Tax Analysts Blog

You Should Pay for Your Government

Posted on Jul 8, 2015

Exporting tax burdens is a long-revered political tactic. The goal is to get people from outside your state to pay taxes that benefit your constituents. Your residents and businesses get the goodies -- roads, police, healthcare -- while others pay the freight. Whoever invented this concept is a political genius. It is used by Republicans and Democrats with equal gusto. Big-government liberals do it; small-government conservatives do it. There is a strong bias in state legislatures to export tax burdens.

How is it done? States use consumption taxes. States use hotel, car rental, and meals taxes to hit tourists and business travelers. Indeed, tourist states export a lot of their general sales tax to nonresidents. Local option sales taxes are also used to get people from the suburbs and rural areas to fund city operations.

Severance taxes are used. The liberal Pennsylvania Budget and Policy Center encourages natural gas severance taxes and never fails to point out that 90 percent of the tax burden will fall on nonresidents. States have used severance taxes for a hundred years to export tax burdens. The tax is collected from a mining or drilling company, but those companies always pass the cost on to the utility companies, which pass the costs on to you in the form of higher prices.

And increasingly, business taxes are used. The move to single-sales-factor apportionment formulas is a way to export tax burdens. These laws tax a company only on its sales in your state. So if an in-state company is exporting most or all of its products, it doesn't pay.

There are many other examples. It's not a coincidence that tourist states tend to have the highest alcohol taxes. But no matter the tax, getting other people to pay it is a terribly cynical way to fund government. Ideally, people would decide how much government they want and then pay for it with broad-based taxes. When people don't have to pay for their government, bad things happen. You get more government than people are willing to pay for. And government grows without a regulator. Moreover, it tends to be the wrong kind of government. Friends and supporters of politicians want to sell things to the government. When the citizens aren't paying directly, they don't have a stake in what the government is buying.

The Pennsylvania Budget and Policy Center made much of the exportability of the severance tax, as if exporting the tax burden is a good thing. But it's not. Liberals who want more government (that is, who believe government has a positive role to play in society) should make that case. But the case should be strong enough that people are willing to pay for that level of government.

The greater sin lies with "small-government" conservatives who export tax burdens. Their actions lead to bigger government and more cronyism. Conservatives should remember that when people have to pay for government, they tend to want less.

Read Comments (8)

emsig beobachterJul 8, 2015

Edmund Dantes:

The late Professor Charles Tiebout noted that citizens have two choices
regarding their government -- VOICE and EXIT. As long as you're still
complaining to Dave Brunori, it's probably not all that bad.

Instead of complaining to David, you should complain to your state and local
elected officials. You're right, it probably won't help much if you're a lone
voice. They respond only to organized groups. The threat of a primary
challenge, though, may shake somebody up.

emsig beobachterJul 8, 2015

David:

It has long been know to Public Finance economists that the geographic and
temporal distribution of the benefits of government spending do not necessarily
correspond to political boundaries. Hence, there are grants-in-aid from higher
levels of government to lower levels, deductibility of taxes of lower levels of
government from tax liability of higher levels, etc. Further, the export of tax
burdens to outsiders offsets, to some extent, the costs imposed by, or,
benefits provided to outsiders. And, it's human nature to wish to have somebody
else pay for your goodies.

david brunoriJul 8, 2015

I think (but honestly have not seen any studies) that the amount of tax burden
exported far outpaces any services provided the outsiders. Tourists use
services -- but not in the amounts states like Florida collect in taxes from
them. I do agree about the human nature part. I would like to find someone to
pay for my mortgage and kids' tuition. Come to think of it, other people are
subsidizing those costs!

edmund dantesJul 9, 2015

" Ideally, people would decide how much government they want "

When do I get the opportunity to do that? Every politician on both sides of
the aisle advocates for more government, even though most of the folks I know
want less, or else much less. There simply is no avenue for their wishes to
become known, let alone acted upon.

As to your general thesis, great point.

edmund dantesJul 9, 2015

"They respond only to organized groups. "

The groups were called the Tea Parties, and the government sicced the IRS and
other agencies on them for their trouble.

Any more suggestions?

edmund dantesJul 15, 2015

"The newly unearthed emails also confirm that around the same time, the IRS
shared as many as 1.25 million pages of confidential tax documents with the
Justice Department — an apparent violation of strict federal tax privacy laws.
Those million-plus pages, according to an email contained among the new
documents, were 113,000 tax filings for 501(c)4 organizations from 2007 until
October 2010."

A rather massive crime, wouldn't you say?

emsig beobachterJul 29, 2015

David:

I won't tax you, you won't tax me. We'll tax the fellow behind the tree.

Dennis Guinane, Senior Master Sergeant, USAF (Retired)Aug 17, 2015

David, I just read your "opinion" regarding taxation of military retirees, and
it is very obvious that you are most likely one of "crowd" that never supported
those who insured your right to have an opinion. After 24 1/2 years, in both
the Navy and Air Force, having served in South-east Asia for 16 months, away
from my family, I do appreciate your right to have an opinion. Did you ever
serve your country, either in the military or as an elected person? I rather
doubt that you have done either. However, you have the "gall" to say that
"everyone loves veterans, but to exempt military pensions is bad policy". And,
you also say "some veterans go on to make a lot of money after they retire".
Really? maybe you should get on with reality, we had to re-start our lives and
start at the bottom, competing with 20 and 30 year old persons when we were in
our late 30'2 and 40's. While you were probably getting a "liberal" education
at a "liberal" university we were most likely slogging out in a war, protecting
your right to protest U.S. policy, or wanting the right to smoke another
"joint".

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