Fiscal Desperation in Mass. and Md.
By Arnold Kling
amendment to the House budget calls for a study of a 2.5 percent assessment each year on university endowments over $1 billion. The tax would affect nine of them, and in theory could generate an enormous amount of revenue; Harvard alone, with its endowment of $34 billion, would be on the hook for $840 million a year. But a tax of this magnitude on the state’s universities and colleges would be economic suicide.
Major research universities are the closest thing Massachusetts has to a goose that lays golden eggs. The nine schools in question employ a total of 27,000 people and pay $4.5 billion a year in wages and salaries, according to the Association of Independent Colleges and Universities in Massachusetts. They bring in brainpower and outside research dollars. They fertilize the local healthcare, technology, and financial-services sectors – three other cornerstones of the local economy.
What would be the incidence of this tax? Would it affect students? Employees? Or is it more like a tax on land or some other natural resource?
Greg Mankiw thinks that Harvard would respond by changing its state of incorporation. Is this another opportunity for Delaware?
Elsewhere, The Washington Post reports,
The funds that pay pension and health benefits to police officers, teachers and millions of other public employees across the country are facing a shortfall that could soon run into trillions of dollars.
…State governments alone have reported they are already confronting a deficit of at least $750 billion to cover the cost of the retirement benefits they have promised. But that figure likely underestimates the actual shortfall because of the range of methods they use to make their calculations, including practices that have been barred in the private sector for decades.
James Hamilton, who blogs at Econbrowser, was onto this issue years ago. The accounting double standard is a particular sore point. However, it has its defenders.
“There’s been a government in our city since 1779,” said Mark Jinks, chief financial officer for Alexandria. “You can’t be sure that the promises made to private sector employees will outlive their company.”
In other words: we’re the government, so we’ll be around no matter what. Comforting.
On the same front page, The Post has a story that explains how state and local fiscal policy really works.
Over the past two decades, the influence of the unions representing public employees in the county has grown dramatically. Former and current government officials say Montgomery’s bargaining system — along with labor’s political clout — gives workers as strong a voice, if not stronger, than taxpayers in budget talks…
“Although you may know in your heart that the only way to deal with this particular deficit is to broach the union contracts, it is difficult for politicians who wish to be reelected to vote against the union contracts because the unions can rise up and defeat you,” said former council member Nancy Dacek, who was defeated after three terms by a union-backed rival.