Tag Archives: taxes

What Am I Missing?

I have to admit I frequently listen to a political or policy discussion, and have what might be called a “duh” moment–wondering why I see a rather obvious approach that everyone  else is ignoring.

This week, Governor Pence announced that state revenues have fallen below budget estimates for the past few months, and the only remedy is to cut funds to education and state agencies and sell the state airplane. Leaving aside the airplane gesture (a one-time, largely symbolic “sacrifice”) why is the administration focusing on cutting services rather than delaying or foregoing its beloved tax cuts?

There are two ways to handle revenue shortfalls, after all–cut expenses or raise revenue.

Despite the fervent belief that lower taxes stimulate the economy and foster job growth, there isn’t an iota of evidence supporting that belief. Indiana is already one of the lowest-tax states in the Midwest, our economic indicators still lag those of our higher-tax neighbors, and the case for continued tax cuts is thin, to put it mildly. (Indeed, research indicates that quality of life drives economic development; continued service cuts that diminish quality of life indicators–far from stimulating the economy– are probably counterproductive.)

Then there was the research report presented at a recent meeting of the Advisory Board of the Institute for Working Families. The subject was paid sick leave, which relatively few Indiana employers offer. When researchers talked to those who opposed a law requiring a sick-leave benefit, they found that the major objection wasn’t to paid sick leave, it was to the idea of a government mandate. (Don’t tell me how to run my business!!)

If the objection is to the use of a stick, why not offer a carrot? Why not give a tax deduction or other incentive to employers who voluntarily decide to offer paid sick leave? Avoid the mandate, but reward the desired behavior.  Evidently, such an approach hasn’t been considered.

My grandmother used to say there’s more than one way to skin a cat.

What am I missing?

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Revenue Enhancement

A couple of days ago, a former partner of my husband copied me on a message he sent to his City-County Council representative. It began:

Today we were the recipients of an unannounced revenue enhancement effort “inspection” by a member of the Indianapolis Fire Department, acting under authority of General Ordinance #46, supposedly under the guise of State law.

The message went on to describe a Fire Department program in which individual tenants of commercial buildings were notified of an obligation to “self-inspect” their leased premises –and charged $25 each for that dubious privilege. Those failing to respond were assessed a $60 fine.

The owners of the building were not notified, despite the fact that they would seem to be the parties responsible for maintaining fire safety standards. And as the writer noted, tenant “self-inspections” are unlikely to generate confidence-producing results.

What particularly irked my correspondent–a registered architect who has to comply daily with fire safety regulations–was the fact that the building in which he has his offices is fully sprinklered, has a supervised alarm system, and is regularly inspected by the State Fire Marshall.

The purpose of these laughable “self-inspections” is rather obvious, and it isn’t fire safety. It is, as he asserted, “revenue enhancement.”

The City’s taxing authority has been constrained (unwisely, in my view, but that is a separate conversation), so it is trying to compensate by raising “fees.” The difference between a tax and a fee is that the former is levied on the population at large in order to provide services that benefit the entire citizenry; fees–at least in theory–are levied on the people benefitting from the service.

Fire safety is a good example of the elasticity of this theory. Many years ago–in colonial times, actually–fire protection was a consumer good. Fire departments (privately owned) would respond to fires at the homes of those who could afford the “insurance” they sold. That didn’t work very well, as you might imagine, and lawmakers recognized the benefits of providing “socialized” fire protection.

Thanks to America’s current hysteria over taxation, we seem to be moving back to the bad old days. Affluent neighborhoods are hiring their own “security” in the absence of adequate police protection. And now, we’re evidently going to use a “safety program” to charge commercial occupants for a portion of their fire protection.

This isn’t progress, folks.

Maybe its time for a community-wide discussion of what government is for.

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Perverse Incentives

I know this chart has probably been floating around the Internet for a while, but I recently came across it, and it really made me think.

The chart lists 30 major corporations, their profits for 2011, the amount of taxes each paid that year, and the amounts they paid lobbyists. A majority of those listed  paid zero taxes on massive profits, thanks to various provisions of the tax code. Many of them actually got money back, again, courtesy of those same arcane provisions. Virtually all of them spent millions of dollars lobbying the federal government; in every case, the amounts spent to influence policy far exceeded the amounts paid in taxes.

What’s wrong with this picture?

