Saturday, April 17, 2010

The Tax Spectrum

The debate on taxes, both at the national and state levels, is too simplistic, which may lead our leaders to a non-optimum solution, even ignoring the influence of lobbyists and other special interest groups.

At one extreme are the tea-baggers who argue that all taxes are evil, and nothing should be taxed and (extrapolating, because they never address the cost side of the equation) that all of these services should be individual choices and paid for by those who use them.  At the other extreme are the socialists who advocate that everything should be provided by the collective populace (i.e. government).  (For my conservative friends, Barack Obama is not a socialist)

In reality, the world is not black and white, and every service that we use today falls on a spectrum that ranges from full government support to total private funding.  Few, if any, of the things we take for granted are exempt from some type of taxpayer support.

There is, and should be, a strong correlation between the universality of a service and the portion of that service that is supported by taxes.  This is illustrated by the chart, below.

The horizontal axis represents the spectrum of the type of service, from universal (those that are supported by the community at large) to individual (those that an individual or small group choose to utilize).  The vertical axis represents the percent of funding for that service from taxes or individual contributions.  As you move from the “universal” category to the “individual” category, the percent of that service supported by tax dollars decreases while the contribution by individuals increases.

Some examples are included as annotations on the chart:
  • Fire Protection is a universal service that everyone needs and despite some satiric anti-tea-bagger web sites is fully funded through our tax dollars.  Clearly, pay-as-you-go fire protection is absurd.
  • Moving a bit to the right on the chart is Roads.  Our transportation infrastructure is something that provides universal benefit, even to those non-drivers who don’t use it directly.  Yet, some roads have user fees, so a portion of the fiscal support for our infrastructure comes from a source other than direct taxes.
  • Slightly to the right of the middle of the spectrum is our Food Supply.  While individuals purchase food directly, our tax dollars go to the universal aspects of food supply like quality inspections and farmers’ subsidies.
  • Near the right side of the spectrum is Cigarettes.  Even though smoking is an individual choice, and the price of cigarettes has increased dramatically, taxpayers still fund tobacco subsidies and to some extent the health problems of chronic smokers.
  • State Lotteries are fully funded by the individuals who choose to participate, so they fall in the rightmost portion of this spectrum. 

I’ll leave it to the interested (or bored) reader to place other types of services on this spectrum.

Given this funding spectrum, the issue is not whether a service should be supported by tax dollars, but rather what portion of that service is Universal and deserves taxpayer support.

You’ll notice that one significant area that I left off this chart is Education.  Traditionally, education has fallen toward the Universal side of the spectrum.  This made sense, because all children in the population have the right to a good education with qualified teachers and high standards.  Some families decided to opt out of the public education system in order to include religious teaching for their children, but for the most part public education has been the norm.

Today, there is a movement among Tea Baggers and Republicans to severely reduce the funding for education, especially here in the State of New Jersey.  The consequence of this would be to move our education system to the right side of this spectrum.  A larger percentage of the fiscal support for our children’s education will come from individual payments as opposed to universal tax revenues.  Hence, those children who receive the best-funded education will be from those families who can afford to provide it.  As teachers’ pay in the public system is reduced, it will become more difficult to recruit and retain high-quality instructors.

To avoid this problem, it is important to the future of our country to keep education on the left side of this spectrum.  Yet, there are aspects of today’s education system that are broken and need to be fixed.  We need to pay teachers for performance and eliminate the archaic and mediocrity-reinforcing tenure system.  We need to reduce educational overhead and duplication by consolidating the hundreds of school systems in New Jersey to a couple of dozen or fewer.  Charter schools are not the answer.  They increase overhead and bureaucracy.   Instead, we need to increase our support for public schools, get involved with the boards of education, and use proven business practices like Lean/Six-Sigma to drive out the waste in what was once an excellent system of education.

So when you see the Tea Baggers rail against taxes, keep in mind that there are very few things in the world that are purely black and white.  Taxes are not evil.  They support almost everything we take advantage of in a civilized society.  And one of the best investments of our tax dollars is education for our children.  We need to work hard to make sure we are spending these dollars wisely.

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