Tag Archives: taxes

Patriotism and Taxes

Much of today’s angry rhetoric is constructed around two dubious claims: (1) taxes are unjust, because my money is the result of my own hard work; and (2) people helped by government are indolent leeches.

 One problem with the latter claim is that people who look down on welfare recipients who are poor have a remarkably benign view of welfare recipients who are rich. They see nothing wrong with paying USA Funds and similar enterprises lots of money just to give away federal dollars for student loans—a cushy deal with absolutely no downside risk—or with politicians who rail against government “handouts” while raking in big farm subsidies. (Tennessee Congressional candidate Stephen Fincher, a darling of the anti-tax folks, gets $200,000 a year from the government; “anti-socialist” Rep. Michelle Bachmann gets $250,000.)

 The more insidious claim, however, is the first: I worked hard for my money and government has no right to tax it for anything other than police and armies to protect me and my property.  

 Ian Welsh points out some “inconvenient truths” about that claim. He compares the average American to the average citizen of Bangladesh. The average American makes $43,740 annually; the average Bangladeshi, $470.

 Why the difference? American children are less likely to suffer from malnutrition, which adversely affects intellect later in life. American children are far more likely to get good educations. When a Bengali child grows up, there are fewer available jobs. If he starts a business, the market will be much smaller than the equivalent American market. As Welsh says,

 “The vast majority of money that an American earns is due to being born American. Certainly, the qualities that make America a good place to live and a good place to make money are things that were created by Americans, but mostly, they were created by Americans long dead or by Americans working together. ..Since the majority of the money any American earns is a function of being American, not of their own individual virtues, government has the moral right to tax.”

 Welsh isn’t the first to come to this conclusion. Thomas Paine, perhaps the most eloquent of the Founders, expressed similar sentiments in his pamphlet “Agrarian Justice.”

 “Separate an individual from society, and give him an island or a continent to possess, and he cannot acquire personal property. He cannot be rich. So inseparably are the means connected with the end, in all cases, that where the former do not exist the latter cannot be obtained. All accumulation, therefore, of personal property, beyond what a man’s own hands produce, is derived to him by living in society; and he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came.”

 Patriotism isn’t just about being willing to die for your country. It’s also about being willing to pay your fair share to maintain the social infrastructure that makes life more pleasant—and more profitable—for us all.

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Outsourcing The Taxing Power

There is a lively debate currently raging over the apparent intent of the Ballard Administration to sell Indianapolis’ water and sewer utilities. Most of the criticism centers on allegations that the decision-making process has been less than transparent—that whatever the merits of an ultimate deal, the public has been largely shut out of the discussions.

In response to such criticisms, the Administration points out that its Request for Expression of Interest and all of the twenty-plus responses have been posted on the Mayor’s website. Fair enough (although that defense reminds me of the scene from A Hitchhiker’s Guide to the Galaxy, where the Vogon spaceship is preparing to destroy Earth to make way for an inter-galactic highway. When the hero protests that Earth has had no opportunity to appeal the decision, the Vogons respond that “The plans have been posted in the appropriate offices on Alpha Centuri for fifty of your Earth years.”). There have also been public hearings, although those have been focused more generally on the subject of Indianapolis’ decaying infrastructure.

Transparent process or not, it is now generally believed that the City is negotiating to sell the water and sewer utilities, probably to Citizens Gas and Coke Utility. Such a sale would consolidate management of the three utilities, and may well make sense, at least from the City’s point of view.

The Water Company is struggling to pay the bonds issued when the Peterson Administration bought it for what critics said then was an inflated price. Furthermore, substantial outlays will be required to bring both systems up to basic environmental and safety standards after decades of deferred maintenance, and the Environmental Protection Agency will insist that those repairs be done. The real question is, why would Citizens—or any other buyer—pay a billion-plus dollars for two utilities that—according to the City’s own reckoning—are somewhere between four and five billion in the hole?  

The simple answer is that a buyer can “monetize the income stream.” In plain English, that means that a buyer isn’t buying a bunch of fixed, decaying capital assets. It is buying the right to charge—and  increase—water and sewer rates.

The city would have to increase rates too, of course, but doing so would incur the wrath of citizens who have made it quite clear that they resent paying for even essential city services. The current Mayor owes his job to the anti-tax fervor that demands more for less, and who can blame him for learning that lesson?

Governor Daniels showed the way with the sale of the toll road. By selling an asset rather than paying to maintain it, a Mayor or Governor achieves two goals: an immediate infusion of cash, and deniability when rates or tolls go up.

There is a copious literature about the pitfalls of privatization. What is curiously lacking in that literature is a recognition that in too many situations, what we are really outsourcing is that quintessentially governmental power—the taxing power.

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A Perfect Storm

Sometimes, a “perfect storm” of problems forces us to make much-needed changes that are politically impossible in normal times. Perhaps—just perhaps—this is one of those times when we can use a few of the fiscal lemons we are being handed to make policy lemonade.

Storm number one is revenue. Indiana is in a world of fiscal hurt. Tax receipts are well below the levels that would allow us to keep state spending flat, and the cuts that have already compromised many essential services are now slicing education funding. Public universities are hurting, but by far the most damage will be done to public K-12 schools that are already struggling. As Matt Tully has reminded us in his outstanding series about Manual High School, these schools have virtually no human or fiscal resources to fall back on. They face enormous challenges, and we have an obligation to help them meet those challenges. It’s not only the right thing to do, our civic self-interest requires it.

Storm number two is costs. Which brings me to the Star’s recent report on the pay and perks of area school superintendents.  

Let me be clear: I’m not begrudging the superintendents their compensation, nor criticizing the school boards who are paying them. I understand the competitive pressures that have brought us to a point where a superintendent’s compensation package in even a small district runs upward of 200,000.

What I don’t understand is why Marion County needs eleven of them.

The entire student population of Marion County today is less than the enrollment of IPS in 1967. Logic says it should not take eleven superintendents, eleven assistant superintendents, eleven curriculum directors, eleven lunchroom operations, eleven bus systems and eleven school boards –together with the costs of clerical staffs and physical facilities to house them all—to educate those students.

I understand that the politics of consolidating these districts is toxic. The number of interest groups fighting over the diminishing supply of public patronage is huge. Even the Kernan-Shepard Report avoided addressing Marion County’s overabundance of districts, although the principles they endorsed elsewhere certainly apply. And it is certainly true that a legislature without the will to make even the most obvious adjustments to Indiana’s dysfunctional governing apparatus—a legislature unwilling to abolish 1008 unnecessary township trustees and meaningfully reduce the 10,000 plus public officials we pay with our tax dollars—is unlikely to consolidate the administration of Marion County’s schools.

Ideally, the Mayor would provide leadership on this issue. The public schools, as Matt Tully has convincingly demonstrated, are key to our city’s ability to succeed, key to our economic development efforts and our quality of life. Consolidating the bureaucracies—not the schools themselves, but their duplicative administrations—would allow us to free up millions of dollars that could be used to improve what goes on in the classroom. The benefits to the city would be profound, and the message sent would be inspiring.

Stormy times call for something other than patronage as usual.