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Raise Taxes, Lose Taxpayers

June 10, 2018 (2,244 words)

This pithy formula is favored by economists of a libertarian bent, erstwhile academics specializing in theoretical constructions based on elaborate data. Data, as we know, has firmly established itself as the new Holy Grail. Numbers may not lie, but they don’t necessarily tell the whole story, either.

These well-intentioned intellectuals often harken back to our Constitution to justify their presentations. The original idea behind federalism, they tell us, is that different states will be allowed to operate differently, resulting in different ways of life.

As a testament to the foresight of our esteemed founders, that’s just how things have begun to play out. People are starting to decide where they will live based on the politics and the economics of a given state.

To support this hypothesis our attention is directed to the way California residents have been fleeing for over a decade, to the tune of one million lost due to “domestic migration.” The reason: California relies on a highly progressive tax code to “redistribute money from the rich to the poor.”

This gives rich residents less incentive to stay. Consequently, California is losing the segment of population that contributes the most to its tax base.


… why fund social services, or provide a safety net for the less fortunate?


Over the last several years a variety of taxes levied in Pennsylvania at the behest of the current Democratic administration have also shot up. If Pennsylvania is not careful it will soon see its taxpayers following California taxpayers’ example. They will leave Pennsylvania, taking their tax dollars with them.

Pointing out certain unintended consequences behind the so-called “wealth distribution” strategy does have some merit. But it’s all the messy parts of life not covered by the seemingly air-tight analysis that is so vexing.

The world is comprised of more than the familiar partisan caricatures of honest wealthy people who earn every penny through dint of hard work, and the lackadaisical poor who are only too happy to sit back and wait for a hand-out.

These days success is often a serendipitous affair that combines being clever, the ability to present well, and finding oneself in the right place at the right time. Failure to launch is often dictated by a dearth of such inborn traits, and a lack of access to the kind of opportunity others enjoy as their birthright.

VEXING OMISSION #1

To read the work of libertarian academics, business people, and politicians, one would think taxes in general, and state taxes in particular, are simply the work of Democrat governors who never met a government program they didn’t like. They encourage dependence to guarantee votes. Upstanding citizens are being taxed into submission to support the deadbeats.

According to this line of reasoning, our freedoms are literally being taxed away. Onerous taxes and the government programs they fund run counter to the credo that everyone should take care of his or her self, a measure of the rugged individualism our great country was founded on.

But such bloviating ignores the obvious: states levy taxes because they are tasked with providing certain public services that benefit all citizens in some way, shape, or form. Tax revenue is used to fund those services. The reason taxes continue to go up is simply because these revenues are unable to keep pace with expenditures.

Besides a legitimate and ongoing examination of duplication, fraud, and plain old waste in government-run programs, the real question our experts should apply themselves to is the why of the situation. That is, why do tax revenues so often fail to meet public expenditures?


… tax revenues that fail to meet expenditures.


The brain trust claims the shortfalls and overruns are due to the aforementioned inefficiency they say is inherent in most government programs. What they don’t tell us is that the burden of taxation has been shifted away from the business and corporate class, onto the individual citizen.

As a component of trickle-down economics, the business gurus and management consultants have convinced our politicians that corporations must be unburdened from taxation. The various justifications for this shift in policy include the need to remain competitive in the global marketplace, and unleash the magnificent job-creating potential we are always being told about. These theories, too, have some merit behind them.

But our laissez-faire approach has been allowed to go too far in the opposite direction. Many hugely successful outfits pay gobs of money to accountants, attorneys and lobbyists to evade their legitimate tax liability. And consider the example of our new tech giants, who park billions in profit overseas, to avoid what they feel is an unfairly high tax rate. They escape 35% here in order to pay 4% elsewhere.

Confronted with such glaring discrepancies the average citizen can’t help but ask: Geez, fellas, is it possible to maybe meet somewhere in the middle, so our public agencies have the funds needed to operate? How many of our states are starved for cash and struggling? How many of our municipalities – large and small – have entered bankruptcy or are teetering on the brink?


… hoping for a compromise on a realistic tax base.


The all-important commercial tax base has eroded in many places simply because the nature of economic activity continues to change with the times. Once-viable operations have faded away because their products lost purchase in the public imagination. Some have been “disrupted” out of existence. In other cases, still vital industries became victims of global competition. There is nothing we can do about that now.

But the new enterprises that have emerged to take the place of the old ones have assumed a different posture toward their communities than their predecessors once did. Nowadays our larger success stories, especially, know they have our states and municipalities over a barrel.

Limited by the adversarial economic model adopted at the time of our founding, our politicians are left with little choice but to compete with their counterparts in other states over the limited number of commercial tax-paying entities, by enticing the coveted successful company with the promise of lavish tax abatements.

The bargaining chip these companies leverage is the jobs they will bring, and the tax revenue their workers will contribute. In other words, our successful businesses are offering up their employees as sacrificial lambs, who are forced to bear the brunt of filling public coffers to fund the services an entire community benefits from.

In order to appease investors and stockholders, and to maximize profit for their executives and upper management teams, these firms have abandoned their sense of social conscience, even though their sophisticated PR departments weave compassionate tales for our consumption. Yes, profit is the first objective of any business. But it should not be the only objective.

