1/12/2004

KUFM / KGPR

T. M. Power

Taxes As a Political Football

As candidates of all sorts get their 2004 political campaigns underway in earnest, one of the first casualties, as is to be expected, is truth and logic. It is a time of posturing and ideological expressions of faith in the most outlandish of beliefs.

One form of this in Montana has been the rush to sign a “tax payer protection pledge” that promises to “oppose and veto any and all efforts to increase taxes.” Many candidates enthusiastically gush well beyond this pledge, promising to dramatically cut taxes.

With nary a smile or a wink of an eye, candidates are again offering tax cuts as a way to “stimulate” the Montana economy. We are again being told that the proposed tax cuts will “pay for themselves” by stimulating so much more economic growth that tax revenues will actually increase. It was this very analysis by the Reagan Administration that the first President Bush labeled “voodoo economics,” an accurate characterization.

The Montana tax cutters are promising to energize the Montana economy and pull it out of its bottom of the barrel ranking in terms of pay and income. They conveniently ignore the fact that they have been making this claim for a quarter of a century and, having controlled the state government a good part of that time, have been able to slash taxes. But decades of those tax cuts have not led to an economic renaissance in Montana. No matter, the magical repetition of firmly held beliefs is supposed to hypnotize voters as thoroughly as it has hypnotized these politicians.

They hope that we will not recall that they promised when they cut the coal severance and other energy extraction taxes that coal and energy sales would expand even more dramatically, leaving the state coffers with even more money to spend. Nothing of the sort happened. Instead a huge hole was built into the state budget. We were also repeatedly told that if we cut the taxes on personal business property, businesses would expand in Montana and we would reap fiscal benefits. Again additional holes were dug in the state budget and the legislature was forced to shift tax burdens to local taxing jurisdictions and our property taxes were increased so that we could keep our schools operating and our roads plowed.

Each meeting of the legislature has focused on cutting taxes with the promise of economic revival. The next meeting of the legislature has then faced an ever bigger fiscal crisis. Meanwhile, according to the very economic gurus who believe cutting taxes stimulates economic activity, the Montana economy has continued to drift downward.

This, of course, is not just a pattern within Montana. At the federal level massive tax cuts have led to massive federal deficits that will continue to grow for years to come. The Bush Administration insists that those tax cuts and those deficits are working their magic, pulling us out of the recession. That is like saying that a tax cut today will cause the sun to rise tomorrow or spring to follow winter. We always come out of recessions. What is notable about the current recession is how slow the recovery has been, especially in terms of job creation. Despite the massive tax cuts, shifting to war-time spending for the military establishment, and profligate spending on all sorts of other pet projects, three years later the national economy is still stumbling.

The “tax cuts equal economic growth” mantra has not been laughed out of political favor by its obvious failure for two reasons. First, none of us likes to pay taxes. Second, there is a thread of logic to it. If the government simply taxed economic activity and then squandered the proceeds on profligate consumption, it would damage the economy and eliminating those taxes would help the economy.

The complicating problem is that taxes are they way we fund the provision of a broad variety of productive public services such as education, police and fire protection, streets and highways, health and environmental safety, basic scientific research, assuring the integrity of capital markets and financial institutions, regulating large corporations whose market power could damage consumers and markets, etc. etc. Without these public services our economy would be much less productive. Unfortunately we need to levy taxes if we are going to provide this basic public infrastructure on which a dynamic private economy relies. At some point cutting taxes causes the erosion of that crucial public infrastructure and the productivity of the economy declines. Cutting taxes in that setting makes us all worse off.

It was this much more complicated economic reality that led Justice Oliver Wendell Holmes to comment a century ago this year that taxes were the price we pay for a civilized society. It is a shame some of this complexity could not seep into our bumper sticker political dialogue that currently plagues us.