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.
ADDENDUM:
Professor Lardaro claims that it was a joke to get people angry enough to become involved.

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Tom W
Tom W
12 years ago

Back in the day when they wanted “the Lottery” approved they told us that the proceeds would go to fund education and the property taxes would be reduced.
You know how that worked out.
The gasoline excise tax is supposed to pay for road maintenance. Instead a big chunk (most?) of it goes into the general fund.
And we know how well the tobacco settlement windfall was used to “invest” in Rhode Island’s future.
If you give the General Assembly another source of revenue the only thing that will happen is that they’ll put more of their relatives on the state payroll, throw dollar bills at the unions and transfer more dollars to the poverty industry.
And our roads will continue to become more decrepit by the year, URI will still be floundering, businesses / employers will still avoid Rhode Island like the plague, and the middle class and college graduates will continue to find that they should (if not must) leave Rhode Island for better-run states.
In other words, nothing will change if the General Assembly gets more money. The people there don’t care about the well being of the average Rhode Islander, nor about the future of this state. If they did they wouldn’t conduct themselves the way they have oh these many years – decades for that matter.
Lardaro should know this.

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