Desirability Versus Affordability

Over the past month, particularly in Wisconsin and a few other states, and on the federal level, there’s been a surfeit of political rhetoric about the need for fiscal responsibility, affordable public services, and the need to cut back on unnecessary government/public spending.  On the surface, and indeed on the balance sheets of many states and the federal government, this looks to be an accurate picture of the fiscal status of the United States, or at least of the governmental entities of the United States.

But just how accurate is that “picture,” especially if examined in a larger context?  And how did the states get into that predicament?

I can’t speak to all the states, but here in Utah, when times were flush, the state legislature cut tax rates, reducing revenue by more than 10 percent as well as cutting sales taxes rates on food.  Of course, once the economy turned sour, so did tax receipts, but it’s rather duplicitous to blame government for “wasteful” spending, especially when Utah has the lowest per capita spending on education of any state in the union.

Similar patterns seemed to have occurred in other states as well, and yet no one seems to be talking about returning tax rates to previous levels.

According to BLS statistics, the average American household spends about as much on entertainment, tobacco and alcohol as it spends on education [through its share of state and local taxes].  And if you add in fast food, the average household spends 60% more on  entertainment, tobacco, alcohol, and fast food than it does on public education [through state and local taxes].

In general, more than 90% of public primary and secondary education costs are paid through state and local taxes, including sales taxes.  And, on average, these taxes run 8-9% of family income. While much has been made of the fact that 47% of all U.S. households owe no federal income taxes, I’d be among the first to admit that figure is misleading.  The problem is that it’s so misleading that it clouds the issues.  In fact, less than 10% of all households pay no federal taxes, and the average federal tax rate for the “47 percent” runs about 14 percent, taking into account federal payroll taxes, federal gas and excise taxes, and other indirect federal taxes.

The problem here is that the same math applies to those in higher tax brackets as well, so that someone in the 30% federal tax bracket may well be paying 50% in taxes, after one factors in state, local, and sales taxes.  In practice, this tends to suggest that additional funds can’t be obtained easily from trying to hike taxes significantly from supposedly more affluent families who are “undertaxed.”

Yet…less than a one percent increase in state income tax receipts would resolve the budget problems of all but a handful of states [such as California, Arizona, and Nevada], and the monthly increase in state taxes would range from $20- $60 a month for most families, which, by the way, is about 10% of the average family’s monthly fast food bill.

So… is the question really about “affordability”… or is it about politics, and the fact that both politicians and Americans value fast food, entertainment, and other items they view as necessities more than they do education?

13 thoughts on “Desirability Versus Affordability”

  1. My wife and I have our daughter in a private co-op school that a certified teacher runs out of her home. We do this because while our daughter is 7, she performs at 4th grade levels. Even the charter school she was in for over a year, couldn’t keep up with her. Or rather, they weren’t prepared to let her move forward at the rate she was moving forward. So, rather than have our daughter be bored and stuck in a lower grade, doing work that was too easy, we pulled her out.

    Not a problem every parent will face, but as someone who still pays taxes to support the public schools — which my child doesn’t use right now — it’s frustrating on many levels. I’d love to have my daughter in public schools, but I simply don’t trust these schools to educate her for success in today’s workplace. Kids routinely graduate high school now without knowing how to read, write, or do math at even rudimentary levels. 60 years ago the US had some of the best public education in the world. Now, it’s like a gargantuan state daycare system.

    I sometimes think the best solution is to find a way to get rid of the bottom 10% of the teachers, and flush out the bottom 10% of the students. Not the kids with super-poor grades, but the kids with the attitude and discipline and behavior problems who make life hell for all the other students by distrupting the learning environment.

    Of course, if parents started giving a damn about preparing kids for school, that would help even more. Most parents these days do NOTHING to prepare their kids for school. No ABCs or 123s, and certainly no discpline. Thus, children arrive in kindergarten completely unprepared, and suddenly teachers are forced to try and do for the kids what their parents were too thoughtless or lazy to do.

    It’s a collective mess.

