Tax Analysts Blog

A Word of Advice for Legislators of All Stripes

Posted on Sep 30, 2015

It’s time for my annual advice column directed to our state legislators. Lawmakers of both parties would benefit from adhering to some common-sense ideals. I did not conceive these ideas. Rather, they were formulated by some of the greatest public finance thinkers.

For conservative lawmakers, I offer the following: First, remember that citizens like government, and they expect a certain level of public services. No amount of blustering and hyperbole and antitax rhetoric will change that. People want good roads and schools and safe streets. We should pay for those services with real, broad-based taxes -- not gambling, excises, and other gimmicks. Second, conservatives should recognize that good tax policy is consistent with their belief system. They should reject tax incentives and other forms of crony capitalism. The proliferation of tax incentives represents horrible tax policy. That politicians can impose economic policy through tax incentives is more akin to a Soviet five-year plan than to anything Adam Smith ever said.

True conservatives should fight attempts to use tax policy to further economic objectives. A broad base and low rates will always serve the conservative cause better than existing nonsensical tax laws. Standing on principle to ensure a broad tax base is hard. But it's a stand worth taking. Third, conservatives should look at the numerous unsound tax policies and try to fix them. For example, everybody agrees that business inputs should generally not be subject to sales tax. Liberals will never fight for their repeal or reform because of the misguided belief that "business" should be paying taxes. This is a perfect issue to use to advance a conservative objective. Taxing business inputs results in hidden taxes on consumers. But transparency is and should be a conservative virtue.

I have advice for liberal lawmakers as well. First, stop making the issue about soaking the rich. Most Americans don't buy into class-war arguments. No one has the stomach for pummeling rich guys simply because they're rich. We have learned that time and again -- that is why there are constant efforts to reduce top marginal rates. It may be that Americans all hope they'll be really rich someday, and if they are, they wouldn't want to be saddled with higher taxes. It may be that Americans buy into the belief that higher marginal taxes harm economic growth. I'm not saying that we shouldn't ask the rich to pay taxes. I am saying that we shouldn't make this debate solely about taking their money.

Second, liberals need to understand that people -- rich or poor -- don't like to pay taxes. Almost everyone, including me, would prefer to spend their money on themselves. If anyone tells you differently, they are lying. We pay taxes for two reasons. Many people accept the social contract that taxes pay for civilization. They understand that taxes pay for roads and schools and police officers, all of which make life better. But mainly we pay taxes because we have to. There's a reason taxes aren't voluntary: It's because, despite the social contract, no one really wants to pay them. That isn't necessarily a bad thing. But it requires liberals to argue that government spending is a normative good -- that people get value from public services. The more value citizens see in their government, the less cranky they'll be about funding it.

Third, liberals should recognize that some methods of revenue-raising hurt the poor -- a lot. The left has never been on board with criticizing excise taxes, largely because its members don't want to seem allied with the tobacco industry. Yet excise taxes, when used to raise general fund revenue, are notoriously regressive. We know that cigarette tax revenue in some states falls short of the costs of funding smoking-related healthcare. We should support higher cigarette taxes in those states. But using higher cigarette or alcohol taxes to fund education or public safety or raises for politicians is unfair and dishonest. If you care about the poor, fight the unprincipled use of excise taxes. The left also sits in the shadows while states expand their gambling enterprises to raise revenue. Gambling is regressive. Using gambling revenue to fund government is unfair and dishonest. The left should be leading the fight against expanding gambling.

Both parties should also give serious thought to placing greater reliance on the property tax. Yes, I know people hate that tax. I also know that politicians find it advantageous to attack it. But the property tax revolts of the late 1970s and the 1980s have badly damaged the fiscal structure of state and local governments. There was a time when schools and most public safety services were funded locally through the property tax. The property tax revolts and the ensuing limitations shifted that funding to the states. But state government responsibilities for healthcare and transportation have been growing. Now the states have a greater role in financing education but cannot afford to do so. A stronger property tax would reduce pressure on state finances -- and more importantly, would return greater autonomy to local governments. Liberals and conservatives alike should be able to live with more revenue for schools and greater local autonomy.

