Tag Archives: spending

A Thought on Property Taxes

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Prompted by SIL forwarding to me a call for abolishing property taxes altogether.

Land taxes have a long and venerable history in Western civilization. It’s also a wealth tax that the Left so desperately wants, since only those who own it—us landed gentry—pay taxes on it.

The thing is, as long as we’re going to go about hiring governments to manage and enforce the social compact we’ve agreed to and live under, we need to give it the money it needs to manage and enforce it.

We defined, in our Constitution, only three legitimate purposes for taxes; they’re enumerated in the Preamble to Article I, Section 8: to pay the Debts and provide for the common Defence and general Welfare of the United States. That general Welfare is just as clearly and limitedly enumerated in the ensuing 16 clauses of the Section.

The only way, other than donations out of the civic-mindedness of our kindness, to get that money to government is via land taxes; consumption (sales or VAT) taxes, which are sales at every goods transfer point; income taxes; head taxes, money you pay over just because you exist; or tariffs. Consumption taxes, unlike land taxes, most heavily hammer the poor. The rest of us can adjust what we buy and how much so as to hold down the tax we pay, but there are necessities that must be bought, even by the poor, and they have no purchasing options to manage.

Head taxes have been anathema to, at least, Anglo-Saxon Western civilization ever since we got rid of monarchical power, and in the US’ particular case, started getting racism out of our electoral-civic life.

Tariffs, which are taxes on imported goods and services (and so they’re sometimes referred to as border taxes), increase the cost of goods and services across the board when they’re used as revenue raisers (tariffs as foreign policy tools are a separate matter and outside the scope of this post), and so they’re generally inflationary—which, like sales taxes, hurts the poor disproportionately.

That leaves income taxes, which for me are the least evil of the several necessary evils that are taxes. Beyond that, land taxes, for me, are an acceptable complement to income taxes for funding our government.

Within all of that, there will certainly be efforts by the taxed to manipulate their taxed whatever so as to minimize the taxes owed. It then is important to do the tax on the whatever that minimizes the market distortions—business or personal—that any tax unavoidably causes, along with minimizing the follow-on consequences of a tax’s existence. Property taxes are passed along to buyers and renters by the seller, for instance, and that runs up the cost, of particular interest, of renting—one of those necessities faced by the poor. Landlords also face those tax payments as subtractions from funds available for maintenance and will adjust their treatments accordingly.

Sales taxes lead to tax regime distortion as efforts become necessary to mitigate the tax’ effect on the poor. Exempt necessaries from the tax? Who defines what’s necessary? Under what conditions? The definitions will vary across States, even across lesser jurisdictions. Give refunds to the poor? Based on what criteria? How to measure an individual’s tax expenditure? When to pay those refunds? Tax refunds or reimbursable tax credits for those with no measurable income, or income below the Guideline make the poor wait until tax filing season to get reimbursed. Being poor, though, means they need the money today, not next year.

Income taxes are the least susceptible to such distortions, although a less byzantine tax regime—a single flat tax on all income regardless of source and with no subsidies or credits or deductions—would virtually eliminate opportunities for distortion by either the taxee or the taxer. Even here, land taxes would be a useful complement and supply the progressive tax structure that so enamors the Left. Income varies over time and across individuals, but land values are much more stable, being invariant with respect to who owns or rents the property, rising or falling only with the improvements made or not made by the owner, and only slowly rising in value, in the long term.

As an aside, our various welfare programs are technically unconstitutional, however long they’ve been in existence, as Congressman James Madison noted during a discussion of aid to Haiti after a hurricane: …he could not undertake to lay his finger on that article in the Federal Constitution which granted a right of Congress of expending, on objects of benevolence, the money of their constituents. We also, though, have a Judeo-Christian duty to aid those who are less well off, and we are wealthy enough as a nation that we can wink at such Constitutional strictures, unlike the straits we were in those years ago.

The tension between that duty and what’s constitutional, though, drives the existence of our welfare programs. Deviation from our Constitution, even for the Very Best of Reasons, opens the ramparts to further deviations everywhere. Our welfare spending would be far more tolerable, or at least far less offensive, to our Constitution, though, were that portion of government spending strictly limited to the poor defined by the Federal poverty guidelines, instead of being allowed to be spent on folks with incomes as high as 400% of the Guideline. Folks above the Guideline, after all, are by definition not poverty-stricken.

An Excellent Opportunity in the Offing

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The Bank of England is keeping its benchmark interest rates unchanged for the time being, and it says it’s changing the way it would change the way it reduces its holdings of government bonds at a time when gilt yields have risen to multidecade highs, including pausing auctions of those bonds until next year.

The BOE is doing this in part because gilt yields are at multidecade highs. Those highs also mean that the market prices for the gilts are at multidecade lows. Which creates the opportunity.

Instead of pausing its auctions, or perhaps in conjunction with them, the BOE might take advantage of those near historic low prices and buy back a passel (to use the technical term) of the gilts, particularly those with the longest time yet remaining to maturity, and retire them.