There are often sound reasons for using the tax code to encourage behaviors that benefit the greater society. If we want more energy, for example, and we recognize that the costs of exploration and the risk of coming up dry are high, it makes sense to provide a tax incentive to ameliorate that risk. If we want businesses to modernize, to invest in equipment that will make them more productive, offering them the ability to write off those investments over the useful life of the equipment is reasonable. There are many other examples.

The problem comes when the incentives bear no reasonable relationship to the behaviors they are intended to encourage–when those well-compensated lobbyists manage to persuade lawmakers to favor their clients by inserting special provisions in the law or special treatment in the tax code. In the case of oil and gas, for example, companies have not only benefitted from obscenely favorable tax provisions, but have negotiated leases of public lands on terms that have been widely criticized as giveaways.  Here in Indiana, Leucadia–a politically well-connected energy company–will benefit from a 30-year agreement with the state that effectively shields the company’s new coal gasification plant from unfavorable market conditions. 

Leucadia is hardly an isolated example. There’s a reason someone coined the term “crony capitalism.”

The well-connected and powerful have always been able to influence policy. To a certain extent, it’s an unavoidable aspect of human society. But in 21st Century America, we are dangerously close to corrupting the system, eviscerating checks and balances, and institutionalizing a caste system. Recent studies have documented America’s depressing loss of social mobility. Headlines routinely report the self-dealing of Wall Street bankers and financiers, along with the outrageous salaries and bonuses that bear no relationship to their performance. Jack Abramov, the disgraced lobbyist whose name has become synonymous with K-Street and Washington deal-making, is trying to rehabilitate his reputation in interviews sharing “chapter and verse” of influence-peddling in the nation’s capital, and the picture he paints is not pretty.

Local business-people, shop-owners, mom-and-pop enterprises and other middle-class Americans go to work every day, follow the rules, and pay their taxes when due. They don’t have agents working the halls of the legislature to get them special deals. They don’t have hundreds of thousands of dollars to contribute to Super-Pacs, and Citizens United didn’t free them to donate megabucks to buy a Congressman or two.

Shouldn’t the major corporations that are profiting so handsomely also be paying taxes to the country that makes those profits possible? Those companies depend upon workers educated in our public schools. They rely on our courts to enforce their contracts. Their trucks drive on roads paved by American taxpayers. Tax-supported police and fire-fighters protect their warehouses. Why do they prefer to pay millions to lobby for special advantage rather than simply using that money to pay their fair share of the costs to maintain our physical and social infrastructure?

What are the incentives that lead those who are already rich and privileged to seek even more by gaming the system?

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The Carrot and the Stick

In yesterday’s blog, I suggested that–despite efforts to wage class warfare over the demise of the Twinkie–market forces were the real culprit. That prompted my cousin the cardiologist, whom I’ve quoted here before, to consider the proper role of government in promoting healthy eating. As he noted,

Studies showing that the ready availability of foods high in sugar, fat, sodium, and calories increase average body weight. Adults living closer to fast food restaurants consume such food more frequently than those who don’t and, consequently, are heavier. This is especially important for children; schools that serve more unhealthy foods or provide vending machines with unhealthy foods tend to be heavier than children whose schools do not permit such practices. Similarly adolescents who attend schools near fast food restaurants are more likely to be obese.

    Compounding these problems are other economic forces surrounding foods: The cost per calorie of healthy foods exceeds those of poor nutrient foods. In the past 30 ears, this cost disparity has increased; between 1985 and 2000, the prices of healthy foods, like fruits and vegetables, fish, and dairy products increased at more than twice the rate of prices of sugar and sweets, fats and oils, and carbonated beverages.

    Finally, we must consider portion sizes as another contributor to obesity. For children alone, between 1977 and 2006 the average portions of soft drinks, pizza, and Mexican foods increased by 34, 140, and 139 calories, respectively,. Sodas, sold originally in 6.5 oz. bottles, are now typically sold in 20 ounce containers. Studies have shown in general that increased portion sizes lead to rises in calorie intake: as a result, US adults now consume over 500 calories per day in 2006 compared to that in 1977. This trend has been further exacerbated by our increased eating away from home, for in 2008, Americans spent 49% of their food budget on food away from home compared with 33% in 1970. On average, each meal eaten outside the home increases that day’s consumption by about 134 calories, while, at the same time shifts the content toward less nutritious ingredients such as saturated fat and added sugar.

