It’s a familiar refrain: After every losing election, the Democrats’ friends on the left beg them to come home. If the prodigal sons and daughters will for once offer a progressive program, goes the plea, surely next time they’ll win.
The 2002 rout was no different, and the prescribed program was not far behind. From The New Republic to The American Prospect, liberals agreed that the Democrats should be the party of tax fairness. If the Republicans were vulnerable on any issue, it was their reckless tax cuts for the rich. Democrats should propose to be the party of raising taxes–responsibly, in the upper brackets–to restore progressivity to the tax system.
The liberal preoccupation with progressive taxes isn’t limited to the national level. In the face of the worst fiscal crisis since the Escape from New York 1970s, Mayor Bloomberg confounded his Republican supporters with a defense of the value of government, proposing to balance the budget with a package that relied on major tax increases, including a record-busting property tax hike as well as a restored commuter tax.
The proposal was far from perfect, and it drew fire more or less equally from business, homeowner, labor and community advocates. But for the most part, the mayor’s critics focused not on the still-substantial budget cuts, but on the ways in which his changes to the tax system would shift the burden toward working people. If Bloomberg’s tax proposal was enacted, “the rich would get richer while the poor would pay more,” as a page-one Daily News story put it.
On the merits, Bloomberg’s critics were right: The mayor’s proposal would lead to a more regressive tax system. Yes, it would yield more cash for the city, but to many liberals, increasing the tax burden on lower-income New Yorkers was too high a price to pay. “We’re not just looking for additional revenues,” says Bonnie Brower, executive director of the budget watchdog group City Project. “They have to be fair and progressive.”
Few liberals would disagree. But maybe they should.
The issue isn’t so much whether taxes have become more regressive. They have. Progressive taxes are better because they leave money in the pockets of working people. But there’s a real danger that if we focus too much on this battle, we’ll lose the larger war: defending and enlarging the public sphere.
The only meaningful way of talking about tax fairness is by considering taxes and the services they finance–i.e., the common good–as a package. Otherwise, it’s like saying $50 is a fair price without saying what it buys. Especially at the state and local level, where military spending doesn’t muddy the picture, virtually all government spending is highly progressive.
For the typical state government–and New York is typical in this respect–the largest spending categories are K-12 education, at about 25 percent of the budget, followed by Medicaid (20 percent) and higher education and transportation (10 percent each). Other means-tested benefits claim another 5 to 10 percent. Means-tested spending benefits the low-income by definition, and public transit and Medicaid are predominately programs for the poor as well. Public education’s consumers more closely mirror the general public, but still have significantly lower incomes. Taking taxing and spending together, it is clear that government could be financed by quite regressive taxes and still have a progressive impact overall.
It’s worth noting, in this context, that the social democracies of Europe, with their heavy reliance on the value-added tax–essentially a sales tax–have tax systems that are less progressive than those of the U.S. Yet few would deny that, on balance, government policy is much more favorable to workers and the poor than it is here. There may be European workers who would trade guaranteed health care, high-quality day care centers, paid family and medical leave, and 35-hour work weeks for a slightly fatter paycheck, but there can’t be many.
Despite all the attention to who pays the taxes, there’s little evidence that America’s tax system has much effect on the distribution of income–the difference between those at the top and those at the bottom. According to research by the Economic Policy Institute, which gathers extensive data on income distribution, “widening inequality and falling standards of living…are, for the most part, independent of any changes in the tax structure made during the 1980s and 1990s.” In fact, almost none of the large shifts in income distribution since World War II–first diminishing, and then since the mid-1970s, increasing inequality–can be attributed to changes in the tax system.
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But let’s go one step further. Maybe the whole concept of tax fairness is misguided. Maybe a strong public sphere isn’t something that can be measured in dollars and cents.
The focus on the dollar value of taxes and services, after all, rests on the assumption that the main relationship individuals and households have with the government is a monetary one. In other words, add up the taxes paid in, and the services doled out, and you have a gauge of the overall benefit or loss to the citizen. Karl Marx isn’t often cited on local tax policy, but his description of this way of thinking is apt: “The individual carries his social power and his bond with society in his pocket.”
But as Economic Policy Institute economist Max Sawicky points out, much of what people–especially poor people–receive from the government is not available to them in the market. “When you have a public sector, you’re buying stuff that people may not have access to at all otherwise,” says Sawicky. So the cost to the government of providing a service may underestimate by a wide margin its benefit to the recipient.
An obvious example is public space. New York City spends about $300 million annually on its parks–$40 for each New Yorker. But clearly, the value to parks users–especially those without access to private athletic facilities or frequent trips to the countryside–is considerably greater than their own personal share of the cost.
In the end, this is perhaps the biggest drawback to the focus on tax fairness: It is an alternative to making the positive case for a strong, active public sector. It assumes that dollar values for taxes and services can be toted up, and a balance sheet for each income class drawn. But such an accounting overlooks the existence of important social goods for which there is no price tag–and that those are precisely the goods government should provide.
Or as Sawicky puts it, “The question should be, ‘What are the things that government should do, because no one else can?'”
J.W. Mason is a Ph.D. candidate in economics at the University of Massachusetts-Amherst and the Policy Coordinator for the Working Families Party. The views expressed in this article are strictly his own.