The Economic Principle of Self Interest
URI economics professor Len Lardaro had a very disappointing piece in the Providence Journal on Saturday, advising a tax increase in order — curiously enough — to benefit schools and universities. Professor Lardaro states that “investment-related activities… by their nature entail sacrifice” and suggests the following:
I propose raising the state’s sales-tax rate to 8 percent from 7 percent, not broadening its coverage to services (to help contain regressivity), and earmarking all of the resulting tax proceeds to K-12 public education and public higher education. Should the legislature try to move any of the resulting revenues to the General Fund (the God of current consumption), I expect Governor Carcieri to veto this measure and take his case to the people.
We should certainly devote resources to “investment-related activities,” but layering on funds for education could prove to benefit other states if Rhode Island doesn’t make its first goal attraction of businesses. (That’s for higher education; when it comes to elementary and secondary education, the bulk of any increased “investment” in schools would simply be absorbed by the unions.) We can spend our last nickel educating young adults, but if we have no jobs to offer them upon graduation, we’ll be lucky to get a thank you card from wherever they move.
I’d also mark it as a question whether we’d actually see any long-term increase from a raised sales tax. Lardaro — like Governor Carcieri — should recall that cigarette taxes offered one of the few increases in tax collections, which “the state’s chief revenue analyst Paul Dion attributes to a hike this past summer in neighboring Massachusetts.” In other words, ratcheting up our overall sales tax could prove to be a boon for neighboring states.
That means that Lardaro’s suggested benefit of “contain[ing] property taxes” could very well be fanciful. Even if it were not, though, his rat-a-tat-tat of qualifiers hardly instills confidence. Observe (emphasis added):
Such property-tax containment can also be expected to benefit small business. Caps on property-tax rate hikes can be enforced in this type of environment, and the state might also consider imposing limits on allowable growth rates for local pay packages.
Lardaro has the emphasis precisely backwards. The state ought to begin where he drifts off into a series of maybes: contrive benefits for small businesses, enforce property caps, and impose limits on public sector remuneration. Such measures will protect Lardaro’s employer more surely than will the deceptive balm of tax increases.
Professor Lardaro claims that it was a joke to get people angry enough to become involved.