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Tuesday, December 17, 2019

Seven Ideas for Spending Reform

Those who want higher taxes often ask us who oppose tax hikes "what do you suggest instead?" Over the years I have written copious blog articles, policy briefs and even a book on how to structurally reform government spending.


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Below are seven ideas that our Wyoming legislators could easily have a conversation about. Some are complicated, some are simple, but they all have one thing in common: they will permanently, structurally reduce the cost of government.

It is, namely, of paramount importance that spending reforms actually downsize government over time; efficiency gains are good, but they only provide temporary remedy for taxpayers.

Reform #1: Pension buyback

Our state could rid itself of its pension debt by buying back the pensions it owes current and future retirees. Estimate the present value, use our state's savings and trade an obligation-free future for taxpayers for cash that current and former state employees can invest themselves.

This reform should be combined with a defined-contribution model for all state workers. Together, these two measures will eliminate the state's pension debt and allow state workers to invest their money according to their needs and their preferences. It also shields taxpayers from any unpleasant future pension-debt surprises.

Reform #2: School choice

If Wyoming copied the Educational Savings Account reform from Arizona, or the voucher model from Wisconsin, and if 25 percent of K-12 students used the choice model, we could cut the cost of educating our kids by a total of $300 million. This does not take into account a reduction in capital outlays, which is abnormally high.

A school-choice model must protect homeschoolers. It could only work if it provided vouchers or ESAs as an option for those who choose to care for their children's education at home. The goal must be to increase, not stifle, parental freedom when it comes to schooling their kids.

Reform #3: Vouchers in Medicaid

Some want even more people to enroll in Medicaid through its Expansion. As the experience from Montana showed us, that would only take people off private insurance - not reduce the uninsured population. A far better reform is to introduce vouchers in Medicaid and allow enrollees to buy insurance plans from all over the country. This would dramatically reduce costs, increase coverage and encourage Medicaid enrollees to become consumers in a market for health insurance. In its ideal format, this reform could save the state $150m per year, as opposed to the $100m+ increase in costs that would come with Medicaid Expansion.

Reform #4: Revised highway funding

A toll on the I-80 would be part of a strategy to privatize operations and separate the highway from the state budget. This would allow for a reform of the existing vehicle registration tax - without an increase in the tax - to fund the rest of our highways. This reform would be contingent on two restrictions: a) no increase in the vehicle registration tax, and b) that the toll is part of a privatization reform. If the second restriction does not apply, the toll would just become another tax.

For more on tolling and privatization, click here.

Reform #5: Privatize the University of Wyoming

Almost every university among the nation's top-20 is private. Our state university is not only public, but also gets an unusually large share of its revenue from taxpayers. A privatization would save Wyoming taxpayers $200+ million per year and give the university an incentive to compete with higher-ranked schools for donors, students and scholars.

Reform #6: Charity compact for long-term care

Charity compact for long-term care. Suppose you could assign a portion of your property taxes to go to a specific program such as long-term care. Suppose you could elect to send, say, ten cents of every dollar of your property tax to a charity compact. You could either designate the donation as generally to benefit long-term care, or you could specify what long-term care provider the money should go to. For tax purposes, only providers that elected to be non-profits would participate, but the system would also be open to other donations in excess of what the property-tax donation allows. This reform creates a hybrid private model that would increase community involvement (you could prefer to support your local providers) and liberate providers of onerous government regulations. Over time, this reform would increase quality - leaving it to providers and patients to find the best form of care - and reduce costs. Regulatory compliance costs are a stealth tax.

Reform #7: Merge Appropriations and Revenue Committees

So long as these two committees keep working separately, the former will tend toward more spending and the latter will pitch for as many new taxes as it can. By merging them into a Joint Budget Committee we accomplish three things: a) a tighter, more transparent budget process; b) stronger pressure on legislators to explain what tax will pay for what spending; and c) we set the stage for a zero-based appropriations policy where every agency has to motivate every dollar in every budget process.

Taken together, these seven reforms would secure a substantial, permanent reduction in government spending. They would change the growth trajectory and make government affordable to taxpayers. Thereby, these reforms would shield taxpayers from new and higher taxes.

Even some of these reforms would help change the narrative away from tax hikes, on to the critical issue of aligning government costs with what the private sector can sustain. 

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