Last week's column dealt with a recent speech by Childress to the Marietta Rotary Club, in which he said the state was moving into "uncharted waters" due to the recession. Today we continue with coverage of his comments. The argument for higher taxes is mirrored in Washington, where President Obama and congressional Democrats want to keep rates high for well-to-do Americans and businesses. But that is not the solution, said Childress.
"In a world that is flat, the rich just leave. It will just start a vicious cycle you can't easily reverse," Childress said. "This trend in other states has actually been good news for Georgia. As they grab deeper into taxpayer pockets, companies are moving here. They are transferring headquarters operations here."
So what should be done?
"You have to get out in front of the decreased revenues and ask fundamental questions. What must government do for people that they can't do for themselves, that the private sector can't do better? What can we afford to do? A federal example-should we have a government postal service in a world where FedEx, UPS and others do it better?
"We have asked those types of questions for seven-and-a-half years in the Perdue administration and I think we've redefined government for the better.
"We've cut things that were nice to do. We've cut some things that we would love to support in good times. Unfortunately what you're seeing around the country is too many efforts looking only at traditional tools of budget cutting: across-the-board program cuts, reductions to local aid, layoffs, benefit cuts, furloughs and salary reductions." Such efforts will fall short of the "new normal" the times demand.
"It will take a larger redesign to bend the cost curve the way we have to bend it," Childress explained. "If you keep the old structures and simply try to adjust down with a protracted series of cuts, you will not end up with a well-designed budget. We have to re-engineer and design a structure that matches the new economic growth patterns. Not to be hyperbolic, but if we don't, we'll be in a constant effort of bailing water out of sinking ship with only a five-gallon bucket."
So what does that entail?
First, it requires creativity. If you look at taxation this country today, you find a hodgepodge tax policy that we have backed into one-off decision after one-off decision."
First, by not including services in the tax base, a large portion of the economy is ignored. We need to think about lower tax rates, but also about broader, fairly applied taxes to all sectors, he said.
"For example, that means manufactured goods carry an increasing tax burden. That doesn't seem fair. Why does it make sense to tax goods and not services? There's no real reason. It's just how it has evolved," he said.
One other area where our tax policy is imbalanced, internet commerce remains untaxed. "Why would we allow a tax policy that places bricks and mortar operations in at a competitive disadvantage?" Childress asked. "Wouldn't it make more sense to charge everyone a lower sales tax by spreading the burden more broadly?"
"Nothing I have talked about up to this point comes easy, but I want to talk about something that promises to be even more difficult," he said. "I'm talking about what has become the 'sacred cow' of modern state politics - public employee compensation and benefits.
"Five years ago, if you had asked a random sampling of the population where you could make the most money, I, would venture to say that 90, maybe 99 percent, would have said the private sector. For much of history, that perception was correct.
"But here are the national figures according to the U.S. Bureau of Labor Statistics from 2009. State and local employees nationally earn $39.83 an hour in wages and benefits. That compares to $27.49 for private industry employees. Break that down into the components and you find that public wages are higher, the health benefits are richer and the retirement benefits are greater.
More than 80 percent of state and local workers have pensions, but just 50 percent of private-sector workers do, he pointed out. Then, when you consider education, skills and demographics, you learn that public sector pay still outstrips private sector pay, he said.
"This is a vestige of yester-year when employees would start and end a career at the same employer, but now more and more of our workforce is transient," he said. "The private sector has moved on to a new model and the public sector has been left behind."
The country has made progress on performance compensation and rebalancing benefits by moving to defined contribution rather than defined benefits for new employees, but needs to take fundamental steps to reset and redesign compensations for public workers, he said.
"In Georgia, we have started the ball rolling with some good successes but future administrations have much more work to do," he said. "We must summon the will to engineer a new normal for government.
"Whether you agree or disagree with what I've shared today, the fact remains that structural demands for government growth will outpace reasonable tax revenue growth without material changes."
So let's make those changes.
Bill Kinney is associate editor of the Marietta Daily Journal.
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