Monday, May 16, 2011

Tax Reforms and Responsibility of Public Services

Taxes are not the fun part of our citizen duties to our country and state. The obligation to our communities, via taxes, enables the needed revenues through which we all enjoy mutual benefits. In the current state legislature and at the federal Congress, we are bombarded with a notion that taxes are too high. There is plenty of reason why people want to lower that duty. I have advocated that we should seriously reform the tax code. Considering our taxation history and the endeavors of several administrations (lowest tax rates in a century, 3 wars, unchecked tax subsidies, unchecked entitlement spending), there are mixed messages about responsibility and public welfare. In the state discussion, the focus is upon commercial property taxes in Iowa. The federal discussion is focusing upon the progressive tax system. The resolution to the issues will need to involve reforming the code without burdening larger swaths of people and to actually make some hard choices.

Let us analyze the proposed commercial property tax reduction of 40% over the next 4 years by Branstad. This essentially reduces the taxable property value and revenue for cities to draw needed funds in order to encourage commercial development (e.g. job creation). City managers all over Iowa argue this is misguided since the “expected” growth of commercial property to make up for the reduction in tax revenues is hardly possible. Given the trend of positive reports of Iowa as a business friendly environment (e.g. Forbes, Fortune and CNBC) and the relative lack of significant growth in response to those reports, can we seriously imagine a spike in growth based upon a sudden change in commercial tax rates? The replenishment of taxable property to make up for the shortfall created by the rate reduction will not be enough to cover that deficit. Therefore, someone else has to pay for the deficit or there is a reduction of services.

One proposed solution would be to merge administrative and services between communities in order to reduce redundancy or inefficiency. On its face, this proposal has some merit, but the pride of communities and the current redistricting provides us with the realities of making this happen. The county –wide vote to merge Des Moines with Polk County administration is evidence of people’s unwillingness to realize such solutions. As well, the smaller rural communities that have experienced school redistricting may resist ceding of local decision capabilities to some other community for fear of no services to the locality. Besides, who do the legislators and governor think is going to be willing to swallow pride pills? What is the priority for merging services? Does this ultimately mean reduction of services?

Remember, commercial property enjoys the same benefits of government service as residential areas. The reduction of those services may actually become a strike against moving new businesses to Iowa despite supposed favorable tax rates. The higher burden of taxes on residential areas may offset the relief of having lower commercial property taxes. Lower commercial costs may yield little benefit if no one can now afford to do commerce because of higher residential obligations. Reduction of commercial property tax rates at the levels proposed is essentially providing people with some means with public welfare that they, incidentally, will end up cutting services for middle-class and low-income families (e.g. schools, roads, mental health, police and fire protection). They are telling working people to shoulder the burdens for the wealthier parts of society.

Reform of taxes as less complicated and less burdensome to people is a great idea. Yet, if there is no problem with 85% of wealth hoarded in the top 5% of society, they surely have benefits associated with that much wealth and financial power that is unavailable to remaining 95% of society. They also get the benefits of having a robust middle-class that can afford and has access to buy services and products. Yet, why do they get to enjoy loopholes that in some cases reduce their tax obligation to rates to near zero? If everyone is paying a fair share, people would not mind being able to file a simple form without special software or tax accountants. In fact, some plans for simpler tax codes with less, or no, loopholes envision lower tax rates and provide the government with more revenue to provide those mutual services. (Consider that taxpayers pay for gas and oil before they even get to the pump.)

The proposals for tax reform are good starting points for the discussion about our state’s and country’s fiscal policies, but the policies enacted should be careful to ensure that the middle-class does not end up with more of the burden of the welfare state for business and the wealthy. As well, the middle class should be wary of rhetoric that scapegoats low-income families as non-working, lazy poor in order to maintain certain tax privileges for large firms and wealthier Americans. The cost to maintain the workers’ safety net is less than the cost to provide tax subsidies for oil and gas exploration (or to provide tax “relief” for wealthy Americans). There is no reason to continuously benefit one part of society at the expense of others because taxes are mutual duties that provide mutual benefits (not just for some).