  2. Bob Howard says:

    The principal Republican argument against raising taxes at this point is that it would destroy the economy, yet upper level earners were paying three percent more in the Clinton years and we managed to generate a surplus toward the end. State governments also argue that they’re “broke” and must lower taxes and drastically cut spending. But they’re not broke–every state requires a balanced budget and they simply must make admittedly hard choices on spending and revenue. Unfortunately, that means cuts in spending but no thought to raising revenue.

    The main concern there is that we are in the classic “penny-wise, pound-foolish” situation, opting for the short-term solutions that risk our long-term prosperity. One can argue, and they do, that less spending on education does not necessarily equate to lowered outcomes, but in real life it pretty much means exactly that. At the same time, we see increasing emphasis on teacher performance measures that focus almost exclusively on standardized test scores. The unintended but obvious consequence is teaching-to-the-test pedagogy and a deemphasis on teaching the creative thinking that distinguished American education from so many other countries (and why so many foreigners want to attend US universities).

    Now all of a sudden teachers are the enemy, traitorous, self-centered layabouts, the modern equivalent of “welfare queens.” Anyone who knows a teacher knows they live lives on the economic edge, many with second jobs to make ends meet and teaching kids that often drive better cars than they do. The protrayals of teachers’ unions as the evil cause of state deficits is as revolting as it is inaccurate. A disturbing thread of contempt for true education runs through all of this.

    Your point on prioritizing personal spending is spot on. The reallocation necessary to solve the budget crisis in not inconsequential, but well within the means of the wealthy society that we remain. And why in the world is there no means testing for Social Security? Does Bill Gates intend to draw his full benefits? Why do we stop Medicare taxes above a certain income level? There are any number of ways to address the elephant in the room that represents Medicare and Social Security but precious few politicians are willing to touch the topic at all.

    The fact is that right now we have close to the lowest tax burden of any developed country and yet we feel we can’t possibly pay any more. Nonsense–we’re all looking for a free lunch. Some things are worth paying for and we are well capable of doing so. Our politicians are looking for the easy cuts, mostly politically- rather than fiscally-motivated, and they are focusing cuts on areas that support investment in the future and protecting subsidies and spending that is consumption-related. Fareed Zakaria recently pointed out that our recent prosperity is based on investments in the 50’s and 60’s–the interstate highway system, education, GPS, the internet, etc. Twenty years from now, he asked, what will we point to from today that supports the next wave of growth for the next generation?

  3. I’d agree with most of what you’re pointing out, except for “means testing” for receiving Social Security, which could quickly turn into another version of the AMT if we we have any degree of inflation, where middle class and upper middle class beneficiaries see benefits cut. In effect, the “rich” already get less for what they contribute, because benefits are capped, regardless of contributions, and disallowing or reducing benefits after a lifetime of contributions seems wrong to me, especially for those of us who are self-employed and pay double. The way to deal with high earners is to raise the amount subject to FICA taxes [which would also solve part of the revenue issues], not to get into means testing — unless we’re going to declare that Social Security should only be a program for the very poorest, in which case it’s going to be impossible to get support for “reform.”

    1. Bob Howard says:

      In fact, however, Social Security was indeed intended as a program for the very poorest and most needy. It only morphed into today’s default retirement program over many years. It is not and never was intended to be a forced savings plan where every payer was guaranteed an equal payout on retirement. It is a tax, not a “contribution,” a key distinction and one of the principal reasons there is so much controversy over this “entitlement” that is anything but. My argument is to return at least part way toward the original intent of a safety net of last resort. This program is a collective act of all working Americans to provide for those who, despite a lifetime of labor, cannot provide for a retirement above the poverty line.

      It seems indefensible to me for someone with, say, over $200K per year in income (pick an appropriate cutoff point) to insist on drawing full Social Security because it’s their right and they’ve paid into the system. An analagous argument might be that I have no children and so should not have to pay property taxes to support public schools. But I pay them gladly (truly) because it is our duty as citizens to contribute our share to the collective good of the society and a well-educated populace is essential to a fully-functioning society.

