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The Supreme Court May Rescue Blue-State Finances

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The Supreme Court May Rescue Blue-State Finances

The Wall Street Journal February 26, 2018
Public SectorThe Role of Unions

A ruling against the unions in Janus could break their exorbitant grip on Illinois, California and New York.

Blue-state Democrats have denounced last year’s tax reform as a partisan attack. Thanks to the new $10,000 cap on deductions for state and local taxes, households in places like California and New York will soon feel the stinging cost of big government. This will make raising taxes more difficult, which is why politicians are lamenting that the cap will limit their fiscal flexibility.

The U.S. Supreme Court may soon ride to the rescue. On Monday the justices will hear arguments in Janus v. American Federation of State, County and Municipal Employees. If the court rules against government labor unions, as most observers expect, state and local politicians will gain much more control over their budgets, and they will be under less pressure to toe the union line.

The question in Janus is whether it is constitutional that government employees who have decided not to join a union are still required to pay “agency fees.” Under federal law, workers cannot be forced to join a union. But laws in 22 states say that nonmembers must nonetheless pay unions a fee to cover the cost of collective bargaining and contract administration. The difference usually isn’t much. The agency fee at issue in Janus totals 78% of full union dues.

The unions justify agency fees with the dubious premise that what they do at the bargaining table is somehow apolitical, even though their negotiations cover everything from the structure of retirement benefits to teacher tenure. “The problem is that everything that is collectively bargained with the government is within the political sphere, almost by definition,” Justice Antonin Scalia remarked during oral arguments in a 2016 case. This line of reasoning leads to the conclusion that imposed agency fees violate the First Amendment—that employees who oppose the union’s goals cannot be compelled to support speech with which they disagree.

In that 2016 case, Friedrichs v. California Teacher Association, the justices seemed set to strike down agency fees. But Scalia died and the court split 4-4. Now, with Justice Neil Gorsuch on the bench, the court seems likely to deem agency fees unconstitutional. The ruling in Januswill probably come in June.

If so, big changes could be in store for the blue-state model of governance. Without the ability to charge agency fees, public unions will lose members and millions of dollars in revenue each year. Over time this will weaken their ability to fund candidates for office, lobby elected officials, and campaign for ballot measures.

The public unions’ money machine has made them the strongest special interest in state and local politics, able to block serious pension reforms and push through tax increases. In California, two recent ballot initiatives that enacted a “temporary” income tax hike—and then extended it for 12 more years—were supported by tens of millions of dollars from the California Teachers Association and other government unions. In Illinois the union-backed House speaker, Democrat Michael Madigan, held a two-year budget standoff with Republican Gov. Bruce Rauner, which ended with a tax increase last year. Connecticut has raised its income tax three times since 2009. New Jersey’s new governor, Phil Murphy, pledged during last year’s campaign to follow suit.

The federal tax reform means these state levies will weigh more heavily on taxpayers than they otherwise would have. Consider tax filers who make more than $200,000 a year. In 2015 their federal deduction for “taxes paid” averaged $64,771 in California, $84,964 in New York, and $61,997 in Connecticut. When they file their returns for 2018, those sums cannot exceed $10,000.

But just as raising taxes becomes harder, Janus may give blue states a whole new range of fiscal choices. Wisconsin’s experience shows the potential. In 2011 Gov. Scott Walker signed Act 10, which eliminated most collective bargaining in the public sector. Then in 2015 the state passed right-to-work legislation that eliminated agency fees. Together these laws have caused membership in government unions to drop by over 60%. The state has also trimmed spending on health benefits and retirement programs for public workers, saving billions.

Those reforms were more far-reaching than the Janus decision can possibly be. Still, if blue states capture only a share of Wisconsin’s savings, it would go a long way toward stabilizing their budgets.

The principled defense of the blue-state model, with high taxes and strong unions, is that people who prefer big government should have the right to pay for it. But that choice is being short-circuited by government unions that can extract agency fees even from workers who oppose their agendas. In many states, the rising costs of health and retirement benefits for government workers is already crowding out other spending. Public unions steadfastly oppose any efforts to rein in costs.

That makes Janus about free speech in more ways than one. A ruling against the unions would prevent them from using their influence and money, derived in part from agency fees, to drown out other voices in state capitals and city halls. And when the bite of high taxes is finally felt in April 2019, maybe lawmakers in Sacramento, Albany, Springfield and elsewhere will at last hear the screams of overtaxed families.

This piece originally appeared in The Wall Street Journal

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Daniel DiSalvo is a senior fellow at the Manhattan Institute, an associate professor of political science at the City College Of New York (CUNY), and author of Government Against Itself: Public Union Power and Its Consequences (Oxford Press, 2015). Follow him on Twitter here.

Stephen Eide is a senior fellow at the Manhattan Institute.

Photo by Erik McGregor / Zuma Press (via WSJ)
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