When and if Governor Scott Walker beats the Wisconsin recall initiative two weeks from today, you may have to search hard if you want to read about it in the newspaper. Just a year ago, the left-of-center media were egging big labor on, as national coverage of Walker’s budget reforms highlighted a supposed “backlash” by “angry voters” — which is to say, the series of union-backed protests. But for now, that narrative has been spoiled by recent polls showing the governor consistently on top. His victory may leave reporters confused, but the budget and political turnaround should be a model for fellow governors.
Eighteen months ago, many states were facing circumstances remarkably similar to those in Wisconsin. Some, including New Jersey, Indiana, and Ohio followed Wisconsin’s lead and chose the tough medicine of budget, labor, and pension reforms to build long-term stability and economic competitiveness. Others, like California and Illinois, chose to punt. They opted instead for a few more taxes, a promise to slow spending, and a hope that the good times would quickly return.
In the Golden State, Governor Jerry Brown has all but admitted this was a colossal mistake. He took to YouTube last week with projections for a $16 billion deficit — a whopping $9 billion more than estimated just six months ago. In short, California budgeters got everything wrong: Spending is running $2 billion over plan, while revenue projections are off by a staggering 20 percent. The proceedings become almost farcical when one considers that Brown continues to push legislators to approve billions in bonds for a bullet train to Bakersfield.
On the revenue side, desperation is the mother of irony: a state that is slowly losing its high-tech mantle to states like Texas and North Carolina is openly hoping to score a couple of billion dollars in Facebook taxes. On top of that, Brown has turned to the liberal standby — a 25 percent tax increase for those earning over $1 million. Future entrepreneurs be forewarned.
For the people of Wisconsin, the contrast with their neighbors is even more instructive. Facing similar prospects in early 2011, the Illinois legislature took a pass. Wisconsin Democrats even fled to Illinois to avoid the reform vote. Today, in full crisis mode, Illinois Governor Pat Quinn has proposed reforms for state employees, including raising the retirement age and increasing contributions to health and pension plans — not just for future workers, but for current ones as well.
Better late than never, perhaps; but for years, liberals like Brown sold a “progressive” fantasy that took too many states down a path of unsustainable concessions on health care and pension liabilities. The bad news for big labor is that the people of Wisconsin don’t have to look far to see what they’ve avoided, and most of them are glad. In fact, the battle in Wisconsin is surprisingly devoid of any mentions of the legislation that started it all — because the reforms have worked. Property taxes fell last year, and the unemployment rate stands at 6.8 percent — well below the national average.
The voters have come to realize that this is about more than just getting the budget math to look good for a year; this is also about competitiveness — much the same kind of distinctions that set Germany apart from Greece. States with a competitive and productive workforce, limited government, and lower taxes simply perform better economically.
Last month, a survey of CEOs ranked California as the worst state in which to do business. It’s not simply because of the budget deficit, or even the high tax rate; California has come to epitomize the very worst in regulatory excess in America: red tape around energy, labor, the environment, you name it. As businesses scale back operations or avoid the state altogether, generating tax revenues will only become tougher.
For the moment, California’s debt can be managed against the scale of its $2 trillion economy. Default is unimaginable. Even so, the last two years in Europe have provided us with a textbook case of how the inconceivable — Greek default — became quite acceptable, and how the impossible — Greece abandoning the euro — now seems inevitable.
Things change. In Wisconsin, they have changed markedly for the better; in California and Illinois, not so much. Soon, we’ll know whether voters can tell the difference.