Friday, September 1, 2017

School Tax Poll: Setting the Record Straight

There is a saying in Swedish that "what you shout is what you will hear". It means that if you don't want to listen to others, just shout your opinion, the only thing you will hear is the echo of your own voice. 

Opinion polls work the same way. As an experiment, ask ten people this question: 

1. Would you be willing to pay $200 more per year to fund your children's education? 

Then ask another ten people this question: 

2. Would you accept higher taxes for education, if the higher taxes put your job in jeopardy? 

If you find a big majority supporting higher taxes in both cases, please let me know. 

A new opinion poll, reported in the Casper Star Tribune, shows that the battle over your hard-earned money is in full swing: 

More than three-quarters of Wyoming voters are willing to pay more in taxes to fund education in Wyoming, and nearly 60 percent would accept raising the sales tax to fill school coffers, according to poll results released Wednesday by the Wyoming Education Association. "Wyoming voters put education first and are willing to pay for it to ensure our children continue to receive the high-quality education that they are currently receiving," said Kathy Vetter, the president of the education association, at a press conference. 

Many pundits have pushed this poll as an argument in favor of unleashing Taxmageddon on Wyoming. Ignoring the dire macroeconomic consequences of $3-400 million in higher taxes, statist outlets now have a do-good smile on their faces. For example, Wyofile joyfully explains that this poll "will give new ammo to proponents of maintaining the current education funding system". 

What does this mean? Simple: the people polled are perfectly happy accepting higher taxes, so long as somebody else pays them. The Casper Star Tribune again: 

Notably, the poll shows voters would accept raising taxes on wind energy and on mining, oil and gas. Fifty-eight percent said the same for an increase to the sales tax, which lawmakers have discussed before and -- at one point -- included in a bill that passed the House in February. Fifty-one percent of Republicans polled said a sales tax increase would be acceptable. Only 39 percent of those polled said that an increase in property taxes would be acceptable. 

In other words, even with the poll questions biased in favor of tax increases, it still reveals a clear and undeniable reluctance to higher taxes. The closer the tax increase comes to home, the less inclined people are to accept it. It is entirely unsurprising that people are willing to support higher severance taxes, as well as a "severance tax" equivalent on wind; too many legislators and, sadly, too many Wyomingites in general, consider the severance tax a free source of revenue. It is not. Our severance taxes are in fact higher than in some other states - see, for example, this 2013 interstate comparison - and even if we disregard competition from other jurisdictions, it is a bad idea to raise taxes on an industry that has gone through such a major decline in the past two years as our minerals industry. 

Which brings us back to the point about who is going to pay the tax hikes. It is logical that the poll shows somewhat higher support for a sales-tax increase than higher property taxes. The sales tax appears to be non-intrusive - a few percent here, another dime there - and is therefore less visible in consumer finances than an income or a property tax. 

This, however, makes increase in this tax all the more dangerous from an economic viewpoint: when sales-tax increases go into effect, and especially when the increase is broad-based (as is being discussed here in Wyoming), it sneaks up on consumers over time, leaving them with less money and a higher cost of living. Property taxes hit home (yes, pun intended) much more solidly than any of the other taxes. Only the idea of an income tax would probably put people off more than a proposal for higher property taxes. 

Regardless of the facts of the poll, tax hikers are going to squeeze it for every drip of blood they can in order to advance their agenda. As a preamble to the next phase in the battle over the state budget, the Tribune pundits: 

At a joint meeting of the revenue and school finance re-calibration committees in early June, Sen. Chris Rothfuss said legislators didn't know what the public wanted. "Would the public prefer to see cuts to education or would they prefer to see additional taxation?" he asked. Wyoming Education Association officials say their poll has answered that question. Seventy-eight percent of respondents said they would be willing to pay something more in taxes every year to fund schools, and 32 percent said they'd pay at least $200 annually if it went to school finance. 

If every resident of Wyoming - man, woman and child - put up $200 per year on top of what we pay now, there would be another $110 million in the state coffers. That is, if a family with two working adults and three kids can part with $1,000 per year in higher taxes. 

There are just two problems with this number. First, there is no mention anywhere of what this kind of tax hike would do to the local economies of struggling communities. There are areas in our state where people have been forced to walk away from houses because they, having lost their jobs, cannot sell it. There are counties that have lost dozens of businesses and thousands of jobs in the past two years. What will happen to those communities if the state takes even more money out of family checkbooks? 

We are back to the second question in the opening of this article: Would you accept higher taxes for education, if the higher taxes put your job in jeopardy? 

The second problem with the $200 per person figure that came out of this poll is that it is widely inadequate compared to the budget deficit we already have. The current state of the state budget, and its likely near-term future, places the deficit at $400 million in 2019. (This is a year later than I predicted last year; our economy has emerged from its downturn into a new normal, which delays but does not eliminate the growth in the deficit.) Unless we enter a new era of significant growth - and we won't so long as we maintain our current tax-and-regulation economic environment - and unless we make any structural changes to our big spending systems, we will see that budget deficit grow beyond $400 million. 

Which brings us to another point in the Tribune article, namely their quote from Senator Rothfuss: "Would the public prefer to see cuts to education or would they prefer to see additional taxation?" 

Given that the Tribune's quote is accurate, Senator Rothfuss is presenting what logicians would call an incomplete disjunction. There is, namely, a third alternative that Rothfuss leaves out. 

Well, strictly speaking, he doesn't. He just masks it in the "cuts to education" option. When cuts to education spending are presented as just that - cuts - people often think of them as slicing away resources from a school that struggles on to provide the same education as before. But that is only one kind of spending cut, and it is the wrong kind. It is the kind of cut where government tries to continue to deliver on a promise it cannot keep.* What we need instead is a structural reduction in the size of government; a phase-out, if you will, of government monopolies. 

In education, this means allowing private education alternatives to compete with public schools, and giving parents back the authority and responsibility of our children's education. 

There is your third alternative. Speaking of which, I wonder what the result would be of a poll that asked: 

"Would you prefer to pay higher taxes to maintain status quo in our public schools, or would you prefer an education savings account that allows you to send your children to the school of your choice?" 

I, of course, have no resources to pay for a poll, so I guess we will never know. Right? 
*) When government tries to maintain the provision of a promise it is no longer able to actually deliver on, things can go really bad. Anyone interested in what this really means can read my book Industrial Poverty, which - in addition to a solid overview of the literature - explains how governments, stretching way beyond their fiscal ability, begin hurting their countries' economies and sacrificing the future of millions of their citizens, just to give the pretense of keeping its promises. For those interested in the theory behind government spending cuts, I have a paper on SSRN that explains the theory behind austerity.

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