Re: Tax Cuts for the Rich and the Fantasies of Grover Norquist

Re: Tax Cuts for the Rich and the Fantasies of Grover Norquist

By Rob Schofield

Two developments from the world of tax policy deserve to have a little extra attention this week.

Development #1: The Insider newsletter reported yesterday that one of the sticking points in state budget negotiations is the Senate’s continued support for an income tax cut on the state’s richest 60,000 taxpayers. According to the newsletter’s July 19 edition:

“The Senate sent a Medicaid relief package to the House on Tuesday in which the state would take over county Medicaid responsibilities in exchange for grabbing a portion of the counties’ sales tax revenue. The bill also included a refundable Earned Income Tax Credit, even if slightly different from an earlier House version of the EITC. Holliman, though, said he didn’t believe the EITC concessions from the Senate would be enough to convince a majority of House Democrats to go along with the Senate’s position of keeping the sales tax hike but eliminating the upper income tax bracket. ‘Our caucus is looking for a balance in that,’ Holliman said.”

Development # 2: The Locke Foundation promotes a new “report” from Grover Norquist’s “Americans for Tax Reform” which alleges that North Carolina’s taxes are the “highest in the south” and that “Tar Heels didn’t begin earning for themselves until July 6.”  The “exclusive” goes on to report that:

“For North Carolina taxpayers, Cost of Government Day came earlier than the national average: July 6. That placed it 27th among the 50 states. Alabama and Oklahoma tied for the earliest calendar date, June 22, for their taxpayers to pay off their overall government expenditures. Connecticut by far had the latest date in Americans for Tax Reform’s rankings, with a date of Aug. 2.

‘The burden in Connecticut is so onerous,’ the report said, ‘both because it has very high relative incomes, getting a big hit from the federal income tax, and because it has high state and local taxes.’”

Setting the Record Straight…

…on Tax Cuts for the Rich – Rep. Holliman and his colleagues should stick to their guns. The more one looks at the proposal to cut income taxes on the highest income North Carolinians, the more it becomes apparent what a terrible idea it is. Not only is the proposal unfair, it makes no sense from the standpoint of tax “adequacy” either. For if a state that wants to assure itself of steady revenue growth in order to cope with rapidly growing population and demands for services, cutting taxes on the wealthy (particularly the wealthy of 2007) makes no sense at all. This is precisely the group whose incomes are skyrocketing and who have the capacity to fund the growth in essential services.

Here are some facts that have yet to receive much attention in the “debate” over this issue (there’s actually never been a public hearing on the Senate’s proposal):

  • The richest 5% of North Carolina families have incomes at least 12.3 times greater than poorest 20%.
  • The income gap between the state’s richest 20% of families and the poorest 20% of families is now the nation’s 10th worst. Similarly, the gap between North Carolina’s richest families and the middle 20% of families is the nation’s 8th worst.
  • In the early 2000’s, the richest 20% of families had an average income ($110,180) that was 7.4 times greater than the average income of the poorest 20% of families ($14,884). This was up from a ratio of 5.3 in the early 1980s. North Carolina’s rate of growth in income inequality over that period was the nation’s 12th largest.
  • Much of the proposed cut on the rich (about 35%) will simply be turned directly over to the federal government. That’s because those who would receive the cut will see their federal income tax bills go up as a result of the fact that they will have less state income taxes to deduct from their federal tax bills.

In other words, under the Senate proposal, North Carolina will cut taxes on the only income group in the state whose incomes have been rapidly rising, thus decreasing its own revenues by $94 million per year and worsening built-in deficits, and transferring more than a third of that money to the federal government! What’s next? Direct cash subsidies for millionaires? Oh wait, those are already on the books.

… on North Carolina’s tax “burden”Norquist’s “Cost of Government Day” report is a variation on the tactic long employed by the Tax Foundation, another national anti-tax group. Both organizations use some extremely crude, back of the envelope math to “calculate” the number of days in the year that “average” Americans are supposedly “working for the government.” Even a moment’s reflection, however, quickly reveals the fundamental flaws in the Norquist/Tax Foundation approach.

First of all, as has been demonstrated by economists at the Center on Budget and Policy Priorities, given the wide variations in the federal and state taxes paid by various income groups, it’s simply not accurate to concoct a single number for all Americans or all North Carolinians. Even Alan Greenspan panned the Tax Foundation approach while still chair of the Federal Reserve. The Center also cites Congressional Budget Office numbers that are well below the Tax Foundation and Norquist estimates.

Second and more to the point, is the philosophical flaw in the Tax Foundation/Norquist approach. While general calculations that compare government revenues to measurements of the economy as a whole (like gross domestic product) can provide useful data, it is simply wrong to characterize the act of paying taxes as “working for the government.”

As the Locke/Norquist folks should have remembered from grade school civics class, public services (be they schools, the military, law enforcement, prisons, roads, parks, fire protection – you name it) belong to and exist to benefit the taxpayers. Sure, all public institutions are, being run by humans, flawed. Many are bureaucratic, wasteful and in need of constant monitoring and reform. A quick look at the latest figures from Iraq or North Carolina’s incentives deal to attract Google confirms this. But the same can easily be said of most large private institutions as well. Tried dealing with a health insurance or cable company lately?

The fact remains that the vast majority of taxes paid by modern Americans go toward the provision of essential services that dramatically improve the quality of life in a way that would be simply impossible if everything were left to the, dog-eat-dog, Wild West model of society favored by the market fundamentalists. In this sense, most taxes that Americans pay are no different than their mortgage (or rent) payments or their food bill – except that they’re often more cost-efficient.

Finally, it’s interesting to note that while the Norquist report goes out of its way to deride the sorry state of affairs endured by the tax enslaved people of Connecticut, there are a large number of categories in which those same people have a heckuva’ lot more “freedom” than North Carolinians. Here are just a few from the Census Bureau:

Median Income: Connecticut – $60,941; North Carolina – $40,729

Population Living in Poverty: Conn. 8.3%; N.C. – 15.1%

Infant Mortality: Connecticut – Conn. 5.4 per 1,000 live births; N.C. – 8.2

Violent Crime: Connecticut – 275 per 100,000 people; N.C. – 468

Persons over 25 with a Bachelor’s Degree: Conn. – 36.9%; N.C. – 25.4%

Public School Teacher Average Salaries: Conn. – $57,337; N.C. – $43,211

Number of Physicians: Conn. – 363 per 100,000 people; N.C. 253

Traffic Fatalities: Conn. – 0.92 per 100 million vehicle miles; N.C. – 1.62     

Pity the poor fools.

About the author

Rob Schofield, Director of NC Policy Watch, has three decades of experience as a lawyer, lobbyist, writer and commentator. At Policy Watch, Rob writes and edits daily online commentaries and handles numerous public speaking and electronic media appearances. He also delivers a radio commentary that’s broadcast weekdays on WRAL-FM and WCHL and hosts News and Views, a weekly radio news magazine that airs on multiple stations across North Carolina.
rob@ncpolicywatch.com
919-861-2065