What States Really Need

People in Washington like to throw around elegant economic theories while debating the needed economic stimulus. But whether they’re Keynesians or supply-siders, conservatives or socialists, none seem to be focusing on what state governments need and could actually make use of to help them through these tough times.

We conservatives aren’t opposed to a stimulus package. We’re opposed to waste, to further government interference in our economy, and want only to make sure the government takes action that is right, not simply expedient.

As David Sanger said in the New York Times on February 1, “at various times in American history, moments like this one have been used for big programs . . . so it is little wonder that everyone with a big, stalled, transformative project is citing the precedent of Franklin D. Roosevelt and declaring that a new New Deal is overdue.”

The heart of the current stimulus plan is boosting government spending. No one, even President Obama, confidently asserts that this giant spending plan will actually solve our economic difficulties. But he and his allies argue that it’s more important to do something quickly than to be sure to do something that’ll work. Obama’s new Virginia acolytes, Senators Mark Warner and Jim Webb, have said that the public wants “to get something done.” I beg to differ.

I suggest that the public wants and needs government to meet a higher standard. If asked, Americans would say they want “something done right,” not just something done fast.

A few things we do know: we are in trouble because of too much borrowing by financial institutions and their clients; we know that there is no government money to spend and the stimulus spending will have to be with borrowed money. In order to borrow this money, massive new federal bonds will have to be issued and offered to the Chinese and other foreign investors at higher interest rates. And we know the consequences are higher inflation and higher mortgage rates at a time when Americans are going into default on their mortgages. In fact, later on, the Washington big spenders will probably demand higher taxes to cut the deficit so they can pretend to be “fiscally conservative.” Furthermore, once the federal budget increases from $2.5 trillion to $3.5 trillion, this administration and Congress will never scale the budget back but will keep spending the money for new programs.The stimulus package promises to throw money to the state. But will that money create long-lasting jobs?

Most states have overspent tremendously during the good years and are now facing huge deficits. States such as California have literally run out of cash and are laying off workers and sending IOUs instead of tax refunds.

Throwing them money may protect those states from having to take responsibility for their wasteful ways by cutting their budgets, but it will only fill in their budget deficits temporarily and create new ongoing programs and entitlements which will be a further burden on states when the stimulus money disappears in future years.

If the American people want “something done,” is this plan what they want? I suggest the American people voted for good change. But more massive government spending is not change at all but is a continuation of bigger government at the expense of the private economy, which is our only hope for recovery.

What, then, should America do for all of its states and all of its citizens? What should conservatives advocate that we do? The stimulus promoters say we should take bold action. OK, let’s be bold. As the former governor of a large state with a favorable business environment, I can suggest several ideas.

First, don’t send undirected funding into the states. They may waste it.

Instead, let’s reward every state that suspends its corporate income tax by suspending the federal corporate tax on businesses that operate there. Today American businesses work furiously to avoid the high American business taxes by taking jobs overseas. Suspend the corporate income tax and the investment of the world would flood into the United States and new jobs with it. If we don’t spend the $820 billion of stimulus money, it would be easier to absorb $375 billion and cut the corporate income tax. This harnesses private investment which seeks its own gain without going into the pocketbooks of the taxpayer. Also, let’s control government spending and create the ability to cut the capital gains tax, encouraging private investment that will inject cash into the economy, and create permanent jobs, rather than a temporary fix.

Second, Medicaid continues to break state budgets, taking up money that could be used for job development projects. The federal government must stop adding new spending requirements onto the federal welfare programs states must administer. An example is the federal expansion of the children’s healthcare program (SCHIP). The goal must be to get more jobs for states’ citizens and then require some co-pay participation by parents. This affirms parental responsibility and dignity. Yet every effort in Congress to require co-payments was beaten back. Virginia Senators Webb and Warner joined their fellow Democrats in expanding state government obligations, absorbing state money which could be used to cut taxes to encourage job creation.

Third, the Federal government should open the door now to energy production in the states. This is not only urgent for national security and independence from foreign oil but would create a renaissance of jobs. Among other programs, we must allow off-shore oil drilling now to create new energy and new jobs in the states. Yet every action by the new Congress and administration has been to take oil and gas production in the states off the table. Off-shore drilling policy has been slowed; energy permitting in Utah has been stopped; and The New Wilderness Bill has stopped oil and gas production in the upper Midwest. Federal energy policy must re-verse course now.

I know these ideas invite class warfare arguments and the assertion that these are tax cuts for the rich, but new jobs are for everyone. Besides, liberals are willing to help businesses when they want to. The proposals to buy bank debt with taxpayer money would simply transfer government money to rich shareholders. The troubled asset program (TARP) just transferred $254 billion of bailout money to banks and their shareholders in return for $176 billion of value. Even Obama, who was scathing in his use of private corporate planes, just flew himself on Air Force One from Washington, D.C., to Williamsburg, Va., for a partisan political event, a distance of 150 miles and less than three hours by car. So liberals can forego class warfare when it suits their purposes.

The liberals’ rigid ideology makes them incapable of offering new ideas. While Americans are scratching for dollars to support their families and pay their taxes, it is stunning to witness the massive pouring of taxpayer dollars into these unproven government bailouts. This is the moment for conservatives to offer a better way forward. It will require new thinking and new approaches, not the same old tax and spend programs of the left. This is our duty, but also our opportunity to point the direction to the future.