Taxes: April 2008 Archives

It is a popular misconception that taxes add to the squeeze on the middle class. But it isn't tax increases that have squeezed the middle class, it's tax cuts. It may be hard to believe (after so many years of constant anti-tax rhetoric) but here is why.

The middle class IS squeezed these days. There are pressures and long hours at work, long commutes, health insurance costs, housing costs, food and gas prices rising, and wages are not keeping up -- they haven't been for a long time. But it is not a coincidence that the middle-class squeeze began at the same time as the corporate-funded anti-government, tax-cutting fervor. In fact a good case can be made that many of the reasons the middle class feels squeezed are the result of pressures brought about almost entirely FROM the effects of tax CUTS and cutbacks in government services, regulations and enforcement that went along with the tax cuts.

There are direct and indirect relationships. One example of a direct relationship is the dramatic rise in the cost of a college education. Sending kids to college has become extremely expensive. And this places a very hard squeeze on parents who want their children to get a degree. But here in California tuition was very, very low before Proposition 13. Tax cuts directly led to this squeeze on the middle class. (And remember, most of the property taxes that were cut were on business property.)

Indirect results include rising energy prices from cutbacks in government R&D and subsidies for oil alternatives as well as longer commutes as the government cuts back on transit solutions like buses, trains and roadbuilding or improvements. Health care costs continue to rise because of government inaction and deregulation -- the result of the anti-government sentiment encouraged as part of the the anti-tax campaign. And insurance costs rise while coverage is reduced or even denied as the government cuts back on regulation and enforcement. (My wife is the one who brings in the health insurance for our family. Every year she gets a raise, but every year the amount taken out of her check to cover her portion of the health insurance payment goes up by more than her raise, and her take-home pay is lower. So more squeeze.)

Other areas where the anti-government, anti-tax campaign has increased pressure on the average person is at work. Anyone that works for a corporation is feeling the extra pressures there. As government of, by and for the people declines corporate power fills the vacuum.

And there are so many more areas where we are squeezed by this increasing dominance of corporations in our lives. As government -- the power of We, the People -- diminishes, the corporations swoop in to pick us clean. How many examples of corporate power coming to dominate over people power can you think of?

Some years ago the corporate-funded anti-tax, anti-government advocates paid their way to become the dominant voice in our civil discourse. They said there was a magic, simple formula that would lead to shared prosperity. All we had to do was cut taxes, and everyone would have more money.

Everyone wants to have more money so this sounded wonderful. It is always a seductive argument to tell people that you have a magic formula that can make things better for them. One example is machines that create as much energy as they use -- or more. A common myth is that doctors are conspiring to hide the cure for cancer because it would put them out of business. Another is that there is a formula that turns water into gasoline -- or lead into gold.

"Just cut taxes, and we will all have more money." "Taxes take money out of the economy." "It's your money and you should decide how to spend it."

"But," some people asked, "where will the money come from to pay for our roads and schools and all the things that have made us so prosperous?" The seductive response from the tax-cutters was that government is an anonymous, incompetent, inefficient "them" that spends too much money that we could all have in our pockets, and if we just cut out waste everything would be all right. Just cut the waste.

The thing was, whenever one tried to pin them down on specifics of this waste they would never really explain where all that fat really was that they were going to cut -- at least not in quantities sufficient to match their tax cuts. Don't worry, put us in power, cut the taxes, and it will all sort itself out.

So eventually we fell for it and cut taxes and put the anti-government people in power. When we noticed that their tax cuts went mostly for corporations and the very rich, they said don’t worry, the money would trickle down to the rest of us. So we quieted down and waited for the magic to happen. When we noticed that the corporations and wealthy were getting richer and richer while we were losing our pensions and health insurance and jobs, they said don't worry, tax cuts make us richer. We still didn't understand that you and I and the regular people of California were not part of their "us" that would get richer.