      1. Your analogy to school children is flawed. If you make the equation, what you’re saying is that rich people, however defined, could not send their children to public schools, or would have to pay partial tuition, simply because they’re well-off. Then you get the problem of defining who’s rich, and with the inflation we’ve suffered over the past generation [and, if you believe the government “official” inflation numbers, you’re not living in the real world] it won’t be long before first, upper middle class and then middle class dual income families will be defined as rich, just as happened with the alternative minimum tax. As it is, effectively anyone who earns significant income today, who is eligible for Social Security, who is over age 66, and who makes income above a cut-off already gets their benefits reduced until they’re 70. The problem with reducing benefits by a means test is, as I’ve noted time and time again, that it’s horribly geographically discriminatory. Salaries, benefits, etc. vary by area. $200,000 is rich, or at least very well off, in Plano, Texas, or Cedar City, Utah. It’s not even upper middle class in New York City, San Francisco, Washington, D.C., etc. By far the fairest and best way to deal with both the inequality and long-term financial issues is to keep the current top cap on benefits, but to increase the amount of income and wages subject to FICA. That way middle class earners in high cost of living areas [which means, by the way, that it’s proportionately harder for them to save] don’t get benefits cut because some means test says that they’re “rich.” Doing it that way would also help more with the long-term funding problem.

        1. Bob Howard says:

          Agree with your partial solution on the funding side, as I noted in my previous post–doesn’t make sense to cut off contributions at a fixed income point. Disagree on the analogy–I wasn’t implying wealthier parents, however defined, would pay tuition or not be able to send their kids to public school. My point was that they are paying more for public schools through higher property taxes, as they rightly should. The analogy was to point out the flaws in the funding argument by some on Social Security, i.e., that one should derive benefits proportional to one’s contribution–that’s not how our system works. We’ve had a mix of progressive taxation and flat taxes for most of our history. Flat taxes like sales and VAT hit lower income earners proportionally harder. My feeling on school funding, by the way, is that all relevant taxes should be consolidated at the state level and allocated on a per pupil basis, which would go a long way in addressing disparities across different communities.

        2. Richard Hamilton says:

          That sounds promising, _except_ that as the population ages, more people are eligible for benefits. Thus, maintaining a solvent system with constant benefits to each person means the system becomes an ever larger part of the economy…a part that is not contributing much to economic growth.

          The only system that is stable under all conditions is _no_ system, and that’s what I think we should be gradually moving back to, save that too many are too accustomed to dependency to be willing to consider it. Actually, I missed one: in principle, a system that encompassed everything, cradle-to-grave, could be stable. But in practice, that devolves to what the Russians used to say: “they pretend to pay us, and we pretend to work”.

          So why not bite the bullet and admit that libertarian is the only sustainable economic model, and get on with it?

          (Yes, I like the idea of a wild west marketplace, where only private sharing of information prevents egregious abuses, and everyone is responsible for planning their own future if they wish to survive. “Caveat emptor” used to _mean_ something once.)

          So presumably while waiting for your next Imager or Recluce book to be published, I should go to the used book store and dig up something by L. Neil Smith… 🙂

  4. Richard Hamilton says:

    Teachers, police, and firefighters are all necessary, even if much of the rest of government could be laid off for awhile, and some of it should never have existed in the first place.

    But realistically, government workers enjoy _much_ more job security than private sector workers.

    So in bad times, when perhaps 5% of private sectors workers lose their jobs entirely, why shouldn’t all government workers take a 5% pay cut instead?
    Simply let the first priority when the economy improves be to undo that cut, and I don’t see how anyone can argue that’s anything less than fair. Most people could get by on 5% less, and do so much better than those who lose their entire income.

    As a government worker myself, I wouldn’t be terribly upset by as much as a 10% pay cut under the circumstances…_provided_ there was a serious commitment to bringing spending growth at least down below economic growth, so that the budget would eventually balance.

  5. hob says:

    If you look at the US economic model closely, you’ll find one of the main reasons why taxes are cut is to increase state borrowing. A solid customer for the banks. And a solid customer for the banks is good advertising for foreign investors. Not many places to put ones money in the current slowdown. More foreign investors mean higher currency value, purchasing power etc.

