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Jul 17 2009

The pernicious anti-tax attitude

The news is full of stories about the budget problems faced by the federal and state governments. But unlike the federal government which has ways to pay its bills without raising taxes, state governments have to balance their books the old fashioned way, by either reducing expenses or raising revenue or both.

But thanks to the anti-tax sentiment unleashed in 1978 by California’s passage of Proposition 13, we are now witnessing the fruits of the relentless propaganda over the past three decades that said that taxes are intrinsically evil and that lower taxes are always better.

When times are good and tax revenues are high, people demand that taxes be cut because it is ‘their’ money. When things turn sour, as they now have, people argue that to raise taxes would be to deepen the recession and that taxes should be cut even more to ‘stimulate the economy’, a phrase I have come to detest since it usually precedes some scam to siphon off wealth even more to the rich and to destroy the common good. So we have reached the stage when it has become an act of faith that it is always good to lower taxes and it is never good to raise them.

As a result, politicians refuse to consider the option of raising taxes because this is considered political suicide. Since raising taxes is ruled out, is it any surprise that states and the nation are in such a fiscal mess? The only options being considered are to drastically cut services like education, libraries, aid to the poor, lay off state workers like firefighters and police, and so on. But as time has gone by making relatively painless cuts has become harder and harder.

As a result we now see that California cannot balance its budget and is reduced to paying people with IOUs that banks may or may not honor. Ohio too should have had a two-year budget approved by July 1, but since the governor and the legislature could not agree on how to close a $3 billion dollar gap (out of a total budget of about $100 billion), they were forced to pass three one-week interim budgets to tide them over until an agreement was reached.

The Ohio case is illustrative. In 2005, the Ohio General Assembly voted a 21% across the board tax cut. The public interest group Policy Matters Ohio has a table showing by how much the marginal tax rates have been cut since 2004. Of course, now that the state is deep in the red, will the state roll taxes back to their original level in 2004, at least for those in the upper income brackets? Of course not.

As I look over my own state taxes, I notice that over the last few years the amount I paid as taxes dropped from 3.5% of my gross income to just 3.0% (a 14% reduction), even though my income has gone up. But I take no pleasure in the fact that I have more spending money. What good is that to me if valuable services are being cut and the general quality of life is going down? Am I supposed to ignore the deterioration in services and ignore the decay by eating out more and going on vacations?

It seems like people cannot think beyond their immediate interest. Last month, my community recently received its new home valuations and because of the real estate slump, our home and all the others in our area had dropped by about 7%. This means that there will be a reduction in property taxes, thus giving me even more disposable income. When I was at our street block party last week, I approached my neighbor (who is a real estate agent) and said that I wanted to ask her a favor. What I wanted to ask her was to use her access to the real estate database to check on who was the person on our street who had lived there the longest. It was rumored that an ailing housebound 97-year old neighbor was the original inhabitant of her 70-year old house. I thought that if that were true, it would be nice for her neighbors to commemorate it in some way, since she is a very sweet lady.

Before I could even make my request, the real estate agent neighbor said she already knew what I wanted, because so many at the block party had asked her the same question. But what they had all been asking her was to give them sale prices of comparable homes in the neighborhood so that they could request that their home valuation be reduced even more, so that they could pay even less taxes.

Not only was this not at all what I had planned to ask her, the thought had never even crossed my mind to seek a greater reduction that what had already been given to me. I had instead been wondering how the city and state would deal with the reduced revenues.

But it depressed me that what seemed to be on every one’s mind was how to exploit the real estate downturn to try to pay even less taxes in addition to the cut they had already received, even if their own income has not declined and it means that city and school employees will not get pay raises or might even be fired, services cut, and the general quality of community life go down. Already the fire department has had to make severe cuts. Of course, these same people will then complain loudly if they are personally affected by those cuts in some way, such as if police and firefighters take longer to arrive in an emergency or class sizes get larger. And when it comes time to sell their house, they will put as high a price on its value as they can.

People seem to think they can have quality of life without paying for it. They do not seem to care about the long-term consequences of the never-raise-taxes policy. They seem think that what is really important is to have more money in their own pockets right now. But my attitude is that because I am not poor, if I have a little less money due to paying higher taxes, I can cut back here and there without feeling any pain. But I benefit a lot more from having safe streets, prompt emergency assistance, better schools, parks, libraries, roads, public transport, and having fewer homeless and hungry people.

Surely cutting back on a few personal frills here and there for those who can afford to is worth it? Are we just going to greedily grab every cent of our money that we can until the social decay is so obvious that it may be too late to do anything about it? Is this how our civilization will collapse, just like former collapsed civilizations, by people sacrificing major long-term common good for trivial short-term personal gain?

