City Journal Autumn 2014

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Autumn 2014
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By Steven Malanga:

Shakedown: The Continuing Conspiracy Against the American Taxpayer

By Steven Malanga, Victor Davis Hanson and Heather Mac Donald

The Immigration Solution.

By Steven Malanga
The New New Left: How American Politics Works Today

Eye on the News

Steven Malanga
Upstate Taxpayers Say, Enough!
Will pols heed their revolt?
17 February 2005

Call it the tax revolt without a Governator to lead the way.

Fed up by 30 years of a declining economy, rising taxes, and a swollen public sector, the folks of Erie County have risen up and rebelled, swamping their elected officials with e-mails and petitions objecting to another increase in taxes and demanding spending cuts instead. So vociferous have been their complaints that legislators, accustomed to ignoring the best interests of their constituents in order to protect their own patronage-laden budgets, have actually paused and are now trying to figure out how to balance the books without raising taxes.

With luck, what’s happening in Erie County will spread to the rest of New York State and to New Jersey in time for each state’s upcoming gubernatorial elections. Bereft of a charismatic figure to galvanize public support and to discipline their increasingly dysfunctional legislatures, both states have been practicing fiscal folly over the last several years, raising taxes, borrowing furiously, and spending incontinently. The result has been one budget crisis after another so that, even as other states’ budget woes ease with the national recovery, New York and New Jersey still face huge deficits.

It’s not hard to figure out why the residents of the greater Buffalo area have revolted. Once a great industrial economy, the area started facing intense competition from other regions and countries decades ago. Rather than help face these challenges, government contributed to the problem, raising state and local taxes and increasing the burden on businesses by, among other things, creating one of the most expensive workers compensation systems in the country, so that jobs threatened by competition disappeared quickly, and the area sank into decline.

What didn’t decline, however, is public consumption of tax dollars. Thanks to corruption and patronage, government squandered valuable resources in the area. A recent series in the Buffalo News, for instance, highlighted how the city has wasted much of the nearly $550 million in federal urban aid it has received in 30 years on a series of projects that failed, on a network of politically connected social service groups of unproven and unprovable value, and on city hall salaries. At the same time, the county’s budget and tax structure is groaning under the weight of a growing Medicaid bill, foisted on the county by New York State—the only state that requires localities to contribute so heavily to Medicaid. Indeed, the very sales tax that Erie residents are now protesting against was instituted in the early 1970s to pay for the county’s Medicaid costs.

The final straw, however, was the recent budget proposed by Erie County Executive Joel Giambra that included a sales tax increase but preserved hundreds of patronage jobs. That impelled a loose coalition of business owners and taxpaying groups to bombard county officials with e-mails and petitions—enough to scare legislators who had recently voiced support of the tax increases. At the heart of this citizens movement is the perception from a growing number of local residents that what’s happening in Buffalo is not a clash of liberal versus conservative ideas on government spending, but a widespread, nonpartisan recognition that the system is rigged by the public sector against taxpayers. “It doesn’t matter if they are [politically] Left or Right. They’re all saying, ‘Enough is enough,’” is how one small business owner describes the revolt.

The larger question is whether voters throughout New York and New Jersey will come to the same conclusion any time soon. Both states have steeply increased spending throughout the recession, financing the increases with tax and fee increases, fiscal tricks, and immoderate state borrowing. The deficit New York State needs to close next year is $4 billion, while Jersey’s is also $4 billion after former Governor James McGreevey borrowed $2 billion last year to increase state spending by 17 percent—a fiscal calamity because the borrowing to cover operating expenses means there will be an immediate shortfall in next year’s budget, even before new spending increases.

Anyone looking at the fiscal situation in either state should soon figure out that, as in Buffalo, the issue is not liberal versus conservative, but taxpayers versus tax-eaters. A recent study by the Federal Reserve Bank of Boston, which measured the fiscal needs of each state based on such factors as poverty levels, number of school age children in each state, and other things that drive public spending, concluded that neither New Jersey nor New York has unusually heavy fiscal needs. But both states tax their citizens at the high end of the scale, accumulating huge revenues that go to expanding the size of the public sector through higher salaries and pensions of public employees, among other things, without producing any special benefits for citizens, who feel they have reached the end of their willingness and ability to pay.

That kind of a formula is a prescription for a tax revolt even in tax-friendly Blue states like New York and New Jersey. And although both states lack the kind of initiative and referendum that voters used so effectively in California to sweep Governor Arnold into office, each state does have a gubernatorial election coming up—this November in New Jersey and next November in New York. The crucial question is whether any candidate can arise in either state to be the champion of the kind of people now hanging out of windows in Erie County shouting, “I’m fed up, and I’m not gonna take it any more!”

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