There’s been a lot of good economic news lately, which means someone needs to be that guy – the Eeyore guy. Eeyore is needed to balance out the Tiggers.
In case your “Winnie the Pooh” is a little rusty, Eeyore is the pessimistic donkey who sees the cloud in every silver lining. Tigger is the optimistic, enthusiastic tiger who bounces around and is pretty full of himself.
I bring up those two characters in light of this week’s announcement that Arkansas state government is enjoying a $44.2 million surplus this fiscal year with one month to go, and has collected about $160 million more than last year.
That’s good news, and it comes amidst a prosperous national economy – indeed, a global one. We are now in the midst of the nation’s second longest economic expansion on record, though records don’t go back far. This expansion began in June 2009 in the bottom of the Great Recession. If we make it to July 2019, it will become the longest.
But economies that go boom eventually go bust, and so will this one. In the foreseeable future, the expansion will run out of steam and then we’ll be in a slowdown, or something bad will really shock the system like the banking crisis of a decade ago.
So what do you do while you’re still in the boom? First, enjoy it a little. Let your inner Tigger bounce around a little. But don’t ignore Eeyore whispering in your ear about the correction that’s coming.
Unfortunately, no one’s been listening to Eeyore in Washington. In December, Congress passed and the president signed a tax cut reducing revenues by $1.5 trillion over the next decade, the rationale partly being that the economy is good, but we can make it better – a very Tigger thing to do. Then earlier this year, Congress and the president passed a $1.3 trillion package that increased spending on defense and domestic programs.
The combination of cutting taxes and increasing spending means that, even as the economy is growing, so is the annual federal budget deficit, which is the opposite of what should happen. During the next fiscal year, the federal government will spend about $1 trillion it does not have, adding to a national debt that’s already $21 trillion.
Moreover, while economies change, tax cuts and spending increases are hard to reverse. When the next recession hits, government revenues will stop increasing while government’s obligations will grow. You can’t cut taxes in a recession, and you spend more because people are hurting. So the easiest choice politically is more debt.
In other words, in the near future there will be a year when a $1 trillion budget deficit will seem small.
That brings us back to that $44.2 million surplus the state of Arkansas is enjoying. Tax cuts have been passed twice since Gov. Asa Hutchinson came into office, one each regular legislative session, and he wants to cut taxes again next year – this time lowering the top rate from 6.9 to 6 percent. Individual legislators have their own ideas. A task force is meeting to consider how to make it all work. There’s been talk of offsetting tax cuts by ending some exemptions, each of which have their own defenders.
As for the spending side, some increased efficiencies have occurred, but state government still spends more this year than it did last year.
That would happen naturally because of population growth, inflation, and out-of-control health care costs. But Arkansas also has grown government, in two cases by providing health insurance for lower-income people and by increasing highway spending, and then taking advantage of federal offers to pay for most of the costs. Regardless of whether or not those were worthy things to do, in effect, Arkansas has been balancing its own state budget partly by increasing the national debt.
Overall, things are progressing mostly prudently here. Unlike some states, Arkansas does not have a recent history of fiscal irresponsibility, at least concerning state dollars. And unlike the federal government, it has a mechanism, the Revenue Stabilization Act, that restrains debt and government growth.
Still, within government at any level is a Tigger wanting to bounce free. Letting him do that is most tempting when times are good. But as shown so clearly in Washington, that’s when it’s most important to listen to Eeyore.
Steve Brawner is a syndicated columnist in Arkansas. Email him at firstname.lastname@example.org. Follow him on Twitter at @stevebrawner.