There’s such a thing as good taxesFeb 22, 2021 11:58AM ● By Karen Telleen-Lawton
My first lesson in taxes came from my dad. His voting guide was simple: if the measure raises taxes, vote “no.” He made an exception for local school taxes.
As I matured, I found his guideline didn’t work for me. Global and environmental problems like climate change require solutions not fundable on a local level. Income inequality has risen steadily since I was a young voter. According to Larry Summers, former Treasury Secretary and former director of the National Economic Council, “If the United States had the same income distribution it had in 1979, the bottom 80 percent of the population would have $1 trillion—or $11,000 per family—more annually. The top 1 percent would have $1 trillion—or $750,000—less.”
Personal tax guidance requires understanding why we have taxes. Sousan Urroz-Korori, co-founder and past director of the Economics Institute at CU-Boulder, writes that a system of taxation “allows delivery of public goods to everyone and provides funding for capitalization.” Urroz-Korori believes the most important traits in a tax system are that it be progressive, simple and neutral.
I absolutely agree that taxes should be progressive: higher incomes paying at a higher rate. Wealthy and upper middle-income earners can afford higher tax rates without impinging on their ability to provide for their families.
Economists generally agree that a simple tax system, where the average citizen can understand and act on it, results in greater compliance. Tax avoidance and tax evasion are much lower with a simple system.
But neutral? I disagree. I believe it’s appropriate to use laws and taxation as carrots or sticks to affect production and consumption that causes financial harm or benefits to society. Helmet laws for cyclists reduce costs in publicly funded emergency rooms, for instance. “Sin” taxes such as those levied on the sale of cigarettes and alcohol provide funds for the societal costs they may cause.
The Wall Street Tax Act of 2019 would have assessed 10 cents per $100 of transactions, potentially reducing “unproductive and speculative trading” and raising $777 billion over a decade. Marcus Stanley, policy director with Americans for Financial Reform, was confident the bill would transition investors toward longer-term investments that contribute to the real economy.
However, the bill got stuck in the House. Other countries in Western Europe have already implemented similar taxes. Nevertheless, Ken Bentsen, a securities industry executive, claimed, “major economies that have adopted such taxes have had overwhelmingly negative results...Past experience also suggests that it would raise less revenue than supporters often claim.”
Of course, no one knows for sure how a new rule will pan out until it’s enacted. Ideally, laws would be based on game theory, where statistical analysis predicts actions and reactions. Instead, they’re designed by politicians, who depend more on compromise than efficiency.
It takes a good public servant to vote in the interests of all the people rather than the well-represented privileged. I could never admit to loving taxes, but I appreciate their role in smoothing the way, whether the pothole is in the road in the economy!
Karen Telleen-Lawton is a Certified Financial Planner that helps seniors help themselves by providing bias-free financial advice.