Slow Tides of Change

Tom Coyne of wrote on Saturday that politics in Rhode Island will change, it is merely the pace and manner in which this change occurs that is in question. He offered that either the voters will decide to bring about, via the ballot box, a more equitable political system or will the state go bankrupt as a natural result of one-party rule in which there is no check on spending.

In Rhode Island, the public sector, ie: government, has taken an increasing amount of the overall dollars earned in the state. This money comes from the pockets of those who earn their’s in the private sector. (Justin’s chart in a previous post is a simple, graphical representation of this sort of thing as it relates to teachers, a narrow section of the private sector.) If the public sector becomes too large and demands too much of the private, then those who comprise the private either vote for change or leave. If the latter ocurrs, then budgetary shortfalls become endemic and bankruptcy will follow unless the state government takes steps to forestall such an occurrence.

The recent election seemed to indicate that Rhode Islanders, as of yet, have not reached a point of disenchantment with current system as they did relatively nothing to alter the balance of political power in the state. However, Coyne offers an interesting observation about political change:

Since the Nov. 2 election didn’t do much to advance this result, then change will probably have to be brought about by the accelerating replacement of long-time Rhode Island voters with new residents who commute to jobs in Massachusetts and Connecticut. Unfortunately, this change process will be more painful. Because these new residents earn their income outside Rhode Island, as they increase in number our state income-tax revenue will decline….

Change will happen because the voting patterns of these new residents will be very different from what we see today. For example, someone new to Rhode Island won’t vote Democratic simply because his cousin works for the state. Private-sector commuters want honest, efficient government, and will try to remove from office those representatives and senators whose voting records show that they want something else. For example, don’t you wonder how many of the voters who turned John Harwood out of office in the primary were relatively new to his district?

However, Coyne also warns that those coming into the state with new political attitudes may still not be able to exceed those leaving the state who have already given up, much less gain a majority over those who continue to vote for the same tax-and-spend offenders. If such is the case, then the road to change will be through bankruptcy as public sector demands increase at the expense of a shrinking public sector.

Municipal bankruptcies are triggered by the recognition that it is economically impossible to service the public sector’s liabilities: debt repayment, pension obligations, municipal salaries, etc. After some point, there are no public-sector assets left to sell, and further tax-rate increases simply force people to leave the jurisdiction — resulting in lower, not higher, tax revenue.

There are some root causes as to why the private sector in Rhode Island is shrinking. According to Coyne:

According to Bloomberg Personal Finance Magazine, Rhode Island’s taxes are already the worst in the nation for people who are retired and/or affluent.

Additionally, as was noted today by the editors of the ProJo

Two new studies suggest that Rhode Island is on the wrong track if it wants to attract new business and thus tax revenues. Politicians must start focusing on creating a vibrant economy in the Ocean State, to bring in the jobs that will help to pay for the government services citizens want.

The Washington-based Tax Foundation rated Rhode Island fifth from the bottom in creating a favorable climate for business through its tax policies….The Tax Foundation rightly argues that states should stop trying to lure businesses by making sweetheart deals with short-term tax abatements and exemptions — which has very much been Rhode Island’s approach in desperately trying to bribe businesses to remain. Rather, the foundation argues, states should create a “level playing field” for businesses, have simple and transparent tax systems, and restrain government expenditures so that tax dollars are spent more efficiently.

Another new study offers even bleaker evidence that Rhode Island is discouraging the very thing it should be promoting: small businesses. The Small Business & Entrepreneurship Council ranked Rhode Island a dismal 48th in its “Small Business Survival Index” for 2004.

Ocean Staters are right to be willing to pay relatively high taxes for good services and compassionate government. But without job creation, Rhode Island cannot conceivably have enough money to do all the things citizens want to do: provide for the poor, create top-notch schools, invest in roads and bridges, and a thousand other things government does.

Given this last, then, it seems that the majority of the voters in Rhode Island suffer from a disconnect between the thickness of their own wallets and their desire to fatten those in the public sector. [Of course, one obvious point is that it is not really a a disconnect because many of the voters in this state are either directly employed by, or benefit from, the public sector]. As a result, I fear that Coyne’s Option 2, state bankruptcy, may be the most likely path to political realignment in the state.

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