Taxes, Politics And The Urban/Rural Divide

Michael Hicks directs the Center for Business and Economic Research at Ball State University. His columns appear in the Indianapolis Business Journal, among other publications, and while I have my disagreements with certain of his research perspectives, he often raises issues worth considering.

Last week, he focused on the urban/rural divide–and what we might call a “maker/taker” taxation paradigm.

Hicks began by cautioning against the prevailing image of rural America as a monolith. It’s an important caution: rural communities differ from each other economically and in the degree of diversity of their populations.

That said, they also share common challenges and characteristics.

Over the last century, America’s rural counties haven’t really grown. We have roughly the same number of rural residents as we did in Teddy Roosevelt’s administration, but urban America is more than five times larger. Four out of five Americans live in urban counties as designated by the Office of Management and Budget. To be fair, many of the urban counties have plenty of row crops in them, and rural counties have many small cities. Also, much of the growth in urban places came in formerly rural counties, as has always been the case. Still, urban counties differ in other meaningful ways that are likely to influence future policy. The second big issue is taxes and spending.

Rural places are large beneficiaries of federal dollars. By some estimates, per capita spending by the federal government is twice as high in rural than urban places. Most of this goes into agriculture subsidies, so rural communities probably don’t perceive the spending. Most may not actually benefit from it. Still, that is a legitimate critique offered by urban taxpayers, who foot most of the bill. Rural residents ought to be more conscious that these large subsidies provide few benefits for their community, while alienating urban taxpayers.

There’s no national study, but here in Indiana, rural places are also big beneficiaries of state tax dollars. This is per a 2011 study jointly authored by Ball State and the Indiana Fiscal Policy Institute. In that study, we estimated that rural places get more than $560 more per resident in taxes than they pay, while urban places get almost $160 less per resident than they pay. It is a plain fact that state and federal taxpayers subsidize rural places at the expense of cities and suburbs. What is not so clear is whether or not this spending makes a meaningful difference in the lives of rural people. I suspect it does not. This is almost certainly true in every other state.

Not only do state and federal distribution formulas advantage rural areas over urban ones, but Hicks notes that rural communities tax themselves less than urban places. In Indiana, per capita taxes are approximately ten percent lower in rural areas than they are in urban counties, and it is likely that this is true nationally.

As Hicks acknowledges, this pattern means that taxpayers in growing metropolitan places–places that need to repair and extend their infrastructures and municipal services–are subsidizing static and declining rural areas. He suggests there will be a reckoning–and certainly, in Indiana, with our ill-advised constitutionalized tax caps, that reckoning will come sooner rather than later, because the state’s urban areas are being starved of desperately needed resources.

What Hicks doesn’t mention is a significant political reason for this disparity in resources: gerrymandering.

In Indiana–and other red states where Republicans control redistricting– a majority of electoral districts have been drawn to ensure that they contain majorities of reliably Republican voters–and those voters are overwhelmingly rural. The result is that a super- majority of the state’s lawmakers are responsive to rural interests and dismissive of the needs of the urban areas that have been carved up by map-makers–despite the indisputable fact that the urban areas are the state’s economic drivers.

Talk about “makers” and “takers”!

It’s one more inequity we won’t get rid of until we get rid of gerrymandering.


Whose Ox Was That?

One of America’s most enduring fault-lines is around convictions of personal self-sufficiency, and the very real degree of contempt that accompanies indicators of other people’s dependency. The “makers and takers” narrative is the most recent manifestation of this phenomenon, where people who “stand on our own two feet” engage in moral indignation aimed at those perceived as “sucking at the public tit.’

What is so ironic about this simplistic construct is that the self-proclaimed “makers” are the recipients of the largest percentage of government largesse. They just don’t see it that way. What they get is their due; what that other guy gets is charity.

It isn’t limited to corporatism, or crony capitalism or the tax loopholes and immense amounts of outright subsidy enjoyed by our so-called “captains of industry.” It goes much farther, and is frequently a product of well-meaning public policies.

I thought again about the multiple ways taxpayers subsidize the “haves” while I was reading a fascinating book about housing policy: The End of the Suburbs: Where the American Dream is Moving.

The mortgage interest deduction provides nearly 400 billion in subsidies to homeowners each year, propping up the market for single-family homes. Renters, of course, enjoy no such assistance. The unintended consequences of FHA mortgages have been amply documented–FHA regulations encouraged new construction to the detriment of repairs and improvements to existing housing stock, encouraged redlining (making it much more difficult for African-Americans to buy homes), and (by stipulating that homes had to be built far from “adverse influences” and in areas of “economic stability”) favored suburban over urban homeownership.

It’s not just FHA. Suburban development has been subsidized by everything from highway construction to artificially low gasoline prices. William Wimsatt wrote an article for the Washington Post a couple of years ago in which he detailed–and rebutted–five “myths” about the suburbs: myth number three was “the suburbs are a product of the free market.”

Taxpayer subsidies are everywhere–from the public schools that educate most American workers, to the “free” highways over which we ship our goods (if you ship by train, no such luck–pardon the pun, but you pay full freight), to the food stamps and other benefits that the makers scorn even while they supplement and thus enable the below-living-wage compensation paid by Walmart and its ilk.

The next time you hear a Tea Party crank fulminating over the cost of the hateful “Obamacare” and the illegitimacy of requiring that we all chip in to keep poor folks from dying, you might consider the fact that long before passage of the ACA, seventy percent of all medical costs in the US were being paid with tax dollars. From medical research to medical education to Medicare and Medicaid to emergency room services to the uninsured–we all paid for all of it. We just did it in the most inefficient possible way–a way that also, conveniently, allowed us to maintain the fiction that we had a “free market” health system. We didn’t, and we don’t.

What we have is an attitude: If a public service benefits me, it’s a natural outgrowth of the market. If it benefits poor people, it’s socialism.