Of course, that would have its maximum effect only if the British government were to get its fiscal house in order and cut out its addiction to spending like there’s no tomorrow, which there won’t be if the government doesn’t. That, though, is another story.

Another Brief Thought on Responsibility

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A WSJ Letters letter writer representing Share our Strength wrote to protest the paring back of Federal outlays to State SNAP programs. He had this early in his missive, and he was right:

We can agree that states should ensure eligible families get the proper benefits.

In the very next sentence, though, he had this contradiction:

But penalizing states without providing the resources to improve administration leaves more children hungry by pushing more parents away from SNAP.

The latter part of that may be true, but it’s not the Federal government’s responsibility to improve any State’s SNAP administration, nor is it the Federal government’s responsibility to provide resources for that improvement. Both of those requirements lie strictly and solely with the State involved.

And, using New York as his example, he offered this naked excusal for States’ failure to perform:

Honest mistakes can happen when overworked caseworkers using outdated technology to calculate benefits have to factor in a gig worker’s fluctuating income or a parent picking up occasional extra shifts.

If [New York] truly were serious about those error rates, it would satisfy its own (not the Federal government’s) responsibility and hire more (well-trained) caseworkers and upgrade the technology those caseworkers must use.

At bottom here is a State’s own decision regarding its own spending allocations. Nothing is stopping any State from changing what it chooses to fund and what set of Federal dollars it chooses to try to freeload off of.

All the Federal government can do, all it should do in our federal republic, is provide incentives to States to carry out their own responsibilities. Withholding financial transfers from States that choose to shirk their own responsibilities is a perfectly fine incentive, and one the Federal government should apply more broadly regarding money transfers to States.

One More Pitch

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In their editorial about the success of the Republican reform of the Federal Food Stamp program, the WSJ editors had this remark toward the end:

Congress ought to reduce the 90% federal payment match for the ObamaCare expansion population on Medicaid….

That would be a small first step, though useful in its way, and it prompts me to push again for something I’ve touted over the years: make Federal transfers to the States, not just for Medicaid, but all Federal transfers, block grants on a declining basis.

Designate the year of enactment as Year0, and tot up the total of all transfers to each State in that year. In Year1, send that amount to each State as a single, no strings attached, block grant. In each year of the interval Year2-Year11, reduce the size of the block grant by 10% of Year1, so that from Year11 on, there are no more Federal funds—which are the tax remittances of all of us American citizens—being sent to the States.

The citizens of each State should not be required to fund the profligacy of other States; those taxes sent to the Federal government should be for the sole purpose of funding the constitutionally mandated expenditures of the Federal government, those expenditures enumerated in Article I, Section 8. Each State’s governing politicians should be required to justify the tax levels and expenditures they want directly to their own constituents.

Of course, there’s one exception to this end of Federal transfers. In the event of a natural disaster that’s beyond the capacity of a State or a region to handle from its own resources, Federal transfers to the State or region would be justified. To hold down the incidence of manufactured emergencies (for instance, excessive spending leading to a risk of fiscal failure), a significant fraction of the transfer, or all of it, should be in the form of loans due in full within, say, five years of the onset of the claimed disaster.

SNAP Reforms

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The Senate’s Progressive-Democrats object to States having even minimal fiscal responsibility for managing Federal outlays to them for welfare programs. Their latest objections concern reforms to SNAP payments. Currently, the Federal government forks over 100% of the funding for a State’s SNAP program, and the State is solely responsible for disbursing those funds to eligible recipients. The current reforms, enacted last year, require those States with error rates—paying out to fraudulent recipients, for instance—above a low level (10%) to begin picking up a small part of the SNAP tab, with effect in 2028.

Progressive-Democrat Senators, en masse, object, and they’re blocking a farm bill unless they get that deadline extended. Their real goal is to functionally eliminate the deadline.

There is an alternative that would render this sort of Progressive-Democrat…foolishness…moot, and it’s one I’ve proposed before. Maybe its time has come, in response to Party’s studied intransigence to any reform that would reduce dependency on Party government.

Designate a nearby year as Year0, and add up all the Federal funds transfers for any purpose to each State in that year. Lump that sum into a single payment for the year. In each subsequent year, reduce that lump sum payment by 10% of the Year0 transfer, until the transfer is reduced, in about 10 years, to $0.00.

Federal transfers—taxpayer dollars—in general should not be getting made to any State except in exigent circumstances. The good citizens of Texas should not see their tax remittances pushed on over to New York or California. The good citizens of New York and California should not see their remittances relayed to Illinois or Iowa. Each State and territory in our union should keep its citizens’ tax remittances solely for the benefit of that State’s/territory’s citizens.

Exigent circumstances: when a State-wide or region-wide emergency arises that’s beyond the resources of that State or region, then Federal transfers (a going in allocation, to start the discussion, would be 50% grant and 50% loan at market interest rates) would be an appropriate means of assisting the State or region in dealing with the emergency.