Tag Archives: taxes

Reaganism Triumphant

This morning, I made my usual mistake, and listened to the news.

The protests in Wisconsin–and to a lesser extent, Ohio–triggered by efforts to blame fiscal shortages on people who work for government. A story about a southern town that has stopped making pension payments to retired police officers and firefighters, because the town “ran out of money.” Various congresspersons of the Republican persuasion demanding ever-more draconian cuts in social programs we can no longer “afford” (while failing to explain why we can still afford all manner of military expenditures, including the Pentagon’s practice of sponsoring NASCAR races). You all know the drill–it’s drearily familiar.

So here’s my question: why, in all of these discussions, do we never hear anyone suggest raising taxes?

Now, I will grant that taxes can be a double-edged sword: depending upon who and what we tax, we can cause economic distortions. Tax policies can provide perverse incentives, or reduce incentives for behaviors we want to encourage. But that recognition hardly justifies taking taxes off the table, and that seems to be what we’ve done. Taxes have become a dirty word, rather than a revenue source.

The result is that we are strangling government’s ability to invest in the future of the country. When governors refuse federal dollars to built high-speed rail, they are not only refusing to create temporary construction jobs, they are ensuring that America will be less competitive for a generation. When they choose to “balance” budgets on the backs of pensioners and public servants, they are opting to weaken government’s ability to provide services and undermining the public’s trust in that government.

Ronald Reagan famously said that government is the problem, not the solution. Then he set in motion a political ideology that embraced a very selective version of Reagan’s Presidency and made that statement into a self-fulfilling prophecy.

Those who subscribe to “Reaganism” conveniently forget that even the Gipper raised taxes when necessary.

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Class Warfare

One of the reasons I left the GOP was impatience with party rhetoric equating taxes with theft.

It seems to have become a Republican article of faith that it is “immoral” to tax people for the services they receive, let alone for purposes of redistribution (i.e., using tax dollars to help poor folks). Those who work, we are told, should be allowed to retain the fruits of their labor. (I guess it is impertinent to ask what portion of those “fruits” are the result of living in a society that provides roads and bridges on which to ship goods, police protection of social order, courts to enforce contracts, and all the other infrastructure necessary to conduct a trade or business.)

So how do these principled critics of redistribution and “theft” justify the Wisconsin Governor’s attack on public workers—and his effort to take money from them in order to enrich the wealthy?

It should be emphasized that public workers in Wisconsin are not responsible for the state’s fiscal problems, and stripping them of their bargaining rights won’t solve those problems. According to reports in the New York Times and elsewhere, the Governor was the one who precipitated the state’s projected $137 million shortfall. Just last month, he and the Republican-controlled legislature gave away $117 million in tax breaks, mostly to businesses and for private health savings accounts.

If it weren’t for those tax breaks, according to the state’s Legislative Fiscal Bureau, the state would have had a surplus.

It’s interesting. Every time someone suggests reversing the Bush tax cuts for the richest 2%—tax cuts that left current rates at their lowest point in fifty years—the GOP screams about “class warfare.” I want to know why it is class warfare when we ask the rich to pay their fair share, but it isn’t class warfare to take money from hardworking public servants to pay for tax breaks for the rich.

I’d also like to know when the party of fiscal responsibility became the party that robs the poor to give to the rich.

I guess redistribution is okay when it’s upward.

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Sanity And Taxes

A couple of weeks ago, fifty-five assorted residents of Indianapolis boarded a chartered bus and headed to Washington, D.C. for the Jon Stewart/Stephen Colbert “Rally for Sanity.”  It was a pretty diverse group—college students and retirees, black and white, varying religions and political parties—but we all wanted to demonstrate that the cable shouters, insult-throwers and nasty political ads dominating the airwaves don’t represent most Americans.

There were plenty of clever signs on display, but two more serious ones summed up what I think was the “message” of the Rally. One said “Turn Your Caps-Lock Off!” And the other read, “I pay taxes because I’m an adult and that’s the way it works.”

Ah, taxes. We have just emerged from an election season that was high on heat and low on light. Candidates of both parties were on my television—with their “caps-locks” on—promising to deliver services and balance budgets while cutting—or at least not raising—taxes. (On those rare occasions when a reporter challenged a candidate to identify what cuts he would make to accomplish this miracle, the lack of response was revealing.)

Here in Indiana, voters overwhelmingly agreed to place property tax caps in the state constitution, despite the fact that the negative consequences of the statutory caps are already being felt. The political golden rule—“He who has the gold, rules”—has shifted spending authority to the state, and made it much more difficult for local governments to deliver even basic services.

Mayors are desperate. They have fewer resources with which to meet the demands of citizens who want their public services improved, but who don’t want to pay for them.

Some—like Mayor Ballard—resort to gimmicks like the proposed contract with ACS to take over the city’s parking meters for fifty years. In return for giving away significant future revenues, the city will get some up-front money; more important, it will contract away its responsibility for deciding whether and when to raise parking fees.

Stripped of all the fancy rhetoric, this is best understood as a deal to outsource the taxing power. That is what the state did with the Toll Road. Recognizing that the legislature lacked the political will to raise tolls, the Daniels Administration “sold” the right to do so. That is also what motivated the sale of the Water Company to Citizens Gas; ratepayers essentially will be “taxed” in order to recover the up-front payment that is being used to pave streets and repair sidewalks.

