I’ve recently had a discussion on the News-Miner site over the proper application of taxes. My opinion seemed to raise some people’s ire, though I don’t think it’s that radical: taxes can be, should be, and in fact already are being used to direct social behavior.
Somebody wrote a letter to the editor condemning the proposal under consideration to replace the City of Fairbanks property tax with a sales tax. (For those who don’t live here, the City of Fairbanks covers about 32 square miles, has a population of 35-40,000, and sits within the Fairbanks North Star Borough, which is larger than Rhode Island, Delaware, or Connecticut and has a population of 95-100,000. Even counting smaller communities within the Borough, it’s clear that most people here live outside the city. The City and the Borough have different public officials, offer different services, and assess their own, separate taxes.)
I tend to oppose sales taxes: even with exemptions for food and medicines, they inevitably hit the poor harder, since 3% of cost is much harder to bear for someone below the poverty line than for someone in (say) the upper 25% of earners. I expect they also tend to reduce commerce, or drive it to those places with a lesser tax — in our case, to the commercial areas outside the City but within the Borough.
If the proposed sales tax is only within the city and replaces city property taxes, then won’t it encourage people to (1) buy residential property within the city and (2) locate their businesses outside the city? (I’m no economist or expert on taxation, so please tell me if I’m off the mark.) While I like the idea of drawing more people into the city to live, I also want them to be able to do business here.
My suggestion — that taxes should be used to encourage some activities and discourage others — raised some people’s bristles. Yet how can it be otherwise, if it’s a correct premise that people on the whole will avoid activities that require them to pay more in taxes and will prefer activities that allow them to pay less?
Obviously, it depends on the activity — but it’s no accident that governments (from local to national) offer tax incentives that they think will encourage economic growth. I think that it’s also the logic behind exempting non-profits from taxes: non-governmental agencies do a lot of good work, but they’re less likely to do it if they have to pay heavy taxes, and most likely if they need pay none at all.
If you’re going to have taxes at all, there is no “neutral position”. There is no “just run the government”. There is no “leave people alone”. Every tax has an effect on people’s economic behavior. You don’t want taxes being used for social engineering? Too bad; they already are.
Unfortunately, for large parts of our tax structure, it looks like the social “engineers” were working blind, or didn’t have clear instructions from the firm that hired them. Now we have a set of largely accidental blueprints for a haphazardly built structure, much of which appears to be constructed on shaky ground.
For example: Currently, buildings are assessed at a greater rate, and count for more of our property tax, than land. (My house is assessed at $131.19 per square foot, while the land is assessed at $3.50.) This provides an incentive for people to live on large plots of undeveloped land and to keep the assessed value of their houses low. And, since assessors usually judge only by external appearances, it provides an incentive for people to keep their properties looking ugly and run-down.
Whether meaning to or not, we have chosen to promote large, undeveloped lots (and the resulting increase in driving time, since people will live farther away from each other) and an ugly, degraded human environment.
As an alternative to that structure, I would support a local tax that was based on the total number of automobile-miles traveled by any car owner living in the Borough — perhaps a product of the miles traveled and the gross vehicle weight, since automobile travel both (1) pollutes the air and (2) furthers the disintegration of community life. And I would support a property tax that was based on lot size rather than building value, since the current tax structure promotes large lots, few capital improvements, horizontal rather than vertical growth, and land speculation.
For now, though, set aside the particulars of what I think should be encouraged or enabled. The core of my argument is:
- Various levels of government are necessary, money is needed to run them, and that money is raised from taxes.
- Every tax on a behavior (including the purchase of a product) discourages that behavior (not for every individual, but at the aggregate level), and the lack of a tax encourages it.
- Therefore, the very existence of citizen-funded government results in some activities being privileged and others being de-privileged — by virtue of the tax structure alone, completely independent of the criminal code or the mandates of particular government programs.
- Since taxes already have this effect, we may as well be deliberate about how they are applied. We should have some social principles in mind.
- The guiding principle for taxation should be promotion (or enabling) of the common good. (I’m fond of the Constitution’s language about more perfect Union and general Welfare — but I recognize the fallacy of appealing to authority.) At the very least, taxes should not encourage activities that promote selfishness at the expense of the common good.
Of course, the question of what constitutes the common good is a thorny one, and there will be no absolute consensus in a community of 100,000. But the difficulty of the discussion does not excuse us from having it, nor does the impossibility of absolute consensus excuse us from the obligation of collective, deliberate self-determination.