Forum Post: To Those Who Wince and Look at their Bank Books Upon Hearing Calls for Tax Reform
Posted 13 years ago on Oct. 13, 2011, 1:20 a.m. EST by ARod1993
(2420)
This content is user submitted and not an official statement
At this point the tax codes do need reforming, but "reforming the tax code" and "cutting taxes" are not the same thing. What we have right now is essentially a maze of Swiss cheese comprised of differing federal, state and local taxes. I choose that analogy because the ordinary guy who plays by the rules and pays his taxes when they come due no matter how onerous gets lost in the maze and finds his bank account half empty by the time it's over with because of burgeoning property taxes, obscure little rules, etc. while the millionaire or large corporation has the option of hiring a lawyer (or posse thereof), finding every single hole in the tax code, and proceeding to drive a Humvee through it.
What does this have to do with you? If you hear the words "progressive taxation" and immediately think "Shit. There goes my savings..." then it has everything to do with you. When most people think of taxes they think of property taxes, gas taxes, sales taxes, etc. that never seem to go down or go away and look like a really nasty way of nickel-and-diming you out of your hard-earned money. And, in fact, they probably are: consumption and property taxes tend to be among the most regressive forms of taxation and you are right to want relief.
Here's how tightening the tax code and even modestly raising federal income taxes on a national level may help you out: the types of taxes that I outlined above are generally administered on a state and/or local level to directly subsidize hospitals/schools/roads/etc. in your neighborhood. Nobody likes them, but they're a necessary means of balancing state and local budgets when federal grants can't keep pace with community reinvestment. Put simply, if administering and maintaining a top--flight high school costs $80 million per year and your district only gets $50 million from the federal and state governments, that extra $30 million has to come from somewhere.
If the wealthiest Americans and corporations paid out the actual nominal tax rates upfront to both the feds and the state governments (for those states with income and corporate taxes), then it might well be possible for everyone from the working class guy to the upper-middle class guy to have their cake and eat it too. More money in the federal coffers equals more money that the feds can give to state and local governments for things like schools and roads, and thus less money these governments have to raise on their own. This then means that many of the most onerous state and local taxes (including the hated property taxes) would stop going up and in certain cases might even go down without any reduction in services provided.
What people need to know is that real tax reform won't hurt them a bit if they've been playing by the spirit of the law and not the letter; closing loopholes and "redistribution of ill-gotten gains" or however else they're going to see it posted here is simply a catchier way of saying that we want to put the letter of the law back in line with the spirit in which it was enacted. Now, if you've gotten accustomed to working the loopholes and looking to pay as close to no taxes as possible, then that should be a scary prospect. If, on the other hand, you've been doing things the right way all along you should welcome us; if everyone else starts paying their fair share the way you already do, that actually translates to less civic and financial responsibility for you.
Question, not criticism: if the money is first paid to the Fed, then doled out among the states, won't that continue to promote the whole pork issue we already have with people trying to just get the biggest piece of the pie for their own state without regard to the rest? Plus, having state leaders "owing" something to the reps from their state who got it for them? What if the Fed got drastically smaller (managing things like national security and other truly national interests) and the bulk of your taxes (which, right now you pay far more to fed tax than to state tax) went locally instead of to DC? I think a lot of DC politicians feel somewhat insulated because they are distant. Is it possible that If the group who collected and then decided how to spend the money lived in your home town, they might be more mindful of their neighbors needs, and also their wants.
If you went to a progressive state and local income tax model, then it would possibly be more effective because you'd lose less money to pork along the way. The problem I have with that, though, is that partitioning the wealth like that essentially makes social stratification even more entrenched, as it no longer allows the feds and the states to step in with funding injections to try to fix dysfunctional systems in poor communities.
If the taxes are collected on a federal basis, the fed can decide to put part of that money in a fund to increase teacher and administrator salaries and start hiring initiatives in failing schools (just an example) to turn the schools around. A local or district-based setup would be unable to do that because failing schools are quite disproportionately an ill of poor communities. That would then mean that schools that are struggling because they don't have the funding to attract good teachers and administrators would get a double whammy. They're already underfunded, and now they would get slammed again because the locals are poor enough that they can't pay the necessary taxes to fix things up.
Ok, I hear what you are saying, but I am talking about a state level, not a community level. I think that if you are dissatisfied with how your state runs things, you could move to a state where you think does it better. As other states see one state's success, they could learn from that and vote to adopt those ideas. If it's at the fed level, then we are still talking "one size fits all" which will sooner or later leave out large segments and breed discontent.
Possibly; my problem with that is that the states where this would matter the most are terrifically corrupt and inefficient. NJ and NY (where I'm from) make DC look like a bunch of obscenely efficient choirboys in comparison; two years ago we had cops hauling assemblymen out of the NJ state legislature in handcuffs. Federality equals visibility; almost everyone knows who their congressman or senator is, so if you catch a congressman playing pass the pork or line the pocket people will be up in arms. At the state level where I'm from, a lot of people forget they have a state legislature until it gets in the way of something important or hosts a spectacle like what I just described.
I am thinking that is a great example though. If you didn't have so much of your money going Fed, and more of it going locally, you can bet that people will make it a priority then to get to know who those local reps are. Then, if they don't like them, vote them out! I understand what you are saying about everyone knowing their congressmen or representatives, but that's only because so much media focuses Fed because, right now, that's where the money is. Alternatively, there is always moving to a more sympathetic state too. What would they "oversee" if people just moved?
The problem with people just moving is that the second point behind these reforms (with the other point being middle-class tax relief) is doing something to address the generational poverty we see in inner cities across the country. In other words, the people whom this is geared to help most directly have no real resources, (especially in times like these) little if any chance at getting new jobs if they leave their old ones, and either no trust at all in state governments or too much trust (think Tammany Hall to understand why).
If we enact this on a state level, we will have created a catch-22; to benefit from tax reform the poor will have to be educated, knowledgeable, and fairly proactive. For the inner-city poor population to become predominantly educated, knowledgeable, and proactive, they need to be able to reap the benefits of tax reform. That sort of a catch-22 means a lot of money is gonna wind up in a lot of state politicians' pockets and the people who need the help the most may (if they're lucky) get some scraps during election season.
I just don't see how keeping it all in DC and making states fight and cheat each other fixes this problem. That's even further removed from the people who really need it. The bulk of the money will go to those states who "play ball", or who cook their numbers to make it look like they have more poor people than their neighbor. In the end, I'm still stuck sending my money to some big collection agency, and then hoping they will favor us with giving at least a portion of it back to help out people locally.
Actually, the best way to do this is to cut the states mostly out of the picture; I'd have municipal and local governments talk directly with the feds about programs, staffing levels, and how much funding they're going to need in general. Then the federal government looks at its tax receipts and the rest of its revenue stream, look at its expenses, and tell municipalities how much it would be able to provide in a given fiscal year. The process would be driven directly by the needs of local municipalities, with the feds acting as financial backers more than anything else. DC needs to be involved because it allows money to be juggled on a national scale, thus giving the system far greater reserve capacity in the case of isolated shocks; the states quite frankly do not. Having municipalities issue formal requests for funding on an annual basis would definitely provide an opportunity for individual citizens like you to have a say in where the country's tax dollars go, while also dodging the mess that is many state legislatures.
Well, I think we may just have to agree to disagree here. That's how federal departmental budgets work now and it's led to a lot of waste, positioning for a bigger share, and a "use it or lose it next year" mentaility. I can hear what you are saying, but I am not confident of a fed managing money any better this way than they do now.