Sunday, April 4, 2010

Paying Taxes Is A Privilege

We are fast approaching that horrific day each spring when our annual accounting with the IRS takes place, so I guess it is time once again for our occasional rant about taxes. Hear me out. Notice that I did not say rant against taxes, just about taxes. That’s because I believe that taxes are a good thing, necessary to our lives, our convenience, our health, our security, our education. My rant is against the rants of the tax complainers, the tax cutters, the tax cheats, the flat taxers, the tax avoiders—all those uninformed ideologically-driven anti-tax fanatics holding up signs at Tea Party rallies.

Don’t get me wrong. No one likes to pay taxes, including me. No one wants to see tax money wasted. No one (except in the minds of the loonies, fanatics and extremists) really wants government to be any bigger than it needs to be. Most people I know want to see serious efforts to deal with mismanagement and waste wherever it is found regardless of party or ideology.

That said, I accept what ought to be obvious to all, that if we want the services that go with modern civilization we have to pay for them and taxes are how we pay for them. Taxes are what makes civilized society possible—taxes fund roads, libraries, schools, street lights, fire and rescue services, child protection agencies, parks and playgrounds, airports and train stations, commuter rail and bus services, boat launches and all the other things we take for granted each day that make our life more pleasant.

Griping about taxes is almost a national pastime. Nevertheless I was surprised to read that Americans complain about taxes more than citizens of most other countries, while our tax burden is considerably less than in most other countries. The complaining does not seem justified by the reality. The U.S. ranks 27 out of 30 in overall tax burden in OECD countries, and has a comparable rank in what Forbes calls the “misery index,” which ranks taxes at the highest marginal rate, a rate which only the wealthy pay and then only on the portion of their income that exceeds $370,000. That is not a heavy burden.

I come at the question of taxes from the perspective of a Christian Humanist. I take quite seriously the teachings of Jesus that we have a duty to our neighbor, that compassion is a primary ethical value, that we are all in this sea of life together and must do our part to shoulder the burdens of life. I also take my commitment as a humanist quite seriously. We share a common humanity and a common commitment to the social compact theory of government that implies that we empower the government on our behalf and on behalf of each other to look out for our common welfare, and that requires a source of common funds to make it happen.

Some years ago when I got my annual bonus check [which was performance-based for meeting specific goals!] I made a comment to the CEO that he perceived as griping about the amount of money that was taken out of that check for Federal and State taxes, and he observed drily that I should be grateful because the amount of taxes taken out reflected a pretty significant income and that I should consider it a privilege and a duty to have the income that could pay taxes at that level—and he was right, and it was an important lesson that has stayed with me through the years.

Massachusetts (where I spend my summers) is considered a high tax state and is sometimes derisively called “Taxachusetts” by its residents. Taxes were on the minds of unhappy Massachusetts residents who, apparently influenced partly by the drumbeat of anti-tax ads attacking “big government,” elected Scott Brown to the Senate a few months ago. So the Boston Globe, mindful that taxes were on the minds of citizens, published an article recently about the attitudes and the realities of taxes in Massachusetts. It was an interesting and instructive read about the way people think about taxes. Some of their observations and conclusions are relevant to this article:

[a] Many people believe that government is too big and wasteful and that some programs need to be cut, but they were unable to name which programs they actually want to cut.

[b] When the sales tax was raised recently from 5% to 6.25% many residents flooded over the border to New Hampshire, which has no sales tax, to buy groceries and clothing, despite the fact that those items are not subject to sales tax in Massachusetts, an obviously funny and irrational response.

[c] Restrictions on real estate tax levies by towns require voter approval to bypass, yet most levies that go to voters are approved, apparently indicating that while voters are against taxes in general, they do not oppose taxes for something the value of which is obvious to them.
I live most of the year in Florida. We have no income tax, a sales tax rate of 7%, and property taxes (for residents with homestead exemption) that are below the median of the other states. We read complaining letters in our newspapers and hear rants about taxes on talk radio. The State budget, as is true in most states, has been cut for the past several years and is still in deficit. The public demanded drastic cuts and no new taxes. The legislature reiterated the public demand for cuts and the mantra of no new taxes. We have a Republican governor and Republicans control the legislature by a significant margin, so it should be easy for the Republicans to make the cuts they say they want. However, the legislature has run into the reality that most everyone says they want cuts but they don’t want programs cut that matter to them.

I see the same “cut our taxes but don’t cut our favorite programs” dilemma at the local level. Our county commissioners, all Republicans, complain loudly about foolish government waste and overspending on government programs (of course, at the Federal and State level) and promise that they will keep tax rates low with no new taxes. They cannot agree on what to cut—do we cut police and fire budgets, do we reduce teacher pay or lay off teachers or increase class size, do we cut athletics from the schools, do we reduce all county employees pay or just employees making over $100,000, do we cut the health department or ignore our sewage system repair needs? Is rebuilding the boat launching ramp at a city park an extravagance or a necessity?

