Tax Policy

Anti-tax fervor has become a defining aspect of American politics. (So much so, that here in Indiana we are getting ready to enshrine a so-called “property tax cap” in the state’s Constitution.)  Those of us who question the wisdom of such a measure are often accused of being “for” taxes—a clearly incomprehensible position.

 As I often ask my students: what is a tax? Do we know one when we see one?

The answer begins with the simple premise that there is no such thing as a free lunch. Goods and services cost money, and that money has to come from somewhere. If the city picks up your garbage, payment comes from your taxes; if you employ a private scavenger service, you pay for pickup directly. There may be economies of scale that make the city service cheaper or there may not, but however the service is provided, it has to be paid for.

Policymakers inevitably face a series of questions. The first, and most important, is whether a service needs to be provided at all. What is the benefit to a community of garbage collection, or bus service, or libraries? Do we require police and fire services? A sports arena?

 In some cases, the public benefit is obvious. If we don’t collect the garbage, we risk the public health; if we don’t provide fire protection, public safety suffers.  Of course, we could simply require that property owners buy these services on the open market; in fact, many communities used to do just that. These and other public services were “socialized”—that is, they were provided communally—because it was cheaper and more efficient to have government provide them. They didn’t suddenly become “free”—we just paid for them differently.

If we want services, we have to pay for them. Calling that payment a “user fee” or a “utility bill” doesn’t change that reality. We can certainly debate whether we really need a particular service—some people would be perfectly happy to dispense with massive sports stadiums, others would cheerfully do without libraries. But if we do want them—and our streets paved, our neighborhoods policed and our parks mowed—we have to pay for them somehow.

 Transparency in government is considered a good thing because it allows voters to see what their elected officials are doing, and where their money is actually going. The real problem with the current anti-tax fervor is that it penalizes transparency and rewards official game-playing.  Voters’ hostility to paying taxes—coupled with their insistence on continuing to receive services—sends elected officials a clear message: lie to us.

 “Cap” our taxes and find “nontax revenue sources.” Shift expenses from operating to capital budgets, so you can borrow the  money to cover operating expenses (the bill won’t come due until after you are out of office). Blame the federal government for service cuts. Sell off public assets.

Of course, it’s more costly when we do things that way—but the payments aren’t called taxes, and evidently that’s all that counts.

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