RAY SHAMIE Government Surpluses Are Not Good News
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EWSEWS INKINK THE BEACON HILL INSTITUTE NN LL AT SUFFOLK UNIVERSITY Vol. 3, No. 4 IDEAS AND UPDATES ON PUBLIC POLICY Summer 1999 The real surplus story When government "saves" more, we save less ast year, Massachusetts ran credit for whatever alchemy has turned low- a surplus of $848 million. tax Reagan-era deficits into high-tax Bush This year, the surplus will be and Clinton-era surpluses. L about $600 million, close to the average over the last six years. State A personal saving plunge and local officials point with joy and relief For evidence of the questionable at capital projects spared the budgetary basis of this euphoria, consider the axe. Others glow with pride over the nation’s plummeting personal saving rate. state’s bond rating. But we’ll say it again: With government at all levels running RAY SHAMIE government surpluses are not good news. large and growing surpluses, U.S. personal BHI remembers its founder and Government surpluses are mon- saving has declined sharply in recent years eys collected from taxpayers as a result of and is now negative (running in June at senior advisor, who died on June 8. (See page 4.) The chart on page 6 shows that the personal saving rate has been moving in a direction opposite that of the government saving rate. The association is too strong to be dismissed as unimportant or as mere coincidence. There could be more than one reason for this phenomenon. A rising stock market could en- courage consumption at the expense of personal sav- ing. People might be letting their bulging stock port- folios do their saving for them. Yet, a comparison of the Dow Jones In- dustrial average and the personal saving rate doesn't suggest this is happening. And the gains registered revenue underestimates made at budget an annual rate of about -$63 million) for by the stock market could, as we know, prove illu- time. When those underestimates become the first time since 1933. sory. Surely, there is something worrisome about a routine and when government keeps the Could it be that when govern- consumption-driven expansion predicated on indefi- unplanned revenues, rather than returning ment saves more (runs surpluses), nitely rising stock prices. them to taxpayers, the surplus is rightly people save less? A comparison of two Suppose government had been running a seen as a way of funding projects that economic indicators proves revealing. balanced budget all along. Then one year, because wouldn’t pass muster if subject to normal The first is the personal saving rate, of unanticipated revenue inflows, government ends budgetary scrutiny. which is to say, the amount people save up running a surplus. Now the federal government has expressed as a percentage of their dis- According to what we might call the con- caught up with the state governments in posable income. The second is the gov- ventional wisdom, private saving (the sum of per- committing this budgetary legerdemain. ernment saving rate, measured as the sonal and business saving) will remain undimin Republicans and Democrats agree that the combined federal, state and local sur- U.S. surplus will come to about $3 trillion plus expressed as a percentage of gross over the next ten years. Both parties claim domestic product. continued on page 6 BEACON HILL INSTITUTE From the Executive Director any will remember Ray in Washington, D.C. and Boston, and testi- Shamie as a candidate for mony at both the Congressional and state lev- U.S. Senate and as the els. The Shamie Center's charismatic chairman who Now, the Beacon Hill Institute has M rebuilt the Republican established the Ray Shamie Center for Civic aim is to create a Party in Massachusetts. Enterprise. The Shamie Center’s aim is to cre- At the Beacon Hill Institute, we ate a more humane society by bringing to the more humane society remember him most as an innovator and public domain the ingenuity, drive and know- by bringing to the a humanitarian. He how that ani- thought long and hard mate a market public domain the about how best to help economy. To drive and know-how human beings suffer- that end it will ing adversity. He con- study, develop, that animate a mar- cluded that the founda- articulate and ket economy. tion to a better life was disseminate in- through personal re- formation on sponsibility and disci- how private ini- pline. But he knew that tiatives can im- people often need sup- prove society. port and guidance as The Shamie Cen- they move toward self- ter will be lo- NewsLink is published quarterly sufficiency. cated within the by the Beacon Hill Institute for Pub- Ray encour- Beacon Hill Insti- lic Policy Research at Suffolk Uni- aged us to develop al- tute. Joseph Gal- versity. The Beacon Hill Institute fo- ternatives to what he lant, former Sec- cuses on federal, state and local