    The problem becomes that a part of the taxes raised have to be given in loan repayments, meaning a shortfall for key sections of the state budget. Education for example. With all the money floating on the global market with nowhere to go, the state sees an opportunity to borrow huge amounts. Huge amounts require greater repayments, greater repayments mean Wisconsin.

    If they succeed it will mean great profits for business friends near the governors. Thats nothing new. The transparency of whats happening is the problem.

    1. Richard Hamilton says:

      By arguing that debt is intentional, I don’t see how you can be suggesting that the remedy is higher taxes (which would probably _lower_ government receipts anyway, since higher taxes slow the economy further). The way to have less debt is to have less government.

      If we could just be trusted not to do violence to each other or each other’s property, and to help one another voluntarily, we wouldn’t need _any_ domestic government, just something to deter invaders, and a whole lot of toll roads.

      But since most of us are probably nearly indifferent or worse (think bell curve, as in half of a large enough population is average or below), we need government, and on balance, we get the sort of poor government we (collectively) deserve – equal parts honest and crooked, competent and incompetent.

      Thus, again, the best government is the least government, which would stand a better chance of doing a few things relatively well.

  6. Griffin says:

    California, which has had major issues in its public school system for nearly fifty years now, needs to withdraw cranium from anus and start directing funds to public education. Not school adminisitrators, but teachers and classrooms. There are far too many kids trying to get schooling in temporary schoolrooms built twenty-plus years ago.

    Where to get these funds?

    Double the property tax.

    “What!?” screams the reactionary.

    Two percent is nothing relative to the property taxes paid in other states, and as property tax is an exemption on federal taxes, the expense is ameliorated. The poor are not as heavily impacted by such an increase (Although I am not so naive as to think that landlords won’t pass on this expense to their tenants, but such landlords will have more tax to pay on that, as well.) as they would be by an increase in other taxes.

    This idea has merit, though where such funds would actually go is always the question.

  7. Grant says:

    What I don’t get is why so many of you seem to think that more money is going to solve education problems. As a student I can tell you that the only thing that is going to make a _significant_ difference in the level of education, is a paradigm shift among the students of America. More money won’t help that at all, so if your basic argument in favor of increased taxes is that we have bad education results… well you’re standing on a weak platform. Better education will only come through a change in attitude and good luck to any government agency that thinks it can change the attitude of the youth towards learning. That kind of change can only be accomplished on a personal level, connecting person to person with whomever you want to inspire, and the government simply cannot do it, it goes against the nature of the beast.

  8. John says:

    Interesting points raised all around.

    1. There is no one quick fix. The issues in NYC are not the same as New York State or California or Utah. Each area has its own unique set of variables that must be considered.

    2. Taxes – The USA may have a lower tax burden than our European counterparts but as a single middle class american, about 35 to 40% of my pay go toward various income taxes and local property taxes. I’m not going to complain, I’m getting by — but I don’t have a mortgage or any significant debt.

    The cost of living is so high in NYC that a decent one bedroom apt could cost $1,500 – $2,000 easily outside of Manhattan. Add in school loans, modest debt and most New Yorks are living pay check to pay check. That’s not good. Lowering taxes may not help that particular issue but raising them will not help either.

    3. Education. I’ve given this a lot of thought over the years and in places like NYC and California – I think the issue is mostly the amount of resources that go into the non-performing students and I think that is mostly due to single parent households with non-caring parents. The only solution I can think of is to either make those parents pay if their children fail classes (which would never pass) or create an incentive program where kids who excel are granted some type of additional tax break or incentive.

    The college system has some issues but it is ideal in the way it works and administers to students and class scheduling — more so than high school or junior high. This system should be adopted by the lower grades. I think that would also help increase performance.

    Lastly — how much do the states generally pay to keep and maintain school property? I’ve been meaning to look this up because I would like to compare it to what corporate real estate costs are for the same amount of square footage. If they are anywhere close — then I would ask why schools seem behind the times when it comes to amenities like air conditioning. I remember more than a few classes where I was too zapped by the heat to pay attention to the teacher. My main point is that businesses provide their employees with the tools they need to succeed from a positive office enviroment to computers and we don’t approach education in the same way.

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