The trouble with taxes is that no one likes to pay them. We want the services of government (good roads, public schools, national defense, a functioning court system, etc.) but would rather that someone else pay for these things. Yet taxation is necessary in modern society. Taxes are needed to fund what economists call public goods. The government has the duty to protect the public health, safety, and general welfare, what are known as “police powers” in our common law tradition. Providing for the general welfare takes resources that we pay for with our taxes.
A good system of taxation is efficient. The taxes are easy to collect and hard to evade. Good tax systems are fair. There is a link between taxes and taxpayer both in terms of ability to pay and in terms of what is being paid for. When government provides services enjoyed by some subset of taxpayers, in general that subset should be asked to pay more. This is the user pays principle. And all else being equal, taxes can be used to provide appropriate incentives, discouraging behaviors that are socially undesirable or encouraging those that are desirable. So we tax cigarettes not just to raise funds for public health programs but also to discourage smoking.
But even good taxation, that which is fair, efficient, and designed with appropriate incentives, is politically perilous in American culture. More than any other wealthy, industrialized society, we demonstrate a preference for individualism over collective wellbeing. So supporting good tax systems is politically dangerous and advocating for tax cuts of any kind is politically popular.
The courage it takes to support good taxes and the cowardice of supporting irresponsible tax cuts was evident over the past few weeks.
State Representative Andrew McLean has introduced legislation (LD 1149 ) which will, among other things, raise the gas tax to help fund transportation infrastructure in Maine. I explained in an earlier blog, Maine Roads Still Stink, the reasons that higher taxes on motor fuels are desirable. In fact, motor fuels taxes are efficient, fair, and create the appropriate incentive structure to serve the general welfare of society. I do not know whether there is any support in the Maine Legislature for Representative McLean’s bill, but he is courageous to propose the right thing.
At the other end of the spectrum, the new administration in Washington shows cowardice with its recently outlined income tax plan . The document released in April falls short on details, but is a classic case of promising tax cuts for everyone while failing the fundamental fairness test. This is cowardice on taxation. Despite the promise of benefits for middle income taxpayers, the plan’s primary beneficiaries are high income households and larger corporations. If anything like this proposal were passed the result would be a further exacerbation of income inequality in the U.S. and a ballooning federal budget deficit, asking future generations to pay for cutting the taxes of today’s rich Americans.
The plan would be “paid for” by reducing healthcare access and raising healthcare costs for the least well off in our society. In addition, the administration is embracing the discredited Laffer curve concept, the idea that reducing tax rates for higher income households will increase tax revenues by stimulating economic growth. There is simply no evidence that this is anything more than wishful thinking.
The cowardice in this tax proposal is the political ploy of saying that it is designed to help middle income households, when in reality it is another major transfer of wealth to those already most well off in our society.
I applaud the courage of Representation McLean and condemn the cowardice in Washington.