Tax Reform I: Are You Ready to Pay More?

We didn't hear a lot about it in the campaign, but one of Bush's top domestic agenda items is tax reform. Bush wants to cut and possibly even eliminate taxes on investment income - interest, dividends, and capital gains. But how to pay for those cuts? The administration is considering eliminating a few tax deductions.

First, there's the individual deduction of state and local taxes off federal income tax. According to the administration, allowing us to deduct those taxes - especiallly property tax - ultimately lowers the price of local public services and gives an unfair advantage to local government over private companies providing comparable services.

If I understand this correctly, the argument is that by allowing this deduction, we pay our local government less to do things like pave roads and maintain fire departments - that we're charged less by the government than we would be by private companes. That's is unfair competition. 

I'll confess that I can't make the jump between deducting state and local taxes and low prices from local government. I don't get the connection. If someone can explain it to me, I'd be grateful. For the time being, I'll assume that it's true - that the deduction lowers the cost to local government. But I don't know why that's a problem.

Is there some intense demand on the part of the citizens of this country to privatize local government services? Are we upset because we pay less? Would we rather pay more in federal taxes in order to pay more for local services, but get to choose a private company to provide those services?

If private companies can't compete with the low cost of theoretically subsidized government, then on what basis can we expect them to match low prices in a competitive environment? None. If they could match them, they'd do so now. The whole premise of the Bush administration is that they can't match them. So in order to give these companies a chance to get our business, we'll pay more to the federal government AND pay more for the local services.

I'm guessing that the theory here is two-fold. One is that allowing businesses to compete for services provided by local government is good for the economy. That it will create jobs. I'm not so sure about that. How can we be confident that the private sector will employ more people than the public sector to deliver the same services? I suspect they'll employ less, since the private company employees are less likely to be unionized, more likely to work overtime on a regular basis, and companies sure do like to down size whenever their stock takes a hit.

The other part of the "this is good" theory is that competition in the market place is inherently good. That quality goes up and price goes down. I'd say that's true much of the time but not all of the time. And blind adherence to this truism is another faith-base leap in the dark. In a lot of cases, competition is great. In others, not so great (like education). I'm not sure what the case is here, but instead of blindly accepting that competition is the right thing for local government services, I'd like a little analysis please.

I get the feeling that I'm missing something, because this just doesn't make sense to me. But I fear that I'm not missing a damn thing, that our MBA president would like to dismantle the government and replace it with the corporation. Except for his office, that is.

Comments

[eRobin]

Join my club of the confused observers of the Norquistas. This idea to privatize the public sector - one when it's profitable, like in the areas of education and infrastructure management - is one of Norquists pet themes. Listen to or read his interview on Terry Gross' show. You won't be any better informed about the idea, but you can see how fervently Norquist pushes it. That interview got a lot of attention because Norquist compared the Estate Tax to the Holocaust, but I was more interested in this :

GROSS: What would happen in your plan to public schools, the police, firefighters, highways and homeland security?

Mr. NORQUIST: Certainly. I would like to see--and the goal of the center right coalition in America today is to drop the cost of government, federal, state and local together, in half, with several measures: one, total spending as a percentage of the economy. Right now, government spending is about 30, 32 percent of the economy. I want to take that down to 16 percent of the economy over 25 years. How do you do that? You mentioned roads. Roads built by the federal government cost 30 percent more than they have to because there is a racist law which was passed in the 1930s called the Davis-Bacon Act. It was designed--and the people on the floor of the House and Senate who passed it said clearly it was designed to keep black people out of the construction industry because blacks were moving up from the South working on highways, and they only wanted white guys to have those jobs. This Davis-Bacon Act, which requires, quote, unquote, "prevailing wages," meaning union wages, to be paid, means that you can't have different companies bidding, and it bids up the cost of building highways by about one-third.

GROSS: So what you're saying is by not paying a union wage, by lowering the wages of those workers, we could cut more taxes.

Mr. NORQUIST: Well, you had said what services...

GROSS: Right.

Mr. NORQUIST: ...do you have to get rid of to drop the cost of government significantly.

GROSS: Right.

Mr. NORQUIST: And my argument is you don't have to drop service. I'm not talking about less roads. I want more roads, not less roads.

GROSS: But you're talking about lower wages. Am I reading you wrong? Just tell me, am I reading you wrong, that--paying workers less...

Mr. NORQUIST: Well, not necessarily lower wages...

GROSS: Yeah.

Mr. NORQUIST: ...because over the course of a year, you're talking about people having full-time jobs for the whole year. What you do with the Davis-Bacon Act is you spike people's income for a short period, and then they go unemployed for a longer period. So I would argue that you're talking about having a wealthier and more successful set of employees in non-union construction, which is why most construction people are non-union by choice. And so the Davis-Bacon Act is an example of a law. When you compare government education and independent education in this country, independent education costs about half as much and provides a better education than government education, on average.

Gross tried her best , but there he didn't answer the question. He did give us lots of fantasy-grade speculation and race baiting - par for Norquist's course. The question I need answered is what is their long term vision of privatization? How will they get corps to plug that holes that gov't plugs naturally - like the ones you mentioned above. They never get close to explaining any of that because I think the answer is close to what people had in Dickens' England. Except with churches playing an established role in the process.

Have you read Paperwight's look at the medical insurance deduction? I think he's saying what the Norquistas won't.

[Kathy]

It's on my 'to read' list for tomorrow. Thanks for the heads up. I've also got to get up to speed on Norquist. He hasn't been on my radar screen and I think that's an oversight.

[eRobin]

He - or his ideas - are running the show. Be sure to read the WaPo profile of him. It's here and includes this bit of info:

His manner is charming, though bitterness creeps into his voice when he talks about classmates at Harvard, where he attended college ('78) and business school ('81). As a Republican, Norquist felt isolated among the students, whom he calls "Bolsheviks." At a reunion in the early 1990s, he said, he told a classmate: "For 40 years we fought a two-front war against the Soviet Union and state-ism. Now we can turn all our time and energy to crushing you. With the Soviet Union, it was just business. With you, it's personal."

He's charming like a serial killer with anger issues is charming.

Disinfopedia and Wikipedia are other good sources and the whole Fresh Air transcript. He's a dangerous man.