A couple days ago I was listening to my morning blog cast of the Tom Hartman Show. From time to time he has right wing ideologues on whom he debates on various policies of the right and the left, and what effect they might have on the country as a whole. On this particular day he had a guest who started his side of the debate with a screed about how the Democrats' policies had failed and led to the bankruptcy of several cities. He ran a bunch of names off, Detroit being at the top of the list, but the he mentioned Stockton CA. And that caught my attention. And the reason it caught my attention was that the failure of this city, the bankruptcy of Stockton can be directly attributed to a specific time and event in CA. and the United States History. Proposition 13.
Now this Amendment applied directly to Property taxes, limiting the the amount to 1% of assessed value at the time the bill took effect, and requiring a 2/3rd majority vote to increase the size of the tax. If the property was sold, then a new assessment was made and the new tax on the property would be at 1%, with the prospect of almost no increases in the future. As in most places the property taxes are used exclusively by and in the county that they are raised, but there is an effect on the State finances. The first thing that happened when the Prop 13 went into effect was the State raided its surplus funds to make up short falls at the local level to adequately fund education and other services that local governments provide to its residents. Which brings me to Stockton. See, the question isn't why did the city of Stockton, CA go into bankruptcy? Rather, the l question is why was it a predictable outcome?
Why is this a predictable outcome? Because no consideration was given to why we the people are taxed; and how will future demand for community services impact the ability of the City, County, or State to continue to provide a high level of services to we the people.
The first thing one needs to understand is that TAXES are not an onerous burden on the people. Governments provide services to the people of the City, etc. that the people want or need. We all want our trash picked up, potable water from our water taps, an efficient sewer system, police and fire protections, heath departments that are tasked with insuring that the food we eat at that restaurant is not going to put you in a hospital or kill our elderly or children. We all want our children to obtain a quality education. Elementary, high school, technical schools and Colleges are all part of what we want available to our children as they grow and become adults. We all rely on good roads and bridges to get us to and from places of employment, shopping centers, entertainment centers, etc. The things that we depend on our government to provide us as individuals is a long one. And we all understand that if you want a Cadillac you have to pay for a Cadillac. Cause you aren't going to get a Cadillac for the price of a Chevy. We know this. We also know that we need to pay for the things we buy, whether it be a new TV or internet access. We need to pay for these things. Pre-Prop 13, CA. governments at all levels did a great job at providing a high level of quality services to the people in CA. For example, CA had a great educational system at all levels, and CA had some of the best Universities in the world. Since they were State Universities the costs to CA residents was really low. Before Reagan was governor the tuition for going to a CA State College for CA residents was $0.00. And the same can be said for other services that we the people have demanded and relied upon for a long long time. The question no one ever asks is how are these services paid for? The answer is simple. Taxes.
Ideally, we are all taxed at a level that is commiserate with our income levels. So a person making $50,000.00 is taxed at a lower level than a person whose income is $1,000,000.00.
The monies derived from these taxes are used to pay for the services that we need and demand our government, city, county, state, provide. And remember, businesses alos need and demand these very same services. Taxes are not bad, in and of themselves. They are simply the cost of providing services we want and need. They are the cost of doing business. Simple, right?
So, when you cut taxes the first thing you need to ask is what service am I losing. And if you freeze taxes as Prop 13 did, then you need to do some other things. First, you need to freeze population levels. See as population increase the level of the services needed also increase, which will require an increase in monies to pay for that service. Prop. 13 made that next to impossible. So what is the predictable results? Why Stockton going into bankruptcy. The second thing you need to take into account is inflation. If the cost of these services rise but you are not able to increase you income, or taxes, then the level/quality of the services provide has to decline. At some point, Stockton is going bankrupt.
But what about the argument that cutting taxes will actually increase tax revenues? Cutting taxes, especially for the rich will spark economic growth and that results in increase tax revenues. It is a fabrication. Some spin doctor twisted many of the arguments of JFK made back in 1963-64 tax cut debates. If you search the entire history of taxes vs economic growth, the only time tax cuts to the highest wage earners resulted in increased revenues was after the 1963-4 Kennedy-Johnson Tax plan went into effect. What is left out of the discussion is that this plan ended selective tax breaks, shelters, and loopholes for rich individuals and corporations while the majority of the tax cuts went to the bottom 5/6ths of wage earners. The bottom 5/6th of tax payers truly paid less in taxes, while the top 1/6th actually paid more taxes. The spin doctors left out the part about the rich paying more, and a myth was born.
Bottom line. If you cut taxes you can be 100% sure that sooner or later you will find your city, county, state or country in the same place as Stockton CA. Bankrupt.
And if you give these tax cuts primarily to the very rich and high wage earners, you can be 1000% sure that Swiss and Cayman Island Bankers will see large increases in their deposit levels. For how many Rolexes can one really own?
Have a great day.