The fact is the public officials that We, the People had elected had done competent jobs and there just wasn’t really much waste to cut. Why would there be? The people that we had elected had been good managers of our money. Democracy and accountability require open, transparent processes that the corporate anti-government, anti-tax advocates labeled as "inefficient bureaucracy." That was the waste they had been talking about - the oversight and transparency of good government! Our elected officials had put these systems in place and they had made sure there was no waste -- it was a myth.

Our government had been humming along, paving the roads, educating our children and investing in projects that led to modern wonders like the Internet. And we had been enjoying the resulting prosperity. California had the best public schools, colleges and universities in the country. We had the best roads, courts, parks, libraries, health care system, water projects and most innovative and open government and this investment had led to a thriving economic ecosystem.

So instead of cutting imaginary waste we started cutting out this engine of prosperity. We cut the schools and the road maintenance and everything else. The education system started getting worse and the roads and other infrastructure started deteriorating. California fell from first to near the bottom on many scales. Companies started leaving the state because of the deteriorating infrastructure and lower education levels.

Then when cutting our own services wasn't enough we borrowed money to cover those tax cuts and pay for what government was left. We borrowed and borrowed and borrowed. We were just like the homeowner who refinanced every year as prices went up it seemed like the gravy train would run forever.

Today the borrowing is catching up with us. As so many homeowners are learning to their dismay: borrowing means payments. And borrowing more means larger payments. In California the payments on our borrowing just happen to be pretty close to the amount of our budget shortfall. The same is true of the federal government.

Now we approach a day of reckoning for our tax cuts. The bill has to be paid, and the people who received the big tax cuts are pointing the finger at you and me. We can continue to cut out government and lay people off. We can continue to cram more and more children into classrooms with fewer and fewer teachers. We can have longer and longer lines at the DMV. We can close parks. We can have fewer police patrols and fire stations and ambulances and health and safety inspectors. We can just get poorer and poorer.

Or, we can start to close loopholes like the one that lets wealthy people avoid sales taxes on yachts and private jets while the rest of us pay sales taxes on everything we purchase. We can start to close loopholes like the one that lets oil companies pump our oil out of the ground without paying us and then sell our oil to us. We can start to raise taxes on the wealthy and corporations who prosper because of the roads and financial and legal system we built, and whose taxes were cut leading to this mess. They need to stop simply taking and start paying their fair share. We can do these things and start to restore the thriving economic ecosystem we once had.

Have you ever bought something online, had a problem, and tried to reach the company's customer support line? Could you even find a phone number to call? If there was a phone number to call did you reach a phone tree or a person? Were you on hold for a long time? If you ever did reach a human, was the person in the United States or did they at least speak English (or Spanish) clearly enough to be able to help you?

A local store employs people in your town, boosting the local economy. The local store either owns or pays rent for their space, which means they pay local taxes to support police and fire services and schools, etc. The local store has people who can help you when you have a problem.

But buying something from your local store usually costs a bit more. This is because they pay to have actual employees to help you, pay rent, pay to maintain a building, etc. And, finally, the goods cost a bit more because you have to pay sales taxes when you shop at your local store.

The state of California, in its wisdom, has chosen to provide a huge tax subsidy to anonymous internet businesses, at the expense of your local retailers. You pay sales taxes locally, but not online.

Shouldn't it be the other way around? Shouldn't the state want to promote local stores, local employment, local police and fire services, local schools and a prosperous local economy? Shouldn't the state be promoting a thriving local economic ecosystem? Instead the state provides a huge competitive advantage to anonymous internet businesses.

With a huge budget deficit, with the Governor calling for 10% across-the-board cuts in your children's schools, police patrols, fire protection, parks, and all the other things our state government does for us, the state still hands the anonymous internet businesses a huge competitive advantage over our local retailers by letting them no charge sales taxes.

You owe it to yourself and your local community to find out if YOUR Assemblymember or Senator supports a requirement that internet companies charge the same sales taxes as your local businesses charge.