I was listening to the radio on the way home the other night and one of the commentaries on Marketplace was about the disingenuousness of the proposed tax cuts the shrub's pushing for at the federal level. The point that was made was that these wouldn't ultimately reduce anyone's tax load--all it does is shift the burden for collecting the taxes from the feds to the states.
Now, personally I think the proposed tax cuts are a profoundly bad idea, since we're deficit spending. Cutting taxes when you're deficit spending is actually a lie, since taxes must be collected to cover spending, and when you borrow money to spend rather than just taxing to spend you're increasing the amount of money that is spent and will ultimately have to be collected. (Interest and all, and the t-bill rate is generally above inflation by quite a bit, so the real cost does increase) Deficit spending also makes the tax structure more regressive (or less progressive, depending on your ideology) since the government is paying the wealthy, both corporations and individuals, interest. (The poor, in my experience, don't generally have a megabuck or two to drop on 30 year tbills)
So, tax cuts while deficit spending is bad. Government deficit spending itself is generally bad, though there are occasions (World War II comes to mind) where it's not as bad as the alternatives, but generally bad, and to be avoided. Tax cuts while not deficit spending are OK, though if there's a debt to be serviced generally we're better off doing so rather than cutting taxes. The sooner you pay off an interest-bearing debt the less you ultimately pay, which saves us money in the long run. And the US definitely has a debt to service. (Do please note that the rules for debt and deficit spending are different for public and private agencies, since public agencies are generally not allowed to make a profit, so the potential for long-term revenue generation is very different)
Anyway, the point the show made was that the "tax cuts" won't cut taxes, really. They'll cut federal taxes, but the states will end up having to raise taxes in turn to cover the difference. Much of what the federal government spends ultimately goes either directly to the states (for block grants), or goes to programs funded in conjunction with the states (such as medicare and medicaid). If we cut taxes we cut grants and disbursements to the states, but the states can't cut the services provided under the programs, either by federal law or by public outcry. So the states will end up paying the difference, and will have to raise taxes to cover that. It's not like there's a whole lot of spare cash locally.
Why is this good? Well, really it isn't, but sometimes you get to make the best of things. In my case, I live in Connecticut, and last I checked we had the highest per-capita income in the country, and have the town with the highest per-capita income in the country. (Though that wobbles back and forth with Grosse Point, Michigan) We also have three of the ten poorest cities in the country (including the one that Yale is in) so it's not like we don't have balance issues. But we also get back only about 60% of the funds we send to the feds, including the defense contracting that United Technologies and Electric Boat do.
See where this is going?
If the state raises taxes to match the feds lowering of taxes, there'll be a lot more money in the governments to fund schools, poverty abatement programs, farm subsidies, drug treatment programs, mental health and public health services, and roads. Plus we'll be in a position to tell the feds to go jump when they make demands and use funds as leverage. Much of the power the federal government has over the states is due to the federal education and highway funds, but if they're cutting those anyway, and we're raising taxes to cover the loss (potentially at a net lower tax rate, since we really need to raise taxes only about 60% of what the feds drop...) well, screw them. Which we might do anyway, as one of the five best schools in the state is about to be cited under shrub's "No Child Left Behind" act and potentially taken over since it's so much worse than schools in, say, appalachia.
Amusingly, this shifting of taxes will tend to hit the conservative states that are pushing for the tax cuts hardest. States like Louisiana and Iowa see net wins in federal tax collections, which means that they need to raise local taxes more than the federal tax cuts to keep things stable, or see programs cut.
Now, am I a big fan of all this overall? No, not really. I'm one of those odd people who doesn't mind paying taxes, since I'm rather fond of (USA PATRIOT act-free) police and fire services, federal parks, interstate highways, and air-traffic control systems, and I'm just fine with wealth shifting to get the dead-poor and horribly screwed a chance to make things better at the expense of those of us with more cash. (And yeah, that includes me, though I'm far from rich. Fair is fair) But if the country's demanding, either directly or through political apathy, that all that gets screwed country-wide, well, fine. You wanted it, you got it. We can afford to offset the difference. Can you?
Posted by Dan at May 2, 2003 06:00 PM | TrackBack (1)This is a coherent article that would have only been improved if you were to use the president's actual name instead of a snarky moniker.
Posted by: at May 2, 2003 07:41 PMI prefer to call him 'that criminal in the white house I hope gets the chair someday'. There, is that better? :)
Posted by: hfb at May 3, 2003 09:32 AMDan, I have heard many conservative commentators point out that federal tax revenues have increased every single time the income (yes, and capital gains) tax rate was cut, especially the tax rate on the people who actually pay taxes (as opposed to those who are net tax consumers). I have yet to hear a leftist respond to this historical fact, either in an interview or in print. Even when confronted directly, they invariably go off on a tangent about fiscal discipline and "taking care of the less fortunate." They absolutely will not abandon the false premise that lower tax rates decrease tax revenues. And that false premise is the basis of your entire heartfelt post.
Posted by: Chris Jones at May 3, 2003 01:39 PMLast time I checked, when a tax of a particular sort has gone down (and whether it actually went down is always an interesting exercise in change tracking and number crunching, since many of the "tax cuts" have corresponding changes in tax base calculations that render the final results rather differently than what the cut was sold as), the inflation-adjusted revenues for that tax has also declined, and in those cases where the revenues have increased it's generally matched the increase in the underlying tax base. So yeah, if you cut a tax by 1%, and inflation in the sector the tax is levied on is 3%, the gross tax revenues will increase since the tax base rose more than the cut. Real-dollar revenues, however, once adjusted for inflation still decrease. The revenues, while larger, have less buying power.
Generally speaking, the ideological commentators (on all sides) are utterly full of shit. The fake ideologues (those folks who are laying on the patter for the ego stoke or cash return) are even worse. None of the numbers they spew, for or against any tax cut, tax increase, or spending program, is worth much
I'd recommend running the numbers yourself. They're all available, though doing the number running is something of a pain as there's a lot of data to run through, and the indirect effects are sometimes somewhere between tough and impossible to account for.
Net result? The numbers the conservative commentators push are crap, and designed to mislead. The numbers the liberal commentators push are crap, and designed to mislead. The numbers Alan Greenspan pushes are generally good, as he's a cranky old economic engineer and doesn't much care what people think. (Though one must take into account his economic engineering goals, though at least they are economic goals, rather than ideological ones) Some of the economics and finance academics are worth listening to, though they are, like many academic folks in the mushier fields, looking to prove pet theories rather than discover the patterns in their data, and often oversimplify to the point of uselessness. (The economy isn't, after all, a perfectly spherical cow of constant density)
Posted by: Dan at May 3, 2003 02:00 PMI'm always impressed with the accuracy of 'back of a fag packet' calculations in this sort of area, but only if I trust the person who is choosing which calculations to do...
'fag packet' being a Britishism for 'cigarette carton' of course.
Posted by: Piers Cawley at May 5, 2003 06:09 AM