Up to no good about public goods

On April 2, the Duluth News Tribune had an “Our View” titled “Road repairs: Hold on to your wallets” about the report of a task force on the repair of city streets.  Why is it that increased taxes to pay for necessary public goods is a bad thing, but increased prices of things provided by the private sector are just seen as “passing on costs”?

It is estimated that a thirty percent increase over two years in property taxes is necessary to pay for the needed repairs.  This is partly required because Duluth can no longer count on the money it had received from the Fond-du-Luth Casino.  In other words, the “tax” paid by gamblers will now have to be paid by all the citizens.

The oldest real estate tax record I have is from 2002.  Our 2014 Duluth property taxes are 2.28 times as much as 2002.  Assuming the proposed 30 percent increase, our 2016 taxes will be 2.97 times as much in 2002.

Now lets compare this to the price increase of Duluth News Tribune.  When I first came to Duluth in 1999, the DNT costs 50 cents.  I’m not sure whether it first went up before or after 2002.  It now costs $1.25 for a single copy.  That is 2.5 times as much.  That’s “worse” than the increase in my Duluth property taxes up to now.  Will it go to $1.50 by 2016?  If so, that will be 3.0 times as much.  Where’s all the shouting about the Duluth News Tribune not living within its means?

How about food prices?  The price of Stonyfield yogurt sticks in my mind from years ago as 54 cents for an eight-ounce container.  One can now get it online for about $1.42 for a six-ounce container.  That is 3.5 times as much per ounce!  Can’t Stonyfield and the grocers live within their means?

The lowest I remember gas prices being in Duluth was 99 cents a gallon.  Now the price per gallon has been around $3.59 per gallon.  That is 3.6 times the low.  Can’t the oil companies live within their means?

What are some major costs in repairing streets?  Asphalt, gasoline, and diesel fuel!  Maybe we can keep our taxes at the 2002 level if we can keep the price of oil and the derivative products at the 2002 level.

But this year, the city took a big hit on fuel expenses.  Lots and lots of snowplowing.  Should the city cut back on the snowplowing to “live within its means”?  How loud would the howls be from the public if the city “lived within its means” for snowplowing?

The same goes for street repair.  It seems many expect city streets to be built to Interstate standards, but they complain both about the potholes and the taxes to fill the potholes.

We could go back to an ancient custom of every road being a toll road.  Barons and other large landowners charged everybody to use the roads across their lands.  This was a big drain on commerce.  In fact, some writers say that the British economy in the 1700s did much better than the French economy because of internal tolls.  The British had practically none.  A French merchant couldn’t travel 20 miles without encountering an internal tariff.  Add that to the super-rich in France ripping off the peasants even more than the super-rich in Britain did.

Ah, toll roads!  Some think that the toll prohibition on Interstates should be lifted.  Actually, there is no blanket prohibition as anyone who has driven I-90 in Illinois or the Ohio Turnpike knows.

As the need and costs of repairs to the Interstate system increases, so does the talk of charging tolls for use of the system.  See “Agreement on Interstate Repair Needs, but Not on How to Pay for Them”, New York Times, April 3, 2014.  Interestingly, some of the big shippers like FedEx and McDonalds object to the tolls.  Many smaller businesses such as restaurants and convenience stores object because they think people will avoid the Interstates to avoid paying a toll each time they exit for a short stop.  Another consideration is what will be the cost to add on the infrastructure to collect tolls?

I bet you dollars to donuts that many of those who want and even demand public goods such as a highway system also object to almost every single tax that makes them possible.

In many ways, taxes are a good bargain.  If we didn’t pay taxes for fire departments, we would be paying a lot more for fire insurance.  If we didn’t pay taxes for an extensive sewer system, we would be paying a lot more for hospital bills.  If we didn’t pay taxes for snowplowing, we would be paying a lot more for auto insurance and maybe even lawyers.

Yeah, I was grumbling as I filled out my state and federal taxes and robbed my bank account to pay what’s due.  And I’m grumbling as I try to figure out how to better spread out payments for the 2014 tax year.  But then I think of the words of George Washington and Justice Oliver Wendell Holmes, Jr.

In his “Farewell Address”, George Washington wrote, “that towards the payment of debts there must be Revenue; that to have Revenue there must be taxes”.

Justice Oliver Wendell Holmes, Jr. supposedly wrote, “I like taxes; they buy me civilization.”

The opportunity cost of freeways

"Opportunity cost" is an economic term to describe the cost of spending money one way instead of another.  Consider the penchant for "across the board cuts" in government spending.  If a family were to do that say with "across the board cuts" in its grocery spending, the kids would suffer.  That is, if Dad cut his beer spending by 25% and the spending on milk by 25%, then the opportunity cost of Dad's beer would be less healthy children.

Every time I drive through the mammoth interchange of I-35 and I-694 in the Twin Cities, I think of all the houses or farms that could be in that space.  I think of all the property tax that has been lost so people ever farther out can get between here and there in a "minimum" amount of time.  Could the lost tax revenue have gone into more public transportation, moving more people with less space?  If public transportation was more widely used, would more people spend less time in traffic when weather conditions make driving difficult?  I'm sure you can think of many more costs associated with complex highways that could be better spent elsewhere.

Here we go again with "fair share" undefined

President Obama has been speaking of "fair share" with regard to taxes, but as many other proponents of "fair share" he does no more than talk about percentage of income paid in taxes.

But this is the wrong argument.

Suppose we have a small town with most people earning a decent income and one person earning over a million dollars a year. The town is small enough that it uses the county sheriff for law enforcement, the regional fire department for fires and first responders, the regional school system, and the county library. Its only major expenses are its streets and a city park. All of its revenues are paid by property taxes. The property taxes are based on market value.

So what is a fair share for everybody?

The millionaire lives in a house whose valuation is such that he pays five percent of the city budget. The town is large enough that most people pay one percent of their income in city property taxes. However, the millionaire only pays a half percent of his income.

Now let's assume that the millionaire earns all of his income investing online in national corporations. He doesn't use any of the city services more than anyone else and maybe even less. In this case, isn't his paying a larger portion of the city taxes a fair share irrelevant?

On the other hand, let's assume that the millionaire earns most of his income being the CEO of a large company in the state. What is his fair share of tax at the state and federal level? He is now using a long list of government services, sometimes directly and sometimes indirectly. If he depends on moving goods from place to place, isn't his income dependent on a good road system? If he has many educated employees, isn't his income dependent on a good school system that will educate future employees? On and on it goes that this millionaire is dependent on a long list of government services to be successful, even some he doesn't like. For example, if he processes food the state or federal inspections may seem bothersome, but he also wins because his customers have more assurance of the safety of the food his company produces. Few have any idea what his "fair share" of state and federal taxes is.

It could be far less than some fixed percentage. It could be a far greater percentage than most people pay. Nobody knows for sure and very few are even considering the real meaning of "fair share".