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Friday, Apr 20, 2018
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Economists debate validity of Scott’s ‘kitchen table’ budget

TALLAHASSEE — In a “white paper” released this week on his proposed $500 million tax cut plan, Florida Gov. Rick Scott used an analogy often employed by politicians: Comparing the state’s budget to a family’s finances.

State leaders “must make decisions with Floridians’ tax dollars the way Florida families would if they were sitting around their own kitchen tables,” said the report, issued Tuesday. “Just as families would do, Governor Scott has made decisions that respect the difficulty of earning a living.”

That kind of comparison triggers brisk reactions when used for the federal budget or national economy.

As Martin Eichenbaum, an economics professor at Northwestern University, recently told Bloomberg Businessweek: “Repeat after me: What is true about your family or your business is not true about the economy.”

But some economists say it’s not such a bad way to explain a state’s books after all.

“Politicians do like to compare the family budget to the government budget,” said David L. Kelly, an economics professor at the University of Miami. “It’s an imperfect metaphor, as most metaphors are. But it’s a complicated issue and they’re trying to simplify it for people.”

Scott, running for re-election to a second term in 2014, says he wants to cut the state budget by $100 million next year. Florida’s budget this year is about $74 billion.

His plan offers no specific cuts, though he did take an “It’s Your Money” tour around the state last month, asking for ideas from the public about what to cut.

And his white paper says he won’t allow the state to go into debt “to fund roads, land purchases or education facility construction without specific and accountable returns on investment for taxpayers.”

Kelly explains that the issue for a state is, “Do we cut spending or raise taxes?”

A family “can also cut spending, or (someone) could take a second job,” Kelly said. Then again, a person in a family “may or may not be able to get a second job. You’d have to find one and have the time to do so.”

So the question becomes, “How accurate is the metaphor between raising taxes and getting a second job,” he said. “I think the general point he’s trying to make must be accurate.

“If you’re in a family and you’re thinking, ‘Should I take a second job or should I try to find some spending to cut,’ you’ll probably look through your own budget at first,” Kelly said. “As a state, before you think about raising taxes, you’ll look for things to cut. So I would say it’s not too far off track.”

Michael Loewy, professor of economics at the University of South Florida, said family and business budgets are different from the general economy.

While a business or family may ‘max out’ their credit cards, he said, governments can’t because “they effectively face no credit limits in the market.”

At the same time, “what is true is that governments, like families and businesses, must balance their budgets in a present value sense,” Loewy said in an email. “To the extent that families and businesses may be more credit constrained than are governments, (they) may be more likely to be forced to follow a ‘balanced budget policy’ than are governments.”

John T. Harvey, economics professor at Texas Christian University, points out that the federal government can always print more money; Florida can’t.

Scott’s comparison “is not totally inaccurate at a state level,” Harvey said. But it could be quickly misused.

“I can see someone sitting around a kitchen table saying, ‘we should send our kid to a charter school,’ then that (analogy) being used for political purposes,” he said. “But it’s hard to take issue with the basic statement.”

And Villanova School of Business economist David Fiorenza likens the comparison to “zero based budgeting,” where an organization looks at expenses with an eye to doing the most with the least amount of money.

“This approach is one the citizens and voters of the state can understand and relate to easily,” he said in an email. It “relates to a state government’s funding … based upon revenues and living within (its) fiscal means.

“Fiscal leadership starts at the top and the governor is, at the least, showing initiative,” Fiorenza said.

At least one economist, however, disagrees with using the family budget-government budget comparison.

Alexandre Padilla, professor of economics at Metropolitan State University of Denver, says one difference is that when politicians make spending decisions, it’s not with money they earned themselves.

Moreover, “politicians … are often subject to interest groups and lobbies,” Padilla said. “And they don’t have to personally bear the costs of making bad decisions.”

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