Talking Tax Cuts: Too Much Tax?

Talking Tax Cuts: Too Much Tax?

While there has been remarkable peace on the hill in Tallahassee since the legislative session opened last month, there are some reasons to anticipate intensifying conflict. Some of the most important points of contention will have to do with tax cuts: their size, their source, and whether they will be enacted as “permanent” or short-term.

“Permanent” tax cuts are a misnomer. Nothing in statute is permanent. A future legislature can increase the tax the current legislature cuts. What is at issue is whether a tax will go back up automatically after a period of time, or whether it will stay lower unless and until the legislature acts to raise it.

Cutting taxes is politically attractive. We all like getting more for less. Less taxes, more (or even the same) services? Call me happy.

Beyond this obvious fact of politics, the debate about cutting taxes actually becomes fairly complicated.

In general, three kinds of arguments are made on behalf of tax cuts:

  1. The government is collecting too much in taxes.
  2. The government is collecting too much in taxes from this particular source, (not necessarily too much overall).
  3. The government can collect more tax revenue by reducing this particular tax or tax rate.

Today, we’ll explore the first argument.

Collecting “too much” in taxes implies either that (a) the government is spending money doing something it shouldn’t do, or (b) the government is doing something it should do, but doing it inefficiently.

Arguments of the first sort rely upon one’s philosophy of government. The current occupiers of the Malheur National Wildlife Refuge in Oregon, for example, have argued that the federal government is doing things with regard to land that it ought not to do. Those lands, in their view, should be more available to private interests and less tightly controlled by the government. In theory, if we adopt their point of view, we will need less revenue to pay for federal land management, both because there will be less land to manage, and because “management” will be less active.

Here in Florida, we’ve substantially reduced the role of the state government in managing growth. Scaling back the state’s role in overseeing growth management could be the basis for arguing that the state needs less tax revenue. Less work to do, less money needed to do it.

Arguments of the second sort should be driven by good data. It may be that a particular activity is appropriate for a particular government to do, but there are more cost-effective ways of getting it done. Maybe the same work can be done by fewer people (that seems to be the logic behind cuts in the Florida Department of Corrections’ budget for prison staff). Maybe a different process for providing some service would be less costly (this was part of the argument behind my city’s change in flocculants for water treatment back in my days on the council).

Last year’s legislative debate over providing insurance coverage for the uninsured was largely about the first, not the second issue. The Florida House did not want the state to provide a Medicaid-like insurance solution for those who did not receive insurance at work, had too much income to qualify for existing Medicaid and were too poor to qualify for subsidized insurance on the exchange. The Florida Senate thought we should.

Arguments were made about cost-effectiveness by the Senate, but it didn’t really matter. The House didn’t want to “go there,” and neither did the governor. The tax implications of expanding Medicaid, in their collective mind, was an unacceptable price to pay in large part because the service to be provided was not one they wanted to provide.

There are similar divides pending in this session. But the more serious disagreements about taxation appear to be over the sources from which taxes should be taken and whether certain tax cuts might actually produce more, rather than less, tax revenue. More on that to come . . .