The Long View 2005-11-03: Taxes, Techno-Libs, Intifada

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The same basic plan for fixing the US Federal tax system keeps coming up: get rid of deductions, and make the rates lower so the change is revenue neutral. And, it will always never happen, because far too many voters and donors have lots of long-term economic decisions made with the tax advantages baked in. I am in that group myself. I think it would probably be better if we didn't make economic decisions with taxes in mind, but I don't know how to get there from here. 


Taxes, Techno-Libs, Intifada

 

Alas for tax reform. The presidential commission has made the correct recommendation:

President Bush's advisory commission on taxes unanimously recommended a vastly simplified tax system on Tuesday that would limit the deduction of interest payments on large mortgages and erase other tax breaks that many Americans enjoy.

Under the perfect tax system, no important decision, personal or financial, would be made because of its tax consequences. That was the idea behind the tax reform of 1986. The plan was to knock out the deductions so that the rates could be lowered. Actually, an astonishing number of deductions were eliminated, but not enough to justify lowering the rates as low as they were lowered. So, Congress created the Alternative Minimum, essentially a patch to a defectively designed system.

There are mysteries here. Individuals will insist on keeping their deductions, even when they are shown that their taxes will be lower without them. Businesses have created a lobbying industry to procure tax breaks, the chief effect of which is to maintain a tax environment in which capital cannot be allocated optimally.

It would be possible for a determined Administration to do the 1986 reform right. However, the New York Times also tells us:

The response throughout the government was less than enthusiastic.

The disenthusiasm extended to the White House. The Administration created the study commission, but the Administration was really interested in pursuing a goofy Social Security restructuring and in tax cuts; the later were enacted without regard to their effect on the tatters of the 1986 reform.

Again, for most purposes I'm a Republican, but the party cares nothing at all for systemic integrity.

* * *

Glenn Reynolds has replied to Peggy Noonan's gathering-storm column of October 27. I discuss her column here. Reynolds' comment is at TechCentralStation:

Peggy Noonan recently wrote that America is in trouble, and its elites are too resigned to the troubles to do anything, concentrating on making a separate peace...[She quotes Ted Kennedy as saying to a group of young friends and relatives]: "when you guys are my age, the whole thing is going to fall apart."

Yes, but what whole thing, exactly? Noonan seems to think it's the whole society, but that's not so clear. Certainly the extensive depression that Noonan attributes to coastal elites doesn't seem to show much in my circles. Nor in the circles of blogger Phil Bowermaster, who writes: "What is so all-fired important about the disposition of journalists and politicians?"

Bowermaster notes that the whole coastal-elites-and-media establishment is not just going to fall apart -- it has to a substantial degree already done so. But while this is bad news for the Dan Rathers of the world (and perhaps for the dateless columnists at some big metropolitan dailies) it's not so clear that it's bad news for the rest of us. In fact, I suspect that the elites' discontent comes in no small part from the fact that ordinary people are becoming more powerful all the time, making the elites just a bit less elite with each passing year.

Oh, what do they teach in the law schools these days? I suppose it is possible to say individuals are being empowered. Enough of those people are building bombs in their basements to put civil life at real risk. As for the rest of us, we can now overcome many of the frictions that the physical world imposed on previous periods of history, particularly with regard to communication, but that does not mean we are becoming more independent. Quite the opposite, as I have argued before. Technological progress is profoundly conservative. It lets us reach back through the ages of mass civilization and bureaucracy to the primordial world of fairy tales. In that world, you can create physical effects just by saying the magic word. However, that world is not without institutions.

So yes, it is perfectly true that many institutions that seemed unassailable a few decades ago now seem to be evaporating. That does not mean that society is going to volatilize into a techno-libertarian mist. It means that there will be a rough patch as the old institutions either disappear, or recrystalize in new, more stable forms.

* * *

I saw Star Wars Episode III over the weekend. I was able to rent the DVD before it went on sale, or was openly displayed for rental. All I had to do was ask.

I have never had much emotional investment in this series, though I have fond memories of the first film, which was actually the IVth film, wasn't it? Anyway, this most recent episode was visually mesmerizing. I could not help but reflect how much more interesting it would be if all the scenes in which the actors spoke were deleted.

* * *

Speaking of bring back old memories, here are some subheads from The Guardian about the ongoing disturbances in the Muslim suburbs of Paris:

· Youths clash with police for seventh night running · Immigrant ghettos erupt at poverty and despair

This was exactly what American liberals said during the urban riots of the 1960s. Matters may be quite different in France, but I might note that riots occurred in many black neighborhoods in American cities during a time of economic expansion, much higher social-welfare spending, and the new political situation created by the recent civil-rights laws. Part of the explanation for the riots was, no doubt, pent up frustration, but immiseration had nothing to do with the explosion; rather the opposite, in fact.

Be that as it may, these disturbances don't sound much like an American riot:

An interior ministry official described it as "more like sporadic harassment, lightweight hit-and-run urban guerrilla fighting, than head-to-head confrontation". Small, highly mobile groups of up to a dozen youths emerge, hurl stones or petrol bombs, and disperse, the official said: "It's hard to contain."

What it does sound like is an Intifada. If it spreads through Europe, we will have a new situation. Could Tony Blankley's plan become relevant sooner than we might have supposed?

Copyright © 2005 by John J. Reilly

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Arizona Private School Tax Credits

Last week the Arizona Republic ran an article claiming that private school tax credit programs under A.R.S. AZ 43-1089 such as the Catholic Tuition Organization of the Diocese of Phoenix, are a net drain on the state treasury.

I think that article is pretty good. I like to see good data like this in the local papers, it helps us make better decisions. With that said, I'd like to compare these results to what I found earlier from the Flagstaff Unified School District budget from 2006-07. The caveats to keep in mind are that Flagstaff is a small town, and the school district serves a large rural area, so costs are probably higher than for one of the big districts in the Phoenix Metro area.

The state contribution to the FUSD budget is $33,150,000, 32.8% of $100,850,000. The local contribution is higher, probably a reflection of bond overrides, with $53,550,000, or 53.1%. The balance is made up with Federal and Coconino County money. The relative size of the local contribution is bigger in Flagstaff, so if you just redid the Arizona Republic analysis for Flagstaff, I think the taxpayers would come out ahead. This may not be true for other school districts, but the article didn't take into account Federal and County funds, and while the relative contributions of other levels of government don't matter per se to the balancing of the Arizona state budget, as a taxpayer, I still have to pay all of that money, so as a citizen it all matters to me.

At the end of the article, Lawrence Mohrweis of NAU is quoted as asking an important question: what happens if the tax credits are taken away? The analysis in the article looked at the marginal costs of adding new students to private and parochial schools, but what would happen to these same schools if the tax credits were taken away? Tax credits have become a big part of private and parochial school budgets in Arizona now. If that money could no longer be donated under the tax credit program, it seems likely that a number of these schools would be forced to close. This would probably cost the taxpayers money, because these schools are often cheaper to run than the public schools. This does not seem like a net benefit to the common good, even if the state is currently hungry for money.

The tax credits definitely make it easier for people to send their children to private and parochial schools, but the price seems to have been great uncertainty about whether the state will continue to favor this course. Thus these schools are at the mercy of state politics.