Which Taxes to Raise, Which Services to Cut?  

Posted by Rob Barton in , , , , ,

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I read a very thought provoking and rather well thought out post today at DemConWatch. With the burst of the housing bubble, multiple industry bailouts, and loss of jobs, government at every level is looking at cutting services and raising taxes. But which services to cut? Which taxes to raise? Taxes are, after all, a necessary evil as our government needs to get funding from somewhere.

That article asked for comments from the readers, and I am doing the same. If taxes have to be raised, or services cut, which do you feel are necessary? Below is the comment I posted on their site. Just a little setup: the commenter before me posted a list of things like tax on gasoline, taxing incomes of the wealthy, and sin taxes. Here is my comment:

I heard something today...

The sin taxes might actually be detrimental to a budget in the long run. When they impose a sin tax, it is usually a little more about changing behavior rather than making money. In Virginia, Tim Kaine is proposing doubling the tax on cigarettes in order to offset the cost imposed on medicare and medicaid when smokers develop emphysema/lung cancer. If they didn't smoke, though, chances are that they would live much longer. We would have many more people living many more years and the cost of general health care for all of them, even if all they required were routine checkups and treatment for minor illneses, would equal more than the outlay under the system where individual freedoms may mean that people choose to live a little more recklessly.
As far as what services to cut? I agree with Karen-Anne in that there is a whole lot of waste that needs to be cut before any essential services lose a penny. They should look at expense accounts and future contracts, and they should definitely look for more efficient ways to govern before raising any taxes or cutting any services. If our leaders tell us that sacrifice is essential, they need to set that ball rolling by setting an example.

In the business that I am in, I have seen expenses in certain areas swing to the good by large amounts simply by stressing to the employees the importance of "best practices". I have seen the same accounts swing back terribly when those same practices are allowed to fall by the wayside. The difference? Better management led to the good swings while poor management led to the bad. Our leaders, no matter what the level of government, are being paid to manage their local/state/federal governments. It is time they start doing so.


I think you are making a mistake in accepting the premise of the question.

There is nothing that indicates that raising a tax increases revenue from the tax. Every time we lower income taxes we increase revenue from them. Same with capital gains. I'd do both, immediately. As a long term measure, we need to massively lower the business tax and stop the dis-incentives that keep businesses from investing in our communities.

Those taxes in NYC? They will be lucky to raise half of what is projected. People's behavior will change to avoid paying them on the margins.

As for cutting spending - government never cuts services. But if it were serious about doing so, I could spend the next month striking individual budget lines and programs and bureaucracies in their entirety.

My point was that there is a point of diminishing returns. A smart (not slick-smart but intelligent) politician will realize that tax cuts will draw in revenue, but the argument that the only way to increase revenue is to cut taxes doesn't always work because you would eventually cut to zero. It's been a long time since algebra, so I don't remember the formula, but eventually a tax cut will decrease the supply of money. The trick is to find the exact tipping point where a lean government can function while taking the least amount of money from the public.

All true. But we are nowhere near that point.

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