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Edward L. Glaeser

Blessings of a divided government

By Edward L. Glaeser
May 1, 2009
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THE GOVERNOR is mad at the Legislature and the Legislature is angry with the governor and I couldn't be more pleased with the lot of them. The donnybrook over the sales tax hike, pensions, and ethical reforms is turning into a textbook example of the blessings of divided government. Everyone benefits when the different branches of government compete to convince voters that they care most about us. With any luck, the spirit of discord now rampant on Beacon Hill will make its way down to Washington.

The recession has been more damaging to the Commonwealth's public finances than to most of its private citizens. While this downturn is becoming ever more horrendous in California and Michigan, Massachusetts's state unemployment rate (not seasonally adjusted) fell slightly from February to March. Boston's 7.4 percent unemployment rate places us well below the national average. But the state's revenues, which were highly dependent on investment returns and earnings at the top of the income distribution, have fallen off a cliff. Since the state government can't really borrow to pay for current operating expenses, political leaders are stuck between the Scylla of raising taxes and the Charybdis of cutting schools and healthcare.

To avoid extreme spending cuts, Governor Patrick proposed a series of taxes on individual items like alcohol, hotels, meals, and gasoline. On Monday, the Legislature rejected this multi-tax approach and approved a broad sales tax increase from 5 to 6.25 percent. We are all Sam Adams's intellectual heirs, and I dislike taxes as much as the next person, but there is much to be said for the Legislature's action. Over time, the costs of government should be reduced, but right now, in the depths of a recession, the basic functions of state government - education, transportation, and healthcare - are critical and need to be funded. The Legislature showed leadership by approving a tax increase.

Moreover, broad-based taxes are better than narrow ones, because they are fairer and they distort people's actions less. Why should we raise special taxes that particularly discourage people from going out to eat? A tax that everyone pays also has the added advantage of being widely unpopular, which will ensure that voters will continue to put pressure on the government to be as efficient as possible.

If the governor had accepted the Legislature's tax increase, it would have been enough, but he declared: "I'm not going to ask the public - and, frankly, I don't see how any of us can, credibly - to pay more money for the status quo." Fantastic. Threatening a veto, the governor has demanded that the Legislature take action on pension, transportation, and ethics reform.

Is the governor engaging in political grandstanding? Absolutely. Is he being confrontational? Indubitably. But he is also dead right. The pension situation is a mess; reform needs to apply to current workers as well as prospective state hires. The transportation system is in crisis and the Legislature has yet to respond fully to the ethical issues raised by the Dianne Wilkerson mess. These reforms aren't naturally connected to sales taxes, but if the governor can get action on these fronts by mobilizing tea-party-like antipathy toward taxes, then so much the better.

Some legislators are understandably piqued that the governor has given them such trouble for passing a responsible piece of tax legislation, but that misses the point. They did their jobs and the governor is doing his.

No one, in government or the private sector, functions at peak levels without being challenged. Government workers are often heroes, which makes cutting pensions particularly tough. Pension reform will happen only if the topic is kept on the front burner.

I was once worried that there would be too much coziness between a Democratic governor and a Democratic Legislature. I still worry that there is too much consensus between President Obama and Congress. Unfortunately, the federal government's practically unlimited ability to borrow means that both branches can agree on more spending and push taxes off to another generation of leaders. Hopefully, as Obama moves past his honeymoon phase, he'll start giving Congress as much trouble as the governor is giving the Legislature.

Edward L. Glaeser, a professor of economics at Harvard University, is director of the Rappaport Institute for Greater Boston.

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