Tuesday, November 22, 2011

Starving the Beast

It’s called ‘starving the beast’: the theory that a constant, consistent reduction in taxes will result in smaller government. A government that has a reduced income stream will, out of necessity, reduce its expenditures and inevitably shrink in size.

The starving process can take many forms. Reduction in income tax rates, particularly at the higher income levels. A reduction in the number of income tax rates, i.e., eliminating the progressivity of the tax rates, thus reducing the volume of dollars coming into the government coffers. Tax caps on government, such as the recent 2% cap imposed on local governments in New York State. Creative tax breaks that favor certain segments of the economy, which has the two-fold impact of reducing tax revenues and reducing supposedly ‘onerous’ regulatory burdens on the market.

Each of these methods has been used in the past 30 years, the result of the ‘Reagan revolution’ of conservative government. We can all argue about whether it has really reduced the size of government; most of the numbers demonstrate that it has not, primarily because governments find creative ways around them. 

Such tactics have had disastrous affects at the state and local government level, where government is obligated to balance its budget annually -- unlike the federal government, they can't print money.  California's education system is frequently held up as an example:  once the leader in the nation, that state's education system suffers from poor school performance and failing infrastructure, as the tax investment has dwindled due to 'proposition 2 1/2', which placed a limit on property taxes.  Over the past 30 years, the State has not filled the gap.

A mandated squeeze on taxes forces governments at all levels to make choices, to prioritize where the revenues are spent. And the impact is not always pretty – because the decisions tend to favor those with money and power. Health care, education, food assistance, unemployment programs are targets for cuts, while tax abatement and business investment loan programs are funded.

Meanwhile, those at the top of the income pyramid get to keep an ever-increasing percentage of their money. Reagan and his disciples – the Grover Norquists of the world -- believe that such a system permits the dollars to ‘trickle down’ to those in lower income brackets, as those with money would invest in the market, expanding opportunities for all.

It hasn’t happened.

Sunday, November 06, 2011

Education Disparity

David Brooks weighed in on the income disparity issue on October 31. He did not deny the movement of wealth to a smaller percentage at the top; as with so many apologists, he downplayed the significance and magnitude. He also identified the other disparity, which he names the Red Inequility:

Then there is what you might call Red Inequality. This is the kind experienced in Scranton, Des Moines, Naperville, Macon, Fresno, and almost everywhere else. In these places, the crucial inequality is not between the top 1 percent and the bottom 99 percent. It’s between those with a college degree and those without. Over the past several decades, the economic benefits of education have steadily risen. In 1979, the average college graduate made 38 percent more than the average high school graduate, according to the Fed chairman, Ben Bernanke. Now the average college graduate makes more than 75 percent more.

He believes this Red Inequality is much more important, and has a longer-term negative impact on our country. He states that what we actually need is to close the opportunity gap by improving our capacity to get more people through higher levels of education.

He is right. But if we were to ask him whether we, as a society, should pony up more dollars to get more people through college, he would probably hesitate.

And there, he would be wrong. Because money – and the heavy financial burden necessary for students to complete college and beyond – is one of the greatest roadblocks to that educational opportunity he so eloquently defends.

A roadblock the 1% never has to worry about.