Wichita Liberty

Taxation without information. I wish I could take credit for inventing this phrase that I recently heard someone use. It captures very well the key characteristic of USD 259, the Wichita public school district, and its campaign for the proposed 2008 bond issue.

The full article is here: http://wichitaliberty.org/node/711

Remarks delivered to the Wichita City Council, April 15, 2008.

Mr. Mayor, members of the city council, I ask that you not vote to approve this request for a tax abatement, and that you cease this practice altogether. Alternatively, I ask that you adopt a practice that will help realize the costs of these actions.

It is no doubt difficult to compete with other states when they offer huge gifts to companies in order to lure them to their state. That’s a problem that needs to be addressed at a different level of government.

The matter before you now, however, is not the same. This company is not threatening, to my knowledge, to leave our area if the tax abatement is not granted. It appears they would build this facility even if the tax abatement is not granted.

The harmful effect of this tax abatement is this: When someone escapes paying taxes, someone else has to make up the difference. While the tax abatement being considered at this moment is relatively small, many are large, and when companies appear before this body week after week asking for tax favors, it adds up.

This same effect applies to the other governments that are affected: Sedgwick County, the Wichita public school district, and the State of Kansas. When one person does not pay, someone else has to pay more.

These special tax favors expose an inconsistency: business and government leaders tell us all the time that we must “build up the tax base.” Granting these tax favors destroys that base.

Now I don’t blame this company for asking for this tax favor. When councils, commissions, and legislatures indicate their willingness to grant these, businesses respond. So this company, of which I am a shareholder, by the way, is simply responding rationally to its environment.

But some of these companies that are asking for tax favors have problems with consistency. The president of this company has testified in favor of higher taxes to pay for building a facility that his company will benefit from. Now his company asks for relief from paying the taxes he wants others to pay.

As long as this body is willing to grant tax abatements and other special tax favors, I propose this simple pledge: that when the City of Wichita allows a company to escape paying taxes, that it reduce city spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won’t have to pay for them.

As the annual tax deadline is here, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don’t pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, or 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger’s TaxCut software for 2004 shows that a family with two children and $40,000 income (that’s approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we’re told, that’s not really a tax. Instead, it’s the government saving for our future retirement. At least it tells us so.

For those who do pay taxes, they often aren’t aware, on a continual basis, of just how much tax they pay. That’s because for wage earners, federal and state taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line — the amount they receive as a check or automatic bank deposit — and don’t really take notice of the taxes that were withheld. This makes paying taxes almost painless.

For local property taxes, anyone who has a mortgage probably has these taxes incorporated into their monthly mortgage payment. Renters pay them as part of their rent. Everyone who trades with a business pays them, as taxes are part of what goes into formulating prices.

An alternative would be to eliminate the withholding of taxes from paychecks and from monthly mortgage payments. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they’re delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it’s unlikely that governments will stop the withholding of taxes and submit a bill to taxpayers. Instead, it’s left to ourselves to remain aware of how much we are paying.

In a column in the April 6, 2008 Wichita Eagle, columnist Mark McCormick writes about the proposed $350 million bond issue for USD 259, the Wichita public school district, and states: “For the average Wichitan, taxes will rise about $45 a year.” How he arrived at this figure is unknown. He may be referring to bond supporters claim that the taxes on a home worth $100,000 will increase by about $40 per year. But that’s quite different from what Mr. McCormick stated.

The actual figure might be computed this way: According to reporting in Mr. McCormick’s newspaper, the proposed bond issue is estimated to cost $590.6 million in principal and interest over 20 years. The state of Kansas will pay about 25%, so the residents of USD 259 will have to pay only $443 million. That’s about $22 million per year. Divide that by the 311,228 people living in USD 259 (not the city of Wichita, as that’s a different political subdivision) and you get, in round dollars, $71. (It’s really more, because USD 259 residents will pay taxes to the State of Kansas just to get some of the bond issue paid for.)

But let’s don’t quibble over the amounts. What’s more important is that Mr. McCormick attempts to trivialize this expense by comparing it to ten other expenditures that people may make, such a buying cable television or coffee at Starbucks.

What Mr. McCormick evidently fails to recognize is that each of the ten expenditures he cites are voluntary transactions that people may make or choose not to make. USD 259, however, collects its revenue not through voluntary transactions, but through taxes. People don’t have a choice whether to pay.

But even this is not the worst of Mr. McCormick’s column. By far the worst part of this column is his endorsement of the delay of the bond issue election from May 6, 2008 to some unspecified future date. This action by the Wichita school board and Citizens Alliance for Responsible Education (CARE) teaches a terrible example about the value of integrity and sportsmanship to the young people of Wichita. Nothing that the bond issue could build is more valuable than these lessons. I hope that in time and with due reflection that Mr. McCormick will change his mind about his endorsement of this action.