We need to rethink the wisdom that has come down to us on stone tablets from the libertarian Mount Olympus of economic thought, and that now dominates all conservative advocacy. It was our very own Milton Friedman who famously pronounced in a 1962 best-seller that the only social obligation a company has is to
make money, as long as it’s not breaking any rules.

Isn’t it obvious by now that allowing our successful corporations to advantage themselves whenever possible, they are unavoidably creating disadvantage throughout the rest of society?


… creating disadvantage throughout society.


The situation we find ourselves in today is exactly as one recently-elected yet already widely-disparaged female Senator has described it: you use our schools to educate your workforce, you use our resources to produce your products, you use our infrastructure to transport your goods, and you benefit from our social order to sell your wares to a receptive, peace-loving public.

Isn’t all this largesse worth something in return, by way of pay-back?

If the word “taxation” is so odious and offensive, let’s find another term. How about “social contribution”? For the record, I am not proposing that government mandate such a contribution. I am suggesting that it be voluntary, that successful corporations make such a social pay-back part of their internal business plan.

As things stand now, an iron-clad example has been established, and is religiously followed throughout the land. Maximize profit by ruthlessly capping expenses (i.e. wages and salaries), cutting employment to the bone, and avoiding taxation whenever possible.

We attract top talent by paying individuals more in a year than a decent human being could possibly spend in a lifetime. Who then resent the expectation that they should help fund public services, and contribute to a safety net for those less fortunate.

Let’s try to reverse the selfish, me-first trend, and establish some momentum in the opposite direction, the direction of the common good. So that big, inefficient government doesn’t have to be the despised entity that steps in and fills a void, attempting to repair a badly torn social fabric. Who wants to go first?

VEXING OMISSION #2

The other half of the libertarian fallacy contained in the “raise taxes, lose taxpayers” formulation is the notion we are all prepared to pull up stakes and move far away, on a moment’s notice. This may be true for those who are committed to climbing the corporate ladder, and know that being relocated every few years is part of the deal, the pathway to continued financial advancement.

It may also be true in the case of academics, for whom the chances of living in their home town are very slim. Those pursuing such a career often have to move around from place to place unpredictably, from college to graduate school to postdoc research to professorship, until they are forty or so.

But for most of the working world, it’s all about getting married and settling down to raise a family. This naturally entails putting down roots.

Yes, I know, there is a new understanding of the word “transience” that is all the rage these days. We are now supposed to be enthralled by not being defined by or tied down to where we come from. There is a new freedom afoot that allows us to be whoever we want to be, wherever that happens to take us.

And sure, all that sounds swell. No one is in favor of stultification, we all want opportunity for growth and development. But some of us like where we were born, and where we continue to live.


… we all want opportunity for growth and development.


As the writer Alison Gopnik reminds us the April 2018 issue of The Atlantic magazine, right from infancy human beings develop specific attachments to particular people and places around them. Those connections underpin commitment, care, trust, and love. This “tend and befriend” mechanism that is hard-wired into our brain plays an important role in the bonding that takes place between a mother and her baby.

But given our unique human capacity for cooperation, this “attachment system” also naturally gets expanded to apply to a much broader range of relationships: from marriage partners, friends, neighbors, and on to other types of collaborators.

So while some of our more advantaged citizens may be inspired to relocate in order to maximize their earning potential, or to protect those earnings from what they feel is an unwarranted level of taxation, in many cases the decision to leave home and go elsewhere is a function of shear economic desperation.

There is no work to be had, which leaves one with no choice but to pull up stakes and move away from all those connections and all those commitments.

Like the legion of unemployed who flocked to the Bakken shale oil fields of northwestern North Dakota, from numerous other states in the union, in search of a paycheck. Some referred to this migration as a wonderful opportunity for a broad swatch of the population who lack the skills needed to matriculate in today’s knowledge-based economy.

Annual salaries of $100K were routinely touted. But the job entailed ten-to-twelve hour days, seven days a week, three weeks on and one week off. It meant working in a wildly dangerous and patently unsafe environment. Reduced to living out of their cars, or in trailer camps where one lost all track of time, due to the odd shifts.

Once the total hours were factored into the equation, this turned out to be a $20.00 an hour opportunity. Not exactly a windfall now, is it? While the energy companies employing this poorly-trained, decidedly non-union workforce made out like bandits.

SUMMARY

To my conservative-libertarian friends who imbibe the Fox News Chanel intravenously every night, I make the following request. Please stop your incessant caterwauling about Democratic politicians who do nothing but tax and spend. Please undertake an examination of the other half of the economic equation, as well.

The thorny issue of taxes, and of taxpayer behavior, cannot be defined as simply as we have been led to believe. The solution to publicly funding an appropriate level of social service will require much more creativity than our manipulated modern minds have been able to muster so far.

Yes, government corruption and waste is a serious problem. But so is the way our business community has been given free rein to pursue an exaggerated version of enlightened self-interest (a.k.a. greed).

In order to make any headway, we should stop directing our pitchfork ire solely at the former, while giving the latter an accommodating wave of our bullfighter’s cape.

Robert J. Cavanaugh, Jr.
June 10, 2018

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