Citizens, as a public trust, may prove to be a more prudent operator than the city. The parking proposal has no obvious merits and many obvious drawbacks. But good deals or bad, this is not the way adults make decisions.  Eventually, services must be paid for. That doesn’t mean we cannot deliberate over the proper type of tax, or who should pay it, or how high it needs to be. But games cost more than taxes in the long run.

Adults know that.

Defining Our Terms

Anti-tax fervor has become a defining aspect of American politics—so much so, that here in Indiana we are getting ready to enshrine a so-called “property tax cap” in the state’s Constitution. (The existing law imposing such a cap is evidently considered inadequate.)  Those of us who question the wisdom of such a measure are often accused of being “for” taxes—a clearly incomprehensible position.

Let me pose a question. What is a tax? Do we know one when we see one?

The answer begins with the simple premise that there is no such thing as a free lunch. Goods and services cost money, and that money has to come from somewhere. If the city picks up your garbage, payment comes from your taxes; if you employ a private scavenger service, you pay for pickup directly. There may be economies of scale that make the city service cheaper or there may not, but however the service is provided, it has to be paid for.

Policymakers face a series of questions. The first, and most important, is whether a service needs to be provided at all. What is the benefit to a community of garbage collection, or bus service, or libraries? Do we require police and fire services? A sports arena?

In some cases, the public benefit is obvious. If we don’t collect the garbage, we risk the public health; if we don’t provide fire protection, public safety suffers.  Of course, we could simply require that property owners buy these services on the open market; in fact, many communities used to do just that. These and other public services were “socialized”—that is, they were provided communally—because it was cheaper and more efficient to have government provide them. They didn’t suddenly become “free”—we just paid for them differently.

If we want services, we have to pay for them. Calling that payment a “user fee” or a “utility bill” doesn’t change that. We can certainly debate whether we really need a particular service—some people would be perfectly happy to dispense with massive sports stadiums, others would cheerfully do without libraries. But if we do want them—and our streets paved, our neighborhoods policed and our parks mowed—we have to pay for them.

Transparency in government is considered a good thing because it allows voters to see what their elected officials are doing, and where their money is actually going. The problem with the current anti-tax fervor is that it penalizes transparency and rewards official game-playing.  Voters’ hostility to paying taxes—coupled with their insistence on continuing to receive services—sends elected officials a clear message: lie to us.

“Cap” our taxes and find “nontax revenue sources.” Shift expenses from operating to capital budgets, so you can borrow money to cover operating expenses. Blame the federal government for service cuts. Hide the street repair money in our utility bills.

It’s more costly when we do things that way—but the payments aren’t called taxes, and evidently that’s all that counts.

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Political Con Game

The incessant political ads leading up to the primaries all seemed to assume that we voters are either children or idiots. Every candidate for every office will protect our perks and cut our taxes! For the record, guys, most of us know there is no such thing as a free lunch. We know—or we should know—that if we want government services, we have to pay for them, and that actually might mean paying taxes.

 On the other hand, perhaps the candidates are right. Perhaps we are children.

 Look at what is happening in Indianapolis right now: Six libraries are closing.  IndyGo—already one of the country’s most inadequate bus systems—is cutting out additional routes. My own neighborhood, the Old Northside, is working with other downtown neighborhoods on a plan to hire private police to supplement IMPD. In too many places, our streets and sidewalks are disintegrating. And don’t even look at the condition of our parks.

 When I worked for city government, back in the days when Bill Hudnut was mayor, there was a recognition that city services had to be paid for, and that there were better and worse ways to do that. Sinking funds (savings accounts) were preferable to bonds (borrowing from future taxpayers) for operating costs. Ongoing maintenance of infrastructure was more cost-effective than cycles of neglect and repair.

 The Hudnut Administration wasn’t perfect, but it was probably the last Indianapolis administration to operate on a pay-as-you-go basis.

 Hudnut was succeeded by Stephen Goldsmith.  Goldsmith (recently installed as Deputy Mayor of New York) was very good at convincing people that he could deliver government on the cheap. “Privatization” initiatives were used to shift costs from the operating to the capital budget; debt was refinanced over longer periods; maintenance skimped or deferred. The Peterson Administration chose not to confront the dire fiscal problems it inherited, resisting even modest tax increases as long as possible. Ironically, when an increase could no longer be avoided, the timing was politically disastrous.

 The Ballard Administration has taken a leaf from the Goldsmith book. A simple transfer of our sewer and water utilities to Citizens Gas actually might make a lot of sense, fiscally as well as politically.  But as the Star recently documented, the up-front “payment” is nothing more than a deferred tax that will be paid by ratepayers in the future.

 The money to fix our decaying infrastructure has to come from somewhere, and our childish belief that we can expect something for nothing—a belief nurtured by years of dishonest political rhetoric—means the administration will not raise taxes directly. The problem is, when these “creative” tax mechanisms are employed, they end up being much more arbitrary and unfair than property or income taxes. In this case, ratepayers living in million-dollar homes will pay precisely the same amount as ratepayers living in hovels, so that we can pave our streets and fix our sidewalks without admitting that we are raising taxes.

 Shouldn’t we all just grow up?