Budgets, Taxes and Fairness

A Mr. Roy Merritt of Bolivar, MO posted an insightful comment in the New York Times the other day. It was offered in response to an article by Jennifer Steinhauer on Speaker Ryan’s role in the budgetary process. I don’t know how to get a hold of Mr. Merritt for formal permission but, I’m going to assume that he won’t mind my reproducing parts of what he wrote.

Mr. Merritt frames the issue of the budgetary mess in just the right way. He starts with a dead-simple fact that rarely is brought up when the issue of the size of the Federal budget is debated. The country is growing; children are born, life-span is increasing and immigrants continue to arrive. Governmental costs have to go up.

Here’s Merritt’s comment (slightly abridged):

“The Government has not grown as the Tea party would like you to believe. The deficit spending has been cut 2/3 over the term of Obama. The CBO said in 2012 that 71% of the National Debt is attributed to the tax cuts of 2003 and 24% attributed to the recession of 2008. There is not one Republican that has come forward with a budget that addresses the lack of Revenue we are suffering because of this. We cannot cut our way to solvency. Taxes are lower today than they were 50 years ago.”

Now that’s a nice summary of where the problems originated but I want to focus on that last tantalizing line.

Yes, taxes are low but only if you’re looking at Federal income taxes which are used for Federal programs, agencies and operations.

The full cost of government reaches down to the community, municipality, city, county and state levels. It includes government services like sanitation, police, courts, public works, schools, parks, recreation, roads and transportation, hospitals and clinics, fire departments and on and on and on. When the Federal government reduces its contributions to the operation of these services the financial burden falls upon local governments.

Most states have income taxes, some progressive some not so much. Interestingly the per capita tax in each state is largely independent of whether the state imposes a tax on individual income. Revenue streams have to be created and most of the taxation codes enacted are regressive in nature.

The most common are sales taxes and property taxes. When these do not generate sufficient revenue, nuisance taxes are imposed on things like gasoline, tobacco and liquor. Then sneaky “taxes” come in, ones that folks often don’t realize they’re paying, like higher public transportation fares, increased fees for drivers and business licenses, permitting fees for planning and construction, surcharges for water and electric hook-ups, processing fees for filing forms.

All of these hurt low income families disproportionally. If you’re earning $150,000 a year it’s not much of a hit if the state kicks up the tax on gasoline by 10¢ a gallon but if you’re barely scraping by on $22,000 it hurts. Ditto if the county boosts property taxes by .5% for a water purification program or the city raises bus fares by 25¢ a trip.

Despite the success of the Republican-lead onslaught on taxes, the actual tax burden carried by Americans hasn’t actually gone down. But it has been, disastrously, shifted to the middle and lower income groups who are now bearing far more than their fair share of the burden. They are being taxed at far greater rates than those in the upper income brackets.

The resolution to this mess is obvious. Federal taxes must be increased significantly and the tax code must be restored to its former sharply progressive structure.