Taxcut Guru Makes Economic Balancing Act Sound Too Simple
Written by Michael Lewis on June 7, 2007
By Michael Lewis
You’d think executives would universally favor whacking taxes. But a pending property-tax cut met hot debate as the Greater Miami Chamber of Commerce set its goals last week — and rightly so.
Everyone knows the Legislature plans to cut taxes this month. But desirable as relief would be to all — and tax changes are clearly called for — a significant number recognized that perils also lurk in what seems to be a remedy.
A well-intended tax cut is a hot potato because the state is cutting but only local governments will be cut. Legislators aim to be heroes for saving taxpayers money as local officials become villains when they slash services.
Less discussed — because they can’t be calculated until the Legislature agrees on details — are hidden consequences as funds are stripped from government and some taxpayers benefit disproportionately. Clumsy structuring could upset our economic well-being, just as the well-intended Save Our Homes amendment already has.
Complicating the tax-cut equation is a plan to later amend the state constitution and further alter the formula. Without details of that plan or certainty that it would pass, any tax cut raises concern about whether the state would be better or worse off once consequences surfaced.
Certainly problematic is the simplistic rhetoric of tax-cut guru and House Speaker Marco Rubio, who addressed a chamber advocacy panel Friday and revealed a revised deal on a tax-cut framework.
As Miami-Dade Commissioner Katy Sorenson lamented that large cuts in tax revenues would force the county to slice into services that affect quality of life, Mr. Rubio responded, "All we can do is charge people what they can afford to pay no matter what it goes to fund."
Again and again, Mr. Rubio repeated the mantra: "You can’t tax people money they don’t have." "You cannot charge people money they don’t have." You have to find out how much people can afford to pay, "and then government will have to do the best they can with the money they can afford to send them."
Mr. Rubio said he wants to hear from taxpayers, not economists, to set that level of affordability. "I encourage you to help me define what we mean by property-tax cuts."
It’s a very nice, neat system. If practiced at the federal level, it would reduce complex 1040 tax forms to a single line: "Decide the amount you can afford, write it on a check and mail to the Internal Revenue Service. Thank you for your donation."
Unfortunately, taxes are not contributions. The Red Cross and the United Way ask us to give what we can afford, but government cannot just ask — it has to collect what’s needed to keep services flowing. If we don’t like the price, we can vote out elected officials, but replacements wouldn’t switch to a donations-only system, either.
County Commissioner Carlos Gimenez, who favors tax cuts that reduce local governments’ revenues, improved on the formula in a Saturday chamber speech: "We need to strike a balance between what government has to do and what people can afford to pay" — although you’d wish he’d said "what government wants to do" rather than "has to."
"Government has to do a better job tightening its belt," Mr. Gimenez said. "Government will take all that you will give it. … I think it’s time government goes on a diet."
That brings us to a logical point: Sure, there’s fat in government, but simply cutting its income is no guarantee that we’d be cutting fat rather than vital services.
After Mr. Gimenez spoke, County Manager George Burgess talked about ballooning local tax revenue that has been a target in the Legislature. "I assure you it’s gone to good things," he said. Chamber members are polite, and there was no laughter.
Off stage, Mr. Burgess admitted to fat in the budget but said it’s a sliver of total spending. Most fat wouldn’t be cut even if taxes were, he said, because some commissioners will protect funding for ineffectual community organizations and jobs for some ineffective employees.
He and Mr. Gimenez were not alone in admitting to waste. "In the short time I’ve been in office, [I’ve learned that] you do not want to trust government with your money," Miami Commissioner Marc Sarnoff told one chamber committee meeting.
But Mr. Sarnoff made another telling point: If taxes are cut as planned, neither the county nor the City of Miami will be able to fund major projects. Miami’s community redevelopment agencies, he said, wouldn’t be able to, either, because their revenues would tumble.
That would mean that baseball stadiums and museums in parks and port tunnels and everything else would have to look elsewhere for funds — Mr. Sarnoff suggested that the target wallet would be state government’s, bouncing back to legislators the problems they sent to localities.
Yet Mr. Rubio told the chamber that state sales-tax collections, already forecast to fall $1 billion this year, are about to be downsized another $700 million even as local governments’ tax woes boomerang into the Capitol.
All of which made more relevant comments of Coral Gables Mayor Don Slesnick about tax reform. Other than the aim of cutting, he told the chamber, "I’m not sure of the word "reform’ because I haven’t found any specific goals or challenges."
While tax-cut advocates say police and fire must be spared, Mr. Slesnick said, services, roads, trash collection, the public transportation system, parks and recreation, the homeless, literacy, poverty and disease also "are issues that are non-negotiable."
"I wish there was an impact we could make," he concluded fatalistically, "but I think you know the die is cast."
Perhaps not, however, for there are messages key players might well heed.
For chamber members who said that business sometimes has to cut spending 10% or 15%, so government should too, this question: Could you roll back your spending to a 2001 or 2003 level and deliver the same quality? If not, don’t complain if government doesn’t.
For taxpayers calling for relief: The more tax money you keep, the less government service you get, and you may also have to deal with unintended consequences of the way the cut is made. You need and deserve tax relief, but it won’t give you more for less from city or county hall. There is no free lunch.
For local governments: You admit to fat spending. You don’t need Tallahassee to tell you the fat must go. What are you waiting for? The leaner you are today, the less the impact of a tax cut tomorrow. Bank those bucks.
And a corollary, courtesy of chamber member George Brown of the Green Companies: Update your fringe-benefit structures to parallel those in business, where benefits have been slimmed while governments’ have bulked up. Fat fringes are easy targets for state critics who can strangle your budgets. As Mr. Gimenez noted, "With challenges come opportunity."
For the Legislature as it prepares to wield the budget ax: Be careful what you wish for. The more you weaken local government, the more you’ll be beseeched to fund local projects. Your budget is balanced for the next three years, Mr. Rubio said, but you’ll trigger new demands you don’t expect. And when local services crumble, the state will get blame, too. Beware those unintended consequences.
And for Mr. Rubio, this question: Who defines affordability of taxes? If you ask taxpayers and continue to shun economists — I’m told the House refused to hear economic testimony, which is a disgrace — you’re a doctor asking the patient to prescribe his own remedy.
Personally, Mr. Rubio, I’ve got some big expenses this year, what with one thing and another, and I don’t believe I’ll be able to contribute to government at all. Is that really what you wanted to hear?