Read Comments (4)

edmund dantesSep 29, 2015

Pretty good advice to both sides. I notice that when you defend government
spending you always refer to roads, police and schools. Sure, everyone on the
political spectrum wants more and better of those. You never mention welfare
spending, food stamps or public housing. You never mention luxury pensions and
health insurance for public employees. There is a very large fraction of
government spending that is a complete waste of tax dollars. Conservatives
would be happier paying taxes if the government were restricted to doing things
that are appropriate for the government to do. If gas taxes were used
exclusively for road repair, conservatives would support increasing them--but
they are not so dedicated.

You are wrong, wrong, wrong about property taxes. Good taxes are imposed on
transactions, when money is already changing hands. Good taxes can be factored
into economic decisions in advance. Good taxes are objectively determined with
reference to transactions between unrelated third parties, which makes their
computation fair. Sales taxes and income taxes are imposed objectively, on
transactions. Property taxes fail all of these tests, and are the very worst
tax ever invented.

And just how high do you think property taxes need to go? I already pay more
than 3% of the value of my home every year in property taxes! I've
cumulatively paid more in property taxes than I did for the home. My property
tax bill is larger than either my state or federal income tax. But it should
go still higher? It was not always so--when I built the home the property tax
was a minor nuisance. But the assessor now says my home is worth six times
what I paid for it, and over the years unrestrained town spending has caused
the tax rate to double. How was I supposed to plan for that? How do I
monetize this phantom increase in my wealth to pay these onerous taxes?

People revolted against property taxes because those taxes are unjust, they
were destroying lives and communities. Voters are not stupid, they were right
to revolt.

Finally, my school district already spends $20,000 per student. In public
schools. Don't you think that should be enough?

David BrunoriOct 7, 2015

Edmund, I usually agree with you. But I think we are far apart on the property
tax issue. The property tax is a good tax for several reasons. It allows local
political autonomy. It is a stable source of revenue. And to some extent is
serves as a benefits tax. The taxes you pay lead to services that enhance the
value of your home. The solution to high property taxes is political. If you
are paying to much compared to what you are getting in return, vote the bums
out. I am not advocating high property taxes. But the property tax is a better
way to pay for local services than income or sales taxes.

amtbuffOct 8, 2015

People genuinely disagree on whether redistributing a substantial fraction of
national income to people who are not dirt-floor poor is a "public service". To
the extent that it demoralizes recipients it might even be a public disservice.

I am all in favor of restoring local autonomy, but look at what prompted the
theft of that autonomy over the past 50 years. In every case it was a desire to
limit the ability of local governments to resist progressive objectives. One
size fits all is a unifying theme of progressivism. David, liberals will never
support local autonomy. It allows too much inequality of results, in this case
too much disparity in the quality of public school performance.

Many of today's social ills grew out of the decision of government to operate
K-12 education rather than to fund private schools to do the job.
Government-operated schools then restricted their admission by town boundaries,
something that private schools would never have done. Then shopping for a
school became an expensive proposition, requiring changing one's residence.
This created towns segregated by economic status to a degree which never would
have happened otherwise. Very few people realize that the primary benefit of
privatizing K-12 education would be a massive improvement in economic
integration of our cities and suburbs.

AMTbuffOct 11, 2015

I am all in favor of restoring local autonomy, but look at what prompted the
theft of that autonomy over the past 50 years. In every case it was a desire to
limit the ability of local governments to resist progressive objectives. One
size fits all is a unifying theme of progressivism. David, liberals will never
support local autonomy. It allows too much inequality of results, in this case
too much disparity in the quality of public school performance.

Many of today's social ills grew out of the decision of government to operate
K-12 education rather than to fund private schools to do the job.
Government-operated schools then restricted their admission by town boundaries,
something that private schools would never have done. Then shopping for a
school became an expensive proposition, requiring changing one's residence.
This created towns segregated by economic status to a degree which never would
have happened otherwise. Very few people realize that the primary benefit of
privatizing K-12 education would be a massive improvement in economic
integration of our cities and suburbs.

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