There are a few hopeful signs that attitudes are changing. A few local politicians are saying that the tax cuts of 2005 should be rolled back, at least for those in the upper income brackets. The Plain Dealer published an op-ed by Zach Schiller on June 26, 2009 arguing for it, pointing out that lowering taxes had not provided the growth that was promised and that it would be bad to continue with that failed economic model.

I hope this movement catches on.

POST SCRIPT: United breaks guitars

I never fly United Airlines unless I have no choice. In my opinion, it is the worst of all the airlines. So I was not surprised when I heard the story of musician Dave Carroll who was appalled to hear that baggage handlers were throwing his guitar around on the tarmac and had damaged it severely. Of course, when he tried to get United to provide restitution they, following the lead of the health insurance industry on how to deny claims, gave him the classic run-around-followed-by-brush-off routine. As he said:

So after nine months… it occurred to me that I had been fighting a losing battle all this time and that fighting over this at all was a waste of time. The system is designed to frustrate affected customers into giving up their claims and United is very good at it.

But Carroll was not taking it lying down. He decided to compose three music videos about his experience and put it on YouTube. The first became a big hit, generating nearly 500,000 hits within the first couple of weeks and getting the airline to make amends.

It is actually a catchy song and a pretty good video.

People should take this kind of action with their health insurance companies too.

5 comments

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  1. 1
    Ejacks

    People “think” it’s “their” money? It IS their money.

    Are you one of those statists on the left who hardlines the thought that we should be thankful for whatever the government ALLOWS us to have?

    The reason people are for low taxes is because it brings in MORE revenue to the government. How can you be a professor and not know any basic history on this?

    Also, if large taxes and big government work why did the USSR fail? Why is Cuba such a miserable place to live? History is not on your side.

  2. 2
    jpmeyer

    I live in Manhattan. My wife and I live a pretty comfortable life. We also don’t make six figures. I laugh every time I hear the screaming about new potential tax increases to cover our massive state budget shortfall or to provide more healthcare.

    There is a grain of truth in the whole “You can’t live on $300k here” meme, mainly because apartments in areas with good schools that are large enough for a family are incredibly expensive. However, these comments have been getting more and more ridiculous by the day. The Post this week had an article about how if you make $1.5 million you wouldn’t be able to afford living here if your taxes were increased a few percentage points!

    (And of course, this way of thinking never once considers the prospect that maybe there’s something really out of wack with the economy when you need to make over a million dollars a year in order to afford an apartment large enough for a family.)

  3. 3
    Mano

    Ejacks,

    Could you please provide a link to studies showing how lower taxes always brings in higher revenue? I see this claim made often but never adequately substantiated.

    As for the question of whose money we are talking about, would you accept this deal: You keep ALL your income but then have to pay for your own police force, fire department, libraries, parks, pave your own roads, remove your own trash, water supply and purification, and all the other public services.

    As for country comparisons, that argument is prone to cherry picking. For every country you suggest, I can name another one that shows the opposite. Sweden, for example, has very high taxes but the people seem quite content. Iceland and Denmark compete for the title of the happiest country, and neither of them compete for the lowest tax rates.

  4. 4
    Derek

    You keep ALL your income but then have to pay for your own police force, fire department, libraries, parks, pave your own roads, remove your own trash, water supply and purification, and all the other public services.
    This is the point, I think. “The American Taxpayer” seems quite happy to have his needs met, and to enjoy the protection of police/fire departments and the service of the DOT. But don’t dare to tell him that some other person has different needs that could be helped with programs/services funded by tax dollars. He’s got what he wants and needs, dammit, and if some stranger doesn’t, they just need to work harder.

  5. 5
    Maggie

    I agree with all you have said, I personally have no problem seeing my tax dollars go to pay for public services. I am far less keen on tax dollars going into corporate welfare programs (by this I mean subsidies and exemptions). Despite all the shouting from the rafters about the benefits of the free market system, the endless raft of subsidies on offer to big business seems a little hypocritical… These subsidies distort the market, reduce competition, and generally undermine the so-called free market.

    And just as there is apparently never a good time to raise taxes, there is never a good time to remove corporate welfare mechanisms. In good times, subsidies are needed to encourage big business to stay local, or set-up shop local. In bad times, the subsidies are required to assist failing business, or prevent companies from leaving town. If free market capitalism is as good as advertised, why is there a need for my tax dollars to go to big business, in good times and bad? If big business needs government support to survive, in good times or bad, perhaps the ‘invisible hand’ of the market is pointing to the exit! It’s all just a little hypocritical, like the outcry against banking regulation, but the demand for financial bailouts when the banks screw up – they want their cake, and to eat it too.

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