USD 259 (the Wichita public school district) outgoing superintendent Winston Brooks has been receiving a supplemental salary paid for by private interests. This salary supplement, supporters say, was necessary to prevent Mr. Brooks from leaving Wichita for somewhere else where he would be paid more.

One way to look at this salary supplement is that USD 259 received the services of someone whose salary they couldn’t afford. And since the salary supplement was funded by the voluntary action of citizens, how can we object? But there are problems with this type of arrangement.

If a superintendent of schools depends on the owner of, say, a car dealership to lead a group that pays a significant share of his salary, and then it comes time for the school district to purchase cars, how can we be sure there is no conflict of interest?

When it comes time for the school district to purchase cars or anything else, do we check to make sure that the selected vendor isn’t a member of, or have a friend on, the committee that provides the superintendent’s supplemental salary? And if so, is the district getting a good deal? Or would too many restrictions prevent the district from getting the best deal on their purchases?

Another problem is that it may be the case that the superintendent of schools is worthy of a large salary, perhaps much larger than the current salary and supplement. Someone who can effectively manage an organization with thousands of employees and an annual budget of over half a billion dollars is worth a great deal. Someone who can make a positive difference in how well Wichita’s schoolchildren are educated is invaluable.

This illustrates a problem with government institutions. They do not have the flexibility to respond to events and circumstances in the way private enterprise can. If it was the case that the new incoming superintendent could save tens of millions of dollars while greatly improving student outcomes, that person would be worth a salary of, say, one million dollars or more. But as a practical matter, USD 259 could not pay anyone a salary that large. There would be too much resentment.

The main problem is that USD 259, like all government school districts, is funded not through voluntary transactions, but through taxation backed up by coercion. When taxpayers are forced to pay for things they don’t agree with, resentment builds.

Further, because the Wichita public schools raise funds through taxation instead of voluntary transactions taking place in markets, we do not know, and the board of USD 259 certainly does not know, if their expenditures are wise and efficient. This applies to a superintendent’s salary and every other expenditure the school district makes. Absent the test of profitability, or even the test of having to attract customers and revenue through voluntary decisions on the part of consumers, we do not know how efficiently USD 259 manages the resources they have.

In the February 21, 2008 debate between Sen. Clinton and Sen. Obama, Clinton mentioned the “wasteful tax cuts of the Bush administration.”

That’s a phrase that only a leftist politician such as Sen. Clinton could utter with a straight face, and it tells us a lot about the beliefs of Sen. Clinton and her supporters. (I don’t think Sen. Obama’s beliefs are very different on this matter.)

It tells us that they feel they have first claim on the money we earn, and if we are allowed to keep more of it, it is wasted. Wasted, according to Sen. Clinton, that is, because she didn’t get a chance to spend it.

That is perhaps the most important thing to remember about Sen. Clinton, and Sen. Obama, too. They believe that they know better than you how a large portion of your money should be spent, and if you don’t let them spend it that way, it is wasted.

Not that Sen. McCain is that much better. He didn’t support the Bush tax cuts, although he says he does now.

There are many problems with the Bush Administration’s spending, and it’s correct to claim that a large portion of that spending is wasted. There is certainly a problem with the deficits year after year, but that is a problem caused by too much spending, not too little taxation, as Clinton and Obama claim. Taxing less — meaning that people keep more of their own money and spend it the way they see fit — is wasteful only for those politicians and their supporters who believe they know best how to spend the money we earn.

Arthur C. Brooks, associate professor at Syracuse University’s Maxwell School of Public Affairs, has a commentary in the December 8, 2005 Wall Street Journal titled “Money Buys Happiness.” Rich people, the author tells us, are much more likely to say they are happy. Although we are becoming richer as a whole, the percent of people saying they are “very happy” is the same today as it was 30 years ago. Some people say it’s the rich having relatively more than others that makes them happy. This excess happiness of the rich being bad, they say, we should use progressive taxation to improve our “moral fiber” by making after-tax incomes less divergent.

But is this a good idea? “In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are ‘not too happy.’ At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.”

Mr. Brooks also tells us that donating money and time — that is, the giving of charity — illustrates the link between money and happiness: “Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity — empirical evidence that it is indeed more blessed to give than to receive.”

The actions of government can swamp private charity efforts. In the week after hurricane Katrina, I read that private donations had reached $600 million. I thought that was wonderful, until the next news story told me that Congress had just approved some $60 billion in relief, that being described as merely the down payment on the final spending. Government spending overwhelmed private charity, even though not many seem satisfied with the government response, and there are many stories of effective help supplied privately.

So when government taxes us to pay for programs that take the rightful property of one person and give it to another to whom it does not belong, government harms us in two ways: it taxes away happiness and reduces our capacity to engage in charitable activity.