Monday, June 08, 2009

Returning to the scene of the grime

Yesterday, Tom Horner won the first-ever Katie (tm) award for his stunning opinion piece in Sunday’s StarTribune. It was a trilogy of foolishness, dedicated to tax policy, health care, and education. First, I’ll discuss the section that won Horner the Katie (tm): tax policy. Here’s part of what he said:

Minnesota needs a tax system that encourages businesses to innovate and create jobs. That means some business taxes should be reduced or even eliminated. But doing that leaves a revenue hole. The solution is to increase consumption taxes. And that's where too many Republicans draw the line -- because of politics. Republicans should provide leadership that acknowledges that tax reform will increase some taxes in order to reduce those that stifle economic growth and innovation.

At the outset, Spot notes that more reliance on consumption taxes would make the tax system in Minnesota even more regressive. Horner suggests that Republican politicians should just Do The Right Thing and provide leadership to make the income distribution in the state even more unequal.

Here’s some language from a press release about the 2009 tax incidence study (based on 2006 data) from the Minnesota Department of Revenue that Charlie quoted at Across the Great Divide:

According to the report, Minnesota’s tax system in 2006 was somewhat regressive, with lower- and middle-income households paying a higher percentage of overall taxes in relation to income than upper-income households. As in previous studies, Minnesota’s highly progressive income tax [highly progressive is in the eye of the beholder; here the beholder is Pawlenty’s Department of Revenue – Spot] somewhat countered the regressive effects of property and consumption taxes.

Raising the sales tax would just make that regressively worse. If you’d like to read a little more about why progressive taxation is more fair, here are a couple of resources that will be of interest.

Henry Ford understood that his workers had to make enough money to buy a car, or the whole system wasn’t going to work. (More on this and an essay from techno shortly.)

Horner says we have to get rid of business taxes because they “stifle growth and innovation.” Anything a business has to pay for stifles growth. Perhaps Tom thinks that a business should just be permitted to steal its raw materials? Using slave labor would also undoubtedly save millions of dollars. And environmental regulation? Think about how much money utilities could save if they could just belch that darn coal ash into the air for all of us to breathe? Or chemical companies were permitted to dump waste into rivers. What’s a river catching fire or two among friends?

The examples are not just silly. They are all examples of a business enterprise shifting the cost of its operation on to the public or to other individuals. An elimination of business taxes would be no different.

Even Tom Horner might admit in a private moment that businesses are consumers of, and beneficiaries of, government services. On a local level, fire and law enforcement, utilities, streets and roads: almost everything a municipal or county government does. It’s true on a state level, too. Law enforcement, maintenance of a court system, roads, protection of property in the event of natural disasters or civil unrest when the Guard is called out, and the list goes on.

But Spot, doesn’t business just include the taxes paid in the price charged?

Yes, grasshopper, it does. But when a business has to include the social costs of its operation in its price — taxes or pollution abatement or whatever — the price more accurately reflects what a good or service really costs to produce. If a polluter causes or exacerbates asthma, the public pays for part of the polluter’s cost of production. Likewise, if a business benefits from government services provided, but doesn’t pay for them, the public has to.

We can argue about the amount of taxes that should be allocated to business — and we do; it’s called the political process — but Horner’s argument is just for pikers, scrubs, and freeloaders.

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