With the legislature now meeting in Olympia and Barack Obama preparing his inaugural address, now might be a good time to recall two epic misadventures that vividly illustrate how not to close deficits.
The first involved President George H.W. Bush in 1990. With the nation enduring a mild recession and rising deficits, President Bush abandoned his famous “no new taxes” pledge and signed a 10 percent sales tax increase on luxury items, including boats costing more than $110,000. It wasn’t designed to raise much money – just $31 million or so in its first year – but it satisfied an ideological prerogative in Congress to “tax the rich” and “spread the pain around.” It was called the “Robin Hood tax.”
It backfired, badly.
Sales of pleasure boats sunk, throwing thousands of people out of work (including many here in the Puget Sound area). Instead of $31 million, the tax raised just $16 million. But it cost the federal government more than $24 million to pay the unemployment benefits of laid-off boat builders. The “Robin Hood tax” actually lost the government money while hurting blue collar workers. And the rich stayed rich. Within three years the tax was repealed.
So beware of raising money from taxes that look good, feel good, but work poorly.
Lesson No. 2 comes from the Great Recession of the late 1970s and early ‘80s. John Spellman, the last Republican elected governor in Washington, took office the same year as Ronald Reagan, who began his presidency charting a clear course to ignite the economy by cutting taxes and taming inflation. Democrats controlled the U.S. House, so Reagan searched until he secured enough votes to make his program law.
But unlike the conservative Reagan, Spellman was a down-the-middle moderate who believed in hearing out all sides to reach consensus. When the recession collided with Olympia, leaving a deficit equal to nearly 20 percent of the state budget (about as bad as the one we’ve got now), Spellman met over and over again with legislative leaders to see what everybody could live with. As related in former Sen. George Scott’s masterful chronicle of state history, “A Majority of One” (Civitas Press), the state budget was rewritten 10 times in two years. The Legislature met during that period on more than 300 days – more than twice the usual length. Sales taxes and business taxes were boosted, which broke Spellman’s promise not to raise taxes and divided his party. A series of spending cuts did not keep overall spending from rising. When Republican House members under the leadership of Mercer Island’s Bill Polk wanted to reduce the growing number of state employees, the governor said no, it would just add to unemployment, which by then was above 11 percent.
On Election Eve 1984, Gov. Spellman said “I’m a good manager.” Yes, he was. But governors are supposed to be leaders. They need to clearly lay out a program that matches their promises, rally the public behind it and secure the votes to pass it into law. On Election Day, Reagan was re-elected in a 49-state landslide, including 59 percent of the vote in Washington. John Spellman lost to Democrat Booth Gardner, never getting his chance to “govern in good times.”
The lesson here is that endlessly searching for consensus sometimes undermines, rather than reflects, leadership, and that breaking an oft-made promise, as President Bush and Governor Spellman did, breaks faith and trust with the voters.
Let us hope this history is learned in Olympia and not repeated.