Taxes

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In addition to the elected positions on the ballot next week, there will be ballot initiatives. We haven't had any time to cover them, but I want to bring one up because it relates directly to the Obama-McShame view of the role of government.

Side note: there was a request in the comments for a framing of the Governor's races. I honestly haven't had time to do that justice, but I'll put up a brief post on that Friday or Saturday.

On the Massachusetts ballot next week will be Question 1, which reads:

Do you approve of a law summarized below, on which no vote was taken by the Senate or the House of Representatives before May 6, 2008?

SUMMARY: This proposed law would reduce the state personal income tax rate to 2.65% for all categories of taxable income for the tax year beginning on or after January 1, 2009, and would eliminate the tax for all tax years beginning on or after January 1, 2010. The personal income tax applies to income received or gain realized by individuals and married couples, by estates of deceased persons, by certain trustees and other fiduciaries, by persons who are partners in and receive income from partnerships, by corporate trusts, and by persons who receive income as shareholders of "S corporations" as defined under federal tax law. The proposed law would not affect the tax due on income or gain realized in a tax year beginning before January 1, 2009. The proposed law states that if any of its parts were declared invalid, the other parts would stay in effect.

Before you read any further, ask yourself, what is your initial reaction to the proposal? Now, hold that thought.

The ostensible goal of the initiative is to make government smaller. The gold standard version of this was Proposition 13 in California, back in 1978. The conservative "logic" is that if government has fewer dollar coming in, the state will spend less, the government will shrink, and people will be more independent.

In reality, the government raises OTHER taxes to cover its costs, because all state governments are required to balance their books at the end of each fiscal year. Unlike the Federal government, they cannot run at a deficit, nor print money. The choices encompass income taxes, real property taxes, sales taxes, use taxes, and direct fees. If you doubt the ability of states (and municipalities) to use creativity in the application of taxes, go rent a car and read the different fees between the quoted price and your invoice. Trust me.

States not only spend money directly, but they reapportion back to the counties and/or municipalities (depending on the specific state constitution and regulations.) Therefore, directly or indirectly, taxes within a state go to things like infrastructure (roads and schools for example) salaries (people who build/repair roads and teachers, for example) as well as "government" itself. So taxes pay for the police, the police station, the 911 system that takes the calls, the 911 operators, the court system (buildings and employees) and the prisons (buildings and personnel). Finally, the states are responsible for paying for things the Federal government foists upon them, including things like the unfunded No Child Left Behind mandate, plus Medicaid, you get the idea. And if you lose your job, the state is also responsible for paying your unemployment, whether or not there are enough funds in the employer-funded account. You get the idea.

There are two views on this: the fiscal conservatives want fewer taxes and fewer services. The populists want government services, and therefore need to fund them.

Why you care directly: While you would like to pay fewer taxes, you really need to think about what you are willing to give up that the state provides for you now. Or you might have a reason for preferring property taxes and sales taxes to income taxes. Or income taxes to property taxes.

There's a lot of congintive dissonance here. For example, renters often prefer property taxes because they never get a bill for them. However, they forget that their landlords do pay the tax, and will raise rents to cover those taxes.

Why you care indirectly: next Tuesday, there's an election, and Thursday, the Republican party will hold a meeting to determine the direction of their party. There are both fiscal conservative (a la Ronald Reagan) and populists (a la Mike Huckabee). It will be part of the battle for the soul of the party. And how that shakes out determines how we either work with them or run against them. And you can bet I'll be all over that after the election.

Please use the comments to explain what State services you'd be willing to see cut if taxes were reduced. And remember, whether or not the rate is cut, tax revenues to all states are down. Because the economy sucks, there is less income to the states: lowered property values mean lower property assessments, less disposable income means people buy fewer things, and therefore there is less sales tax revenue, less driving means fewer gas taxes remitted, etc. Therefore, states are making these "cut" decisions anyway.

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