they chose a cut in spending, they could potentially create a chronic shortage, and if they impose heavier taxes, the economic activity will fall. These two separate sides are caught in the game theory. The government leaders must strategically weigh the marginal costs and marginal benefits to determine which side is the better option. The people supporting a cut in spending believe that this will be a more effective strategy. They believe that some of the spending is not necessary/as important; the beloved football team is not a priority over their debt issue. Also, a cut in spending would not be as discouraging as a tax, in terms of market activity. On the flip side, the people supporting an increase in taxes believe that this will be better than cutting the spending on things such as the football team. The government already over-spends; will a “cut” in spending really help anything? They could decrease their spending and still be over-spending. Neither way is a “good” way to solve this problem. The opposing sides need to carefully analyze the costs and benefits and come up with a solution.
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