Wednesday, October 31, 2012

The Taxman and Question 7

I've been thinking about this post for awhile, trying to boil it down to the essence, to shake off the unnecessary or confusing parts of the argument I want to make.  I'm using the suggestion of a friend - to write about Maryland's Question 7, which would increase the amount and type of legal gambling in Maryland - to springboard into a larger discussion.

I've spent a lot of time on tax policy, and tax policy is complex - needlessly so.  But there are underlying theories behind the tax decisions we make, and I've noticed that we almost never talk about them.  It may be due to the influence of guys like Grover Norquist, but the political discussion we have about taxes is almost entirely this:

  • X candidate wants to RAISE your taxes.  He/She has voted to RAISE taxes 55 times.  Taxes are bad.  Tax cuts are good and create jobs.  Government spending is wasteful.  You know what to do with your money, the government doesn't.  Therefore, you should vote for me, because I want to LOWER your taxes.

Seriously.  That's it.  There is almost nothing about the kind or quality of taxes and spending we are putting on the table.  There's no discussion about what we want to do and what it costs to do those things.  And, importantly, there's almost no discussion about how we should structure our tax system.  What little discussion we do have on that front involves shallow, simple-sounding ideas like "flat taxes" or a "national sales tax" - without talk about what those tax systems would be like, in reality.  And while Republicans like to point to the Reagan-era tax-code revamp, that revamp was anything but revolutionary - and it would be a much harder revamp to make today with the marked increase in special interest provisions and "legislating through the tax code" that we have created in the last 20-30 years.

1. The Tax Burden Is Not What You Think It Is.

Our current tax system isn't progressive.  The underlying federal income tax structure may be, but the changes we have made over time, including:

  • making the federal payroll tax regressive, 
  • the deduction structure, and 
  • particularly the capital gains and dividend tax cuts (which strongly favor investment income over earned income - wages from jobs) 
- undermine the progressive nature of the system.  Then there are state and local taxes, excise taxes, etc.  That's how a guy like Mitt Romney can pay a lower percentage in taxes than somebody making way less than half of what he makes per year.

2.  Legislating Through the Tax Code Doesn't Work for Most Behavior.

Most people are not rational in their use of money (see e.g. behavioral economics, or you know, most of our economic choices).  Most people do not know the tax code very well.  Therefore, legislating through the tax code to try to influence behavior is unlikely to change behavior until you get to the fairly high-income people who can afford to hire professionals to help them plan their tax behavior (say, buy an Olympic Horse).  But for the last 20-or-so years we have been passing individualized, behavior-aimed tax cuts.  Sometimes they reward good behavior.  Often they reward tax preparers.  Rarely have they changed behavior.  One caveat: business and corporate tax policy can and does change behavior.

3. Politicians Are Chicken About Taxes These Days.

Politicians have become downright twitchy about voting for tax increases - or even tax changes that Grover Norquist or NTU or one of the other right-wing groups might CALL tax increases in their highly-biased, yearly assessments.  That's bad news for lower- and middle-income folks.  Because when politicians get chicken about taxes, they start calling taxes by other names.  Like Fees.  And Tolls.  And Speed/Traffic Camera Fines.  And all of those things are regressive, because - as with sales taxes and other kinds of consumption taxes - they constitute a larger percentage of income for lower-income families than for higher-income families.

4. And That Brings Us to Question 7.  

This is sort of the flip side of trying to encourage behavior through taxation. Here the state is explicitly allowing a behavior we don't generally allow, just to get revenue from it. Question 7 has been sold as a way to get more money into education.  There is no question that if Question 7 passes, Maryland would get more revenue.  There is no guarantee that that revenue would go to education (see e.g. every place in the South, where they sold lotteries and gambling as revenue streams dedicated to education but broke that promise time and again).  The ads you see about Question 7 are almost entirely funded by gaming/gambling companies that are either in other states (like West Virginia) which don't want competition or gaming/gambling companies that want to develop gambling properties in-state - and could care less about the jobs or education aspect.  This is why we should have disclosure on political advertising, and probably limits on it.  But I digress.  

Gambling is addictive.  Gambling profits the most off of the people in our society who can afford the risk the least: the elderly and low-income people.  And state-sanctioned, state-controlled gambling is directly creating revenue off of that dynamic: addiction and desperation.  

It's a chicken way to bring in revenue, and an exploitative one.  

It's bad revenue.  I'm voting against it.  

Yes, some Marylanders will go to West Virginia and spend money there.  I don't care.  I don't want Maryland to act this way.  I don't want us to stack our system against lower-income or addicted people and then tax them for their desperation.  Blech.  

I use government services.  I mail things.  I plan on using public schools.  I like having my trash picked up and a lot of it recycled.  I drive on our roads, rely on our first responders.  I should pay some taxes for those things.  So should you.  Paying taxes for those things is a way better deal than Netflix or Fios, btw.  

5. Here's How I'd Like the Conversation on Tax Policy to Go: 
  • What do we want government to do?  
  • What does it cost to do those things?  
  • What is the least complex, least administratively-challenging way to pay for those things, while maintaining some fairness and not discouraging economic behavior we like?*  
*The behavior we like may change - it may be more about stimulus right now, but in five years it may be more about saving.

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