The stated objective of the tax cutting movement (at the Federal level) is to lower the “marginal” income tax rates to benefit the wealthiest Americans. The essence of the argument supporting lower marginal income tax rates is “fairness” and the tactic is a proposal to eliminate differential income tax rates in favor of a “flat tax” that everyone would pay at the same rate that would have the added benefit of simplifying the tax code. Simplifying the tax code is long overdue, but that is a different issue. The question of tax “fairness” is a complicated one and could be answered in different ways depending on what values and assumptions are considered in the discussion but, regardless, the practical effect of lowering taxes on the wealthy inevitably involves shifting more of the burden onto the middle class and the poor. That is not an opinion; it is just a mathematical fact.

It is reasonable to argue that “fairness” of the tax burden means fairness in terms of ability to pay and that those who are wealthy have profited more from society and should pay more for its support. It is also obvious that requiring a wage earner with a middle class income to pay 10% of his income as tax, which cuts into the amounts required for food, clothing and shelter, creates a much greater burden on the middle class than a 10% tax on the income of a millionaire creates on the lifestyle of the wealthy. Arguing otherwise involves an “Alice in Wonderland” view of reality. Contrary to the argument made by the wealthy, lowering taxes on the wealthy and shifting the burden onto the middle class involves a wealth transfer (redistribution of wealth, anathema to the right) from the lower and middle class to the wealthy, and that cannot be fair in any reasonable sense of what “fairness” means.

Then there is the inconsistency in thinking by our political leaders. The same politicians who complain loudly and regularly that government bailouts of the financial industry or the auto industry lead the country toward socialism had no problem giving a local aircraft manufacturer $35 million in tax reductions, incentives and grants on the basis of his promise to stay in the area and hire more employees (a mixture of State and local funds were granted); the manufacturer took the money, laid off a good portion of the remaining employees, then sold the company to a Brunei corporation that may move the company out of the United States to Asia. When some locals objected to this expenditure of tax money to subsidize private enterprise, the same right wing blue collar types who protest Obama’s waste of money for bankrupting the country and believe that subsidizing private industry is socialism when the Federal government does it, said that this situation was different, it involved keeping local jobs so it was not really a waste of money and it was unfair to call it socialism. It was important and necessary.

So what do we make of this muddle-headed and inconsistent thinking, both from politicians and from the general public? We note with some amusement that:

[a] People do not like taxes in general but they do not object to taxes if they agree with the program the taxes will pay for. If I benefit from a tax-supported program, it’s ok; if my neighbor benefits, it is a waste of tax dollars.

[b] The more distant the taxing authority, the less people like paying the taxes. Federal taxes are worse, State next, local taxes are grudgingly acceptable.

[c] Earmarks (Federal money that pays for local projects) are always a waste of money unless they are in your local district. Then the money is “free” and doesn’t really cost taxpayers anything.

[d] State money is also “free.” An example: County Commissioners are spending $10 million on a beach re-nourishment project to spread new sand on beaches in the northern part of the county in front of ocean front mansions where the sand is annually washed away during storms. One commissioner said in response to complaints this project was wasting taxpayers money by throwing sand into the sea, “this is costing the taxpayers practically nothing, so it’s a no brainer”—but the commissioner was the one with no brain, because 90% of the funds were from the State and Federal government and was tax money.
Why do we have such ambiguous, inconsistent and ultimately selfish attitudes toward taxes? I think there are three reasons:

[a] Right wing anti-tax activists have been very vocal in print and in various media including talk radio in insisting that our tax system is not fair, that we pay too much of our “hard-earned income” in taxes, that government is bad and wastes our money, and that the purpose of taxation is to take from those who earned their money in order to give it to deadbeats—so they have created mistrust among the populace.

[b] The public is increasingly uneducated, intellectually lazy and ill-informed so they are uncritical in their thinking, inclined to believe what they are told on talk radio, and unable to form independent judgments based on evidence and common sense.

[c] Our elected leaders have been negligent and provocative by encouraging the anti-tax revolt as part of their continual drive to get re-elected and by their failure to lead and educate the public—to explain the role taxes play in a democratic society, to explain that taxes are for the benefit of everyone and are not just for those things that one personally agrees with, that taxes are necessary to support the community and the nation.
We need a new national conversation on the role of taxes in a democracy, that paying taxes is both a necessity and a privilege—but don’t count on that happening in our divisive and self-interested political climate.


bill wald said...

Our owners have conned the working class into think that a guy who works hard for 60 hours a week and makes $200K is "rich." The rich people, our owners who have $100 million or more invested in assets, don't have income and don't need to work. They (only) work for power, not for money.

There is a world of difference between a person who actually earns $200K through hard work and pays a Social Security tax on half of it and is in the highest marginal tax bracket AND THE PERSON who has a $20 million annual gain in in invested assets, cashes in $1 million a year and pays 15% max capital gains on it.

Arthur G Broadhurst said...

You make a good point when you observe that the rich with invested assets pay only a 15% capital gains rate. Then there are venture fund managers who have the same deal on what would be ordinary income for anyone else. Obviously life is not fair.... but we all know that. Someone who makes $200K is making a pretty good living when you look at what the average "working class" person is earning--and trying to live on.

Kim said...

Great post! It's so refreshing to see a frank, well reasoned and ethical argument about taxes amid so much of the current hysterical climate. I'm recommending this post to friends!

Anonymous said...

I would have no complaints about taxes, if so much of them did not go to waging war.