In New York, as we all know, Mayor Bloomberg led the fight to ban the sale of large sodas. I agree with my cousin that no matter how well-intentioned, efforts to have government “decree” healthy portion sizes are not the answer. Nor is the answer some “nanny state” that requires us to eat our vegetables or limit meals eaten out.

Does government even have a role in our personal eating habits? It’s hard not to sympathize with a libertarian response–“What business does the state have telling me what to eat, after all? Next thing you know, the local constable will come knocking on my door to see whether I’ve eaten my broccoli!”

Even those of us with a libertarian bent must concede that–at the very least–consumers need information upon which to make our choices. We need to know what’s in the “food” we are eating (note quotes around food); much of it has been so processed and adulterated, there’s no way to know what it contains. We depend upon government-required labels to tell us just how nutritious (or not) it is.

Can government go farther? Here’s where the battle lines get drawn. Public health officials justify added interventions by pointing to the economic consequences of the obesity epidemic, and the medical consequences of poor eating habits. Bans on large soft drinks or other sugary treats will be a hard sell, though, in a country where individual choice is prized.

From my perspective, raising tax rates on such drinks makes more sense. Since 2009, 19 states and eight cities have proposed such taxes on these drinks, according to the Rudd Center for Food Policy and Obesity. The advantage of raising such taxes can be taken from that of tobacco products. Cigarettes are clearly the cause of numerous diseases, costly in both human suffering as well as expenses to society at large. Thus heavy taxes provide the dual advantage of discouraging their consumption as well as raising taxes that can aid in the care of these afflicted individuals. In the case of sugary drinks (and other similar products), taxing these products, plus providing healthier alternatives such as fruit juices in public places would move us in the right direction. A penny-per-ounce excise tax on sugary drinks would effectively raise the shelf price of these drinks by about 20%. According to a number of studies, this would result in a 14 to 20% reduction in the consumption of the taxed beverages.

Makes sense to me.

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Our Deteriorating Public Services

I’m officially pissed.

The rant I’m about to embark upon was triggered by the City’s recycling contractor, Republic, which–for the third straight time–picked up everyone’s recycling except ours. We’ve had plenty of reasons to be less than enamored of the recycling program, which charges extra for the service (thus incentivizing environmentally irresponsible behavior). My biggest gripe has been the refusal of Republic to come down the alley, as our regular garbage pick-up does. Since we live in the city–the “hood”–that means we have to schlep our container down one alley, then another, in order to get it to the street. Not only is this inconvenient for elderly folks (and we’re pretty elderly!), it means that the street looks cluttered and trashy for two or three days, while cans are taken out and then returned to garages.

It isn’t just recycling. Regular trash pickup has gotten hit-or-miss of late. Crime in our neighborhood has increased to a worrisome degree–initially, the increase was mostly petty thefts, or cars being broken into, but more recently, people have been mugged and homes invaded while the occupants were still there. Scary stuff that we haven’t previously experienced.

When apartments being built a couple of blocks from our house caught fire a couple of months ago, it took IFD what seemed like a long time to arrive. That may have been an incorrect impression, but several people in the neighborhood reported a discomfiting wait between their 911 calls and the first truck. In those minutes, the blaze became a huge conflagration (we could feel the heat on our front porch, which is a good two and a half blocks away, and the flames could be seen for miles).

Not far from where that fire raged is a city park that–despite repeated promises–continues to shows signs of neglect. It has a very nice pool, but the hours of operation have been sharply cut back since it first opened.

It’s hard to remember that during the Hudnut Administration, streets in the Mile Square were swept every day. Now, from the looks of it, they aren’t being swept at all.

Part of the problem is management. Construction and especially street repairs drag on for weeks more than necessary (and let’s not even talk about the Cultural Trail segments that kept parts of Mass Avenue and Virginia Avenue closed for months on end while little or no work got done). Accountability for garbage collection is a management issue. But the major culprit is lack of money. So we have too few police, too few lifeguards, too few managers generally.

It’s bad enough that we’ve starved local government; it’s worse that we’ve actually built that starvation diet into our state constitution. Indiana taxpayers have spoken, and what they’ve said is that they don’t care enough about the quality of public services to pay for those services.

Unfortunately, we get what we pay for.

One of the unintended consequences of a city with inadequate public services and a deteriorating quality of life is that the people who can, leave.  And they take their tax dollars with them, triggering a cycle of further decline.

We aren’t there yet, but the signs are ominous.

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