The Government Would Never Be This Short-Term Focused on Quarterly Accounting... NOT

If you have worked in a large corporation, you probably have witnessed some end of quarter or end of year sales push, to buff up the current period's results.  People who buy cars often get the advice to buy at the end of the month or year to take advantage of this motivation.  A great example of this was in the book Barbarians at the Gate, where RJR would load the channel at the end of each quarter with tons of extra inventory to buff up quarterly profits.  Of course, this just creates the incentive next year to load the channel even more to top the previous quarter's profits that were pumped up by loading.

All of this is both rational and irrational.  From a shareholder standpoint it is irrational -- the end of the reporting period is arbitrary and all the company is doing is shifting some sales a few days, rather than generating new ones.  It can even be negative for shareholders, as in the RJR case when loading caused inventory to sit on shelves for longer and get stale and thereby less appealing to customers.   For employees of the company, this can be entirely rational depending on their incentives.  While pulling sales forward to get a better grade or commission for this quarter feels good now, it can make the next quarter harder.  But who knows what will happen in the next quarter?  In a high turnover world, I could be in a new job or new company next quarter.  Anyone who has worked with corporate incentive programs knows that it is impossible to eliminate all the unintended consequences -- all one can do is minimize them.

But supporters of government superiority to private enterprise argue that this is exactly why government is superior, because it does not have these short-term focused goals.  HAH!

Politicians are among the worst at this.  It used to be they would do short term things to get elected, leaving the following election to take care of itself.  Now, they will take short term actions just to dominate the current news cycle.  Next week? That's an eternity, we have problems now.  Every single action taken over the last two years by both this and the previous administration and the current one relative to the economy have been totally short-term focused.  Let's bail everyone out.  Moral hazard?  That's the next administration's problem.  Just look at cash for clunkers, where the government paid $4000 for cars that blue-booked for $1500 all to pull September sales into August.  But they won the news cycle in August!

But the actual reason for my rant is a note I got from the Arizona Department of Revenue.  Apparently they have a program where large filers have to do a special report to pre-pay June sales tax** collections by June 29  (rather than by July 20 when they would usually be due).  As is so often the case, the law has been changed such that a special requirement for large filers had its threshold changed such that small-medium filers like myself also now have to play.  This is a sort of 13th report one must file (we file reports monthly) and the processing of it takes a lot of private time, plus the state has to hire a number of temps and pay overtime to receive this filing.

So why the special requirement?  Well, Arizona is on a July-June fiscal year, so June 29 is just about the end of their fiscal year.  And they are on a cash accounting basis (like most governments) so any cash that comes in the door, even if it is for a pre-payment of a future liability, counts as current period income.  This means that the state is spending a lot of overtime money shifting income by 21 days just to make its current period look better -- just like RJR or any other dynsfunctional private company.

But what makes this even more short term is that it only works once -- the first time.  It will make the first year this trick is applied look better, but then every year after will go back to being the same, with July losses to the prior year offset by June gains from the forthcoming year.  In fact the only way this game can work twice is if the threshold for pre-paying is lowered -- which is why I am having to fill out an extra form and pay a large bill 3 weeks in advance.  Arizona is looking for another one time gain.  And the larger the gain, the harder it will be to unwind this stupid costly process in the future.

** Footnote:  Actually we don't have a sales tax but a "transaction privilege tax."  However, that term gets me so infuriated, as it is based on the premise that private commercial transactions can be made only as a privilege granted by the government, that I refuse to use the term.  Right from the AZ DOR web site:  "the tax is on the privilege of doing business in Arizona."  Barf.  Don't let anyone tell you Arizona is a wild, libertarian, free market state.

  • Dr. T

    "Don’t let anyone tell you Arizona is a wild, libertarian, free market state."

    I wouldn't think of it. My brother and his family live in Tucson, my Dad lived there for a few years prior to his death, and another brother lived in Phoenix in the late 1990s. Based on their stories, I know that Arizona is not the most nannystatist or bureaucratic state in the USA, but that's not for lack of trying.

    I have lived in NY, Michigan, Virginia, Nebraska, and Tennessee. Nebraska had the least intrusive government, and NY had the most intrusive government. However, Virginia and Tennessee have become as bad as NY was in the 1980s. It seems that all levels of government in the majority of communities and states in the USA are becoming more nannystatist and bureaucratic at an accelerating rate. Even New Hampshire and Wyoming, both formerly libertarian strongholds, are moving in the wrong direction.

    Is there anywhere in the USA that is trying to preserve some libertarianism? I'd like to know, because once my youngest child graduates high school next May, I'll be moving to what I hope will be a freer state and community.

  • mesaeconoguy

    Here is the federal version of this:

    Budgetary Three-Card Monte

  • perlhaqr

    ** Footnote: Actually we don’t have a sales tax but a “transaction privilege tax.” However, that term gets me so infuriated, as it is based on the premise that private commercial transactions can be made only as a privilege granted by the government, that I refuse to use the term.

    I'm sympathetic to your position. I got popped for speeding last month in AZ, and while the AZ Highway Patrol officer was kind enough to A.) lower the recorded overage to 10 mph over, and B.) ignore the fact that paperwork shuffle had managed to leave us without either proof of registration or insurance, the actual state law I ended up getting cited for was "waste of a precious natural resource". Presumably, implying that I was using more fuel than I was entitled to by travelling over the limit, as though I hadn't paid for that fuel myself, and as though I wasn't being taxed on the fuel I was using. It made me mad. But, I am forced to admit, not so mad that I was willing to pay the higher fine required of an actual "violation of speed limit" ticket.

  • Craig

    On a related note is the government practice that goes like this: "Hey, the end of the year is approaching, and we have 60% of our budget left. We don't really need anything, but we have to blow all this money to ensure that we get our same appropriation next year. That way, a year from now, we can similarly blow a bunch of leftover money. What do people want to spend this on?"
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  • http://photoncourier.blogspot.com david foster

    People try to meet the criteria on which they are measured, whether in the public or the private sector, and where the criteria are poorly designed, bad things happen. Hospitals in the UK were recently found to be making patients wait in ambulances, because the timer on their emergency-treatment measurement didn't start until the patient physically appeared in the emergency room.

    The main difference is that bad incentives tend to be more self-limiting in the private sector because private organizations are actually allowed to disappear. (or used to be, pre-Obama)

    See my post stupidity: communist-style and capitalist-style

  • Patriot Henry

    Dr. T. - try NH. The revolution has begun there but it will be a long hard fight.

  • Edward

    I experienced a similar situation when I was in the military...years ago, the military payday was on the 15th and 31st of the month...one year, IIRC, back in the 90's they made the switch to the 1st and 15th, on October 1st, thereby moving the paydate into the next fiscal year...

  • Cloudesley Shovell

    I was going to mention the federal government's shenanigans with military payday shifting, but Edward beat me to it.

    My recollection is that the budgetary gimmick (it shifted the 30 Sep payday to 1 Oct, a new fiscal year) was widely ridiculed within the ranks, and seen for the useless foolishness that it was.