May 4, 2006
Penn
Patriot
 Brown
Shoes Diary
Authentic Tax Reduction
The continuing soap opera in Harrisburg that is property
tax reform (setting a record as the longest running soap opera in history, I
believe) is another example of the difference between authentic tax reduction
and phony tax reduction. There is but one way to believe lawmakers are serious
about tax relief as we shall see below. Unfortunately, the way the system
currently stands just about any politician can claim he's voted against
raising taxes and has voted in favor of tax relief, even though the taxes we
pay ALWAYS go up. How does that happen?
Take a simple example. Suppose there were a state where you were the only
taxpayer and the government spent $100 a year. To balance the budget, you'd
have to pay $100 a year in taxes. Now suppose the government came out one year
and said your taxes were going to be cut in half so you would only be taxed
$50. If the government, however, continued to spend $100 they would have to
borrow the other $50. Who's responsible for that debt? You would be, of
course. You'd have $50 tax savings for the year with the tax cut, but you'd
also have an obligation to make interest payments and principal repayment on
the debt. What would it cost for you to get rid of that liability? Bingo!
$50--the exact amount of the so-called cut in taxes. Financially, it makes no
difference whether the government taxes you the full amount of their expenses
or cuts your taxes and borrows the remainder--you the taxpayer are fully
liable for all government expenses.
The moral of this lesson is that authentic tax reduction is impossible without
reductions in spending. A government that increases its expenditures is
necessarily increasing the tax burden on its citizens. And that brings us to
the second type of phony tax cuts.
If a government taxes different citizens at different rates in different ways,
then it has all kinds of opportunities to "cut" taxes in one way, while
raising them in others. Pennsylvania lawmakers are experts in this,
particularly the ones with most seniority. Our state has income taxes, sales
taxes, business taxes, property taxes, excise taxes, transfer taxes,
occupation taxes, privilege taxes, and who knows how many others? (Tell me
again why we fought the Revolutionary War?) It's easy for some yahoo
politician, hypothetically speaking of course, to claim he's voted to cut
taxes 12 times, while in fact, he has all along more firmly and more deeply
placed his hands in the pockets of Pennsylvania's taxpayers. All that's left
for him to do is to sprinkle some of the ill-gotten money around and make a
public spectacle of his efforts and he's well on the road to re-election.
A typical example of this bait-and-switch tax policy is the Altoona School
District's claim of not raising taxes for 20 years. (Such gimmicks aren't just
reserved for Harrisburg and D.C.) In fact, the only thing they didn't raise
during that time was the tax millage on property. Over that 20 year period,
the School District's budget increased by a factor of three despite steadily
falling enrollment. Where'd they get they get all that additional money
without increasing property taxes? Through local income taxes, state income
and sales taxes, and federal taxes. Think of it as the No Taxpayer Left Behind
Policy of the educational establishment. It's simply a crock to claim fiscal
restraint when the per pupil expenses were increasing 65% above the inflation
rate.
There seem to be plenty of organizations against government waste and against
higher taxes and in favor of tax reform, but all such organizations are either
foolish or phony. Tax cut scams are the politician's stock-in-trade. There is
only one true way to cut taxes and waste and that is to cut government at all
levels. There is only one way to get authentic tax reduction and that is by
reducing government. If you want to know whether a lawmaker is really in favor
of tax reduction, look at his votes on appropriations--every vote to expand
current programs and fund new ones is a vote to raise your taxes.
The opinions and ideas expressed in this essay are those of John D
McGinnis and should not be considered representative of WRTA.com, any
institution with which McGinnis is associated, or anyone else. He can be
contacted at zoiprof@atlanticbb.net.
Contact John D McGinnis
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