The levy as a lever
Fine print – March 2012
It’s always fun when tax season coincides with an election cycle. That presumes, of course, that you share my perverse definition of ”fun” as the bizarre spectacle of a presidential candidate being pilloried because he paid the taxes he owed, a governor declaring she won’t run for re-election so she can focus on raising your taxes unencumbered by your disapproval and a member of the public seeming to argue that anything you earn belongs to the government and that we should be grateful for how much we are allowed to keep. Let’s take them in order.
Mitt Romney came in for much extra attention, none of it positive, in mid-January when the Republican frontrunner succumbed to media pressure and released the details of his 2010 federal tax return. Romney paid 14% of his income that year and estimated that he would pay more than 15% in taxes on
his 2011 income. According to all reasonable estimates, that’s how much he owed. No trickery or illegality was found. The New York Times reported that, even with the high-priced accounting and legal talent Romney has at his disposal, he ended up sending the government too much money, overpaying by $44,000, the newspaper estimated. The Times also pointed out the obvious: “Such is the state of American tax law, circa 2012. It is so complex that even experts get confused, and some of those most able to pay can legally pay lower rates than people who earn far less.”
That complexity can be explained simply, however. Our tax system is an incomprehensible mess because politicians long ago abandoned the straightforward process of deciding which services to provide and then levying taxes appropriately to fund them. In contrast, taxes today are the tool by which government seeks to modify behavior; they are either stick or carrot depending on the circumstance and who’s doing the lobbying. The home-building and real-estate industries want everyone to own, not rent, a home, for instance, and the proof of their success can be found in the fact that the mortgage-interest tax deduction is practically an inalienable right. Conversely, the government enforces its nanny-state edict that you shouldn’t smoke by taxing the bejesus out of cigarettes, using as its excuse the claim that smoking-related health problems are a financial burden on the medical system. (Proven not to be true, by the way.)
In this light, the recent push to increase the tax burden of people like Romney has almost nothing to do with raising revenue to reduce our national debt, which is so huge that whatever we got from them would be a relative pittance. Instead, it’s meant as a punishment on Romney and others for being rich. I don’t feel sorry for them — hey, they’re rich, cry me a river. But neither do I subscribe to the fantasy that life is somehow more “fair” when the tax system is wielded as a cudgel against the wealthy. If you want the system to be fair, make it comprehensible and consistent.
For her part, Gov. Beverly Perdue sought to make a proposed increase in the state sales tax into a cause so worthy that a political career could be sacrificed in its service. Perdue announced that she wouldn’t seek re-election this year because her campaign would “only further politicize the fight to adequately fund our schools.” That’s a reference, of course, to the proposed sales-tax increase that the governor has earmarked for education.
Let’s set aside the obvious irony that in framing the issue in stark terms of cause and effect (to vote against this tax-specific increase is to be against education), Perdue politicizes the very thing she claims not to want politicized. Focus instead on the larger concern: North Carolina already levies one of the country’s highest tax burdens, trailing only places such as California and New York in the Tax Foundation’s state-by-state survey of tax rates in five categories (individual income, corporate, sales, unemployment and property). But judging by Perdue’s own words and actions, she apparently considers the fact that the state cannot “adequately fund” its schools to be a revenue problem — rather than a governance problem.
Excuse me, but if North Carolina is a place that vacuums up more of its citizens’ money than all but six other states and we’re still coming up short for critical needs, that’s a leadership gap.
But the most discouraging moment of our silly season came at the hands of a Raleigh News & Observer reader, who in a letter to the editor made an unintentionally illuminating point. After using a head-scratching analogy to refute the argument that it’s wrong to make investors pay tax on investment income that has already been taxed at the corporate level — that’s like saying “my dentist should pay a lower tax rate because the patients who pay him have already been taxed on their investment,” he wrote — the reader then offered this nugget: “People, particularly the well-off, should stop whining about how much tax they pay and instead focus on how much they keep.”
That’s progressive thinking in a nutshell. Your money doesn’t belong to you. It belongs to the government — which, in its boundless benevolence, allows you to keep some of it. Forgive me if I’m less than thankful.