Funny thing about money: one has to have it to spend it.
This is as true of state and local government as it is of any organization. For a business, the money comes in as income from sales of products and services and goes out as expenditures for materials, wages, overhead and profit. For governments, money comes in as taxes and fees and goes out as expenditures for programs, along with wages and overhead.
Typically, when elected officials and candidates speak of cutting taxes, they do so with the notion that government does not need all that revenue. They advocate the elimination of some programs, or even whole departments, or they assert that government is wasteful and better services could be offered at a lower cost with better management or privatization.
Once in a while, though, what we hear is that by cutting taxes, we actually will increase tax revenue.
This counterintuitive argument involves assumptions about the extent to which decreased taxes on businesses will attract new business operations to Florida, as well as encourage existing businesses to expand. The notion is that the increased economic activity these relocations and expansions will generate will, in turn, generate more tax revenue from other sources (like sales tax and property tax) than was lost through the tax cuts.
Governor Scott has opted for this cut-to-increase argument this session in his advocacy for substantial cuts in some state taxes. Perhaps this is because his goals for the budget would seem to be mutually exclusive without it. Because the governor and solid majorities in both legislative houses want to invest considerably more in public education . . . which would suggest the need for more, rather than less, tax revenue.
Governor Scott is urging the Legislature to embrace both the large tax cuts he’s proposed and the large increase in expenditure for education, asserting that past tax cuts actually have contributed to increased tax revenue. The implication seems to be that the proposed cuts will do more of the same, filling in the hole in the budget and making the increased expenditures possible.
While tax revenue has increased in recent years even with tax cuts, the state’s own revenue forecasts and revenue analysis suggests that tax cuts actually are hurting tax revenue growth in the state. That’s not surprising, and one could argue that it hasn’t been catastrophic in effect. But the state’s own evidence raises serious doubt that we can cut our way to generating enough tax revenue for the future.
I’m not an economist; I just try to keep up with economic arguments as best I can.
And I’m not opposed to tax cuts. I love having a bit more of the income I’ve earned in my pocket.
If we want to cut taxes because we don’t believe the government needs to do some of what it is doing and/or we have good reason to believe it can do what it needs to do more cheaply, that’s fine. If we want to cut a particular tax and replace the revenue with income from another source, believing that such a shift is more fair, or better for the stability of the state’s revenue stream, or will help distressed members of our community without overburdening others, that’s fine, too.
But when we are promised that we can do something that seems counterintuitive, like eliminating certain taxes as a way of increasing tax revenue, I think we can be forgiven for being a little skeptical. And with the welfare of our state, and particularly our children, on the line, I’d like to see the Legislature set the standard of proof pretty high.
Cutting taxes is attractive on its face. But cutting into our collective capacity to meet the needs of our children is both wrong and foolish. Because it is these children that will drive our state’s economy in the future, along with our crime rate, our poverty rate, and the cost of indigent health care.
Cutting prices is fine as a business plan if there is a reasonable expectation that we’ll increase volume. But cutting prices when we cannot expect the volume to increase is a recipe for business failure.
The same, like it or not, is true of taxes. Cutting taxes may look good on campaign literature, but if the result is cuts in essential services down the road, that’s a harbinger of societal failures for which we all will pay.