Monday, March 29, 2010

States Should be Taking Responsibility

November might be a long way off but the ominous political summer storm will soon engulf the entire nation. I can already hear the political radio adds blasting over the airwaves and see the polarized television commercials between innings of baseball games. Even in this remote area of Colorado the political bashing will reach uncomfortable levels and stress the community to the breaking point. In fact, political rage might be worse in smaller rural areas due to recent popularity of the Tea Party movement.

From my removed prospective, the fundamental issues for our national and local governments is lost in political polarity of both major parties. The issue is really a simple concept for most people on an individual level but due to political positioning the concept has been twisted and manipulated into large scale arguments and complicated solutions. So what is this simple issue that faces our nation?

It is paying for what we receive. All taxes have an associated expense in government, from the local level all the way to Washington. American society expresses what public goods that we want and governments respond by estimating the cost and collecting taxes for each public service. For example, Americans love roads because it allows the freedom to go where we want, when we want. Having well maintained roads is an American tradition that started at the foundation of this nation. In return, the roads provide more than personal freedom, it connects cities, towns and individual houses and allows commerce to flourish. These fee-free roads have helped America become an economic power house.

Paying for what we receive is not a complicated concept. However, both political parties use misleading statements to paint the idea that taxes are bad, instead of taxes being a basic price tag on a good or service. The Tea Party movement owes its popularity to the concept of evil taxes and the opinion taxes should be kept to an absolute minimum.. Far left Liberals on the other hand think of taxes as a corrective tool to punish large companies or wealthy individuals, taxes are ok as long as the rich pay. These two extreme understandings of taxes have diluted the middle of the political spectrum to a point that politicians can buy votes by promising but never paying.

This ongoing process has resulted in citizens who no longer remember why we pay taxes. Citizens want more services and no taxes. The concept of a negative change to the status quo of taxes is known as psychological price anchoring. Humans usually use a starting number to determine the value of a good or service. The starting number does not have to reflect the true cost or value of the good or service but it always effects what the individual thinks of the value.

For example, if I paid $50 in taxes a year (including sales taxes) due to a tax relief program, then I would use that $50 as my anchor in determining the value of public goods I received. The next year a new government was elected and repealed the tax break due to a rise in the state deficit. My taxes are now $1500 a year. Due to the anchoring effect my brain uses, my first reaction would be outrage due to the raise in my taxes. I received all the same services the year before for $50 and now I have to pay $1450 more this year. However, if I took an account of the services I received and then calculated the cost of my share of those services. I would discover that the $1500 was a really good deal. So instead of anger, I might feel good about the services I am receiving.

What am I getting at with this lengthy description of taxes? As a society we enjoy the benefits of public goods and services. So instead of trying to get more without paying we need to account how our tax dollars are used. Right now America can see how inefficient the national government has become and it is not because everyone in congress is corrupt. (although there are many examples of corruption) It is due to the fact one city cannot provide all public services for 300 plus billion people.

States and local governments can effectively handle how much to tax vs. how many services communities want and need. The benefits of having local economies handle their own taxes and finances are enormous. Taking a quick account of service provided to citizens and adding in future goals and projects, local government can then tax the population accordingly. If there is corruption or serious mismanagement of taxes the local population can take action quickly and not have to worry about lobby groups, corporations and other stalling tactics that are present in Washington. Taking responsibility for our taxes is the best way to improve this nation over a long time horizon.

The sad truth is the majority of local governments would rather receive “free” money from the federal government because it helps in elections. Why tax for something when you can get it for free? Well, rational people understand that nothing is free and by delaying payment for a service, we only hurt ourselves in the future. It is time for people to stop complaining about taxes and hold states and local governments accountable for the services we receive. Until then, politicians will promise more and pay for less. America will continue to add to the debt until we are forced to cut most services or raise taxes to unattainable level. Either way, citizens will pay for our lack of fiscal responsibility.

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