Another Tax Rant

Living in the South I hear a lot of complaining about taxes.

"If it wasn't for that damned tax coming out of my paycheck I could afford that new car."
"Why don't they just let us decide how to spend the money?"
"The government just wastes it."
"Why should I pay for somebody to be on the dole?"
"Taxes are like a thief in the night who comes and takes your flatscreen TV right out your back door."

I turn on my (unstolen) TV and watch senators bloviate about cutting taxes even as our states and federal government go into hock to Chinese loan sharks in minnow clothing.

So I get a check for $2000. What do I do? Since it's my choice how I spend it, how will it move through the economy? Let me tell you...

I'd put a thousand towards credit cards and spend the other thousand on a bigger TV, made in China. What happens to that money then?

Fifty percent of that money goes towards reducing the interest that investors receive on my debt, and of the remaining 50 percent, 9/10ths of it ends up subsidizing Asian assembly line workers and supply chain conglomerates, with the remaining 1/10th going to Best Buy.

So as a rough estimate, $100 of my tax refund goes towards Best Buy's bottom line, probably paying an hour's wage for someone once you take out overhead, profit and yes, taxes.

All of that is rational decisionmaking on an individual level, predictable and measurable with basic econometrics. The trouble is it doesn't do any good when you have to look past your own nose.

Is that $2000 going to make a difference if I'm thinking about starting a small business, or trying to meet payroll this month? What about next month? Will it be the deciding factor on if I go back to school to increase my earning potential? Is it going to fill a pothole or keep cops on the street? No, it will never do any of those things.

What if all those checks for $2000, say $300 billion's worth, went towards the public interest? Think of all the student loans that could be subsidized, mortgages underwritten, small businesses supported. Think of all the roads that could be paved, or cops keeping us safe at night.

What would guaranteed health care do for the small business owner looking for talent, or the guy with the million dollar idea who stays in his middle management position because he can't imagine hiring the people and taking out the loans he'd need to get it off the ground? Think of the jobs that spending could create. We might even be able to pay some of it back.

Here is a graph that sums up what I'm talking about:

The take-away message to me is in the "Bang for the Buck" column. That's the ratio of what you get in economic growth for every dollar spent. You might get something out of cutting taxes, but the choice is as simple as 1.06 million jobs per $100 billion in infrastructure spending or 813,000 jobs for $100 billion in tax rebates. And that doesn't take into account the dividends from attracting investors with a solid infrastructure to move their product from unfinished materials to microprocessors and tractors.

All this tells me that the tax cut argument isn't really about what's better stimulus policy. It's plain base selfishness. We know now for a fact that supply side economics doesn't work. Under the Bush administration these same guys gave $1 trillion in tax breaks to mostly upper income earners? I'm certain that prices for housing in the Hamptons tracks closely with that figure, but my $300 rebate check in 2001 went to beer. Hey, at least it was domestic.

While people complain about money taken out of their pockets, kids are growing up ignorant and sickly, our roads and rails resemble Moldova's (no offense, guys), and we have nothing to show for it.

If we're going to go into further debt, let's at least do it with a plan for creating some revenue to pay it off. Taking out a $40,000 loan for school is a wiser investment than a $40,000 loan for an Escalade. The same applies on a national scale. I've got friends who are up to their eyeballs in debt, but they're doctors and lawyers now. They'll be fine. Same goes for America.

People who are hung up on taxes should devote their energy towards making sure that the taxes we do pay are going towards worthwhile things. I don't want my money spent on the proverbial $10K hammer either. I don't want to pay for Medicaid fraud or Welfare Queens. But none of that should cost us our futures. Cutting taxes for those reasons is cutting off your nose to spite your face. Why can't we just leave taxes alone for a while and figure out how to put them to work in the best possible way?

There's a lot that market and business principles, good stewardship and fiscal prudence can offer to government spending. But the ethic at work must be to improve the system, not to destroy it. You can't be in charge of a government that you hate in principle. This past decade has been a lesson in what that does.

Taxation and Moral Hazard

The Georgia Statehouse is abuzz with legislators, constituents and special interest groups these days. It's bill writing season, and now is the time for big visions to hit the ground running.

Trouble is, there is no big vision here, only small men. Today's Atlanta Journal Constitution reports that state tax collections are off 14% for the year. That's a shortfall of $262 million compared to last January.

They're talking about shutting down rape crisis centers, ending a grant for students on full-ride state scholarships to buy their books, even a cut in public health programs that monitor and control infectious disease. Sounds to me like they're trying to recreate Bolivia right here in our backyard, but that's hardly the point.

The point is, they're also talking about doubling the homestead exemption from real estate taxes, a big general tax cut, even a provision for $7 million in tax breaks for people who get their Gulfstream jets serviced here in Georgia. According to local watchdogs (link above),

"The Georgia Budget and Policy Institute, an Atlanta-based think thank, said special tax breaks given out in the past four years will save the beneficiaries, and cost the state, $250 million this year. Meanwhile, advocates say, the Department of Human Resources budget faces cuts of almost $150 million."

The Department of Human Resources doesn't run payroll and benefits here. It's the agency in charge of health and social welfare, and they're going broke.

But that's not why I'm mad. What gets me is the Georgia delegation to the US House of Representatives begging for a federal bailout while their counterparts at the state level slash away at their own tax base to grease the palms of their golf buddies over at Gulfstream. (attention: Rep. Ron Stephens [R-Savannah])

The portion of the federal bailout that's headed to Georgia is somewhere in the neighborhood of $4 billion. Of that, about $2 billion is slated to go directly into plugging the holes in the state budget.

...And these guys are talking state tax cuts?!

Their reasoning is simple. All else being the same, any state legislator would much rather lower his constituents' tax burden. Being so brazen as to raise that tax burden can be hazardous to their careers, especially in the conservative South.

But we're not talking fiscal responsibility here, or fiscal prudence, or even fiscal conservatism. This isn't about cutting frivolous programs. It's about making ends meet and doing the best with what we have. It's about a bunch of guys acting in their own naked self interest over that of the people they are elected to serve.

This isn't "starve the beast of government" conservatism, it's taking advantage of a federal windfall for one's own narrow political interests. No one's talking about transforming government into something smaller, leaner and meaner. This kind of conservatism is all fun and no pain. State budget shortfalls will be the fed's problem soon enough.

From where I sit, state tax cuts are worse than banks paying out bonuses, or sending their executives to Vegas, or buying $35,000 toilets while they're taking federal money. The representatives in the Georgia Statehouse aren't looking out for the best interest of a bunch of shareholders. They're supposed to be looking out for all of us, and it's us who pay their salaries and fund their pet projects.

If the federal government is placing layers of caveats and stipulations on executive pay, oversight and regulation for any company that takes their bailout, they should do the same for states. State governments are going to be the biggest beneficiaries of federal money. It should have its own set of preconditions.

State governments have no business passing massive tax cuts knowing full well that Uncle Sam will come save the day. They don't print money and don't get to run deficits.

If the State of Georgia wants to be irresponsible with its budgeting it should do it on its own dime. I for one would rather live somewhere that can handle its own business.