eco- saw as the failed wel- retary of the nomic policies as they affect citizens fare system. He believed that private or- Massachusetts Executive Office of Health and and businesses, particularly in Mas- ganizations were the cornerstones to real Human Services, has been named Director of sachusetts. The institute uses state- welfare reform. In December 1995, with the Shamie Center. of-the-art statistical, mathematical Ray’s support, BHI published Giving We hope the Shamie Center will be- and econometric methods to pro- Credit Where Credit is Due: A New Ap- come a fitting legacy to a remarkable man. vide timely and readable analyses proach to Welfare Funding, which de- that help voters, policy makers and scribed how welfare services in the A Dinner to Remember Ray Shamie opinion leaders understand today’s United States could be privatized leading public policy issues. through federal tax credits for gifts to On Thursday, October 14, the Beacon charitable organizations. We followed Hill Institute will host a dinner at Boston’s PUBLISHER that with two more major publications, Fairmont Copley Plaza Hotel to remember DAVID G. TUERCK opinion editorials, forums and seminars Ray Shamie. Edna Shamie will be our guest EXECUTIVE DIRECTOR of honor. All proceeds will help endow the Shamie Center. I hope you’ll plan on attend- PRODUCTION IN THIS ISSUE ing. (See page 5 for details.) ELLEN F. F OLEY DIRECTOR OF COMMUNICATIONS News BHI and Heritage Foundation to study state taxes BHI teams up to study taxes with EDITOR the Heritage Foundation ............... 3 We’re pleased to announce that the FRANK CONTE prestigious and influential Heritage Founda- PUBLICATIONS EDITOR Appreciation tion and the Beacon Hill Institute have (ISSN 1094-0707) Ray Shamie's legacy.......................... 4 formed a strategic alliance to study tax policy at the state level. Our first effort is a ©1999 Beacon Hill Institute for News reestimation of BHI’s Ohio STAMP, com- Public Policy Research, Suffolk BHI affixes STAMP to Virgina...........6 pleted during the summer. You can down- University, 8 Ashburton Place, load the entire study from our web site at Boston, MA 02108-2770. Voice, Bookmark http://www.beaconhill.org. (617) 573-8750; fax, (617) 720-4272; Lester C. Thurow's Building e-mail, [email protected]; web Wealth reviewed ................................ 7 David G. Tuerck site, http://www.beaconhill.org. PAGE 2 / SUMMER 1999 NEWSLINK BHI and Heritage Foundation announce strategic partnership he Beacon Hill Institute coordinate research efforts with BHI’s and the Heritage Foun- STAMP team of economists. The Center dation have announced a for Data Analysis is a state-of-the-art re- T strategic partnership to search center designed to analyze the ef- combine BHI’s State Tax Analysis fects of public policy changes on indi- Modeling Program (STAMP) with the viduals, families and businesses at the Heritage Foundation’s federal and local, state and national levels. state tax analysis capabilities. William Beach, director of the BHI will combine resources Center for Data Analysis, said “Our stra- with Heritage to show how national tegic alliance with the Beacon Hill Insti- economic conditions and state and tute will allow us to expand greatly the federal policy changes affect state ability of both organizations to perform economies. The Heritage/BHI Model economic analysis of tax policy changes will provide: in the 50 states.” •An invaluable tool for mod- The first project undertaken as eling the effects of both federal and part of the partnership was an updating A NEW ALLIANCE - David Tuerck of state tax changes on jobs, wages, capi- of the Beacon Hill Institute’s Ohio BHI and Becky Norton Dunlop, Vice tal spending and tax revenues; STAMP conducted during the summer. President for External Relations at the •Tax revenue analysis that In performing the update, BHI found that Heritage Foundation, announce a joint accounts for the dynamic effects of Ohio could add $1.9 billion to payrolls, effort to study state tax policy during the American Legislative Exchange policy changes; create 56,000 new jobs and take 25% of Council's annual meeting in August. •An independent review of state taxpayers off the tax rolls by con- state tax programs and proposals; and solidating the existing tax schedule from Heritage and BHI expect to •An innovative way to dem- nine to three brackets. BHI ‘s Ohio model four additional states by the end onstrate the impact of tax changes on STAMP, first used in 1998, helped derail of the year. Said BHI executive director the citizens of individual states. efforts to raise Ohio’s state sales tax from David Tuerck, “Anyone who pays taxes The Heritage Foundation’s 5% to 6%. should be happy to hear about this new noted Center for Data Analysis will partnership.” Media Mentions David Tuerck appeared on New England appeared in Mass High Tech (July 12-18).