Taxation and Federalization

When I decided to write my two articles about taxes and local government I wondered if there would be any interest in the subject. I have received more e-mails and comments personally and on the phone from more people—including local legislators and politicians, than I have for any of my previous articles. It seems Idaho citizens are very interested in local and State government. Our everyday lives are certainly more impacted by the decisions that local city and county fathers make, than they are from what goes on in Washington DC.

The articles that inspired me have been previously referenced and can be found in The Wall Street Journal and New York Times. Today there have been several “Letters to the Editor” backstopping those articles, that very much reflect the opinions of citizens and legislators and city fathers that have contacted me over the past two weeks. I will try to combine my thoughts on local and state tax reform with my concern for the unrelenting tendency of government at all levels to expand.

An Article-Letter in the Wall Street Journal today entitled AMERICA’S SPENDING PROBLEM COMES BEFORE ITS TAX PROBLEM describes the situation and the priorities perfectly. Listen up City Councils and JAFAC:

“One of the first lessons taught in business school finance is to sever business and financing decisions. In the context of public finance, the investment decision is how big a government the citizens want. The financing decision is how to finance the government.”

Whoever sets the budget at any level of government has turned the process upside down. As the revenues to government at all levels increase, spending increases and thus the size of government increases at a faster rate. Two years ago, tax revenues for the State of Idaho increased by 33%—mostly because of inflation upward adjustments of sales and grocery taxes, while nominal wages to citizens increased by 12% and real wages increased by zero. Property taxes in most locales decreased because of decreasing property assessments but they were still much higher than they were pre Covid, and still did not drop as much as wages. Interestingly, for older patients Social Security Checks have been adjusted upward based on inflation. Why can’t politicians decrease taxes based on inflation? Ans. Because they believe their duty is to first fund government—then decrease taxes—the cart before the horse!

This is why City Fathers in Garden City, Boise, and Eagle feel that financing future government spending by changing zoning laws, accommodating developers, and allowing them to metastasize their developments into existing neighborhoods with the idea that increasing density, will thus result in increased tax revenues to the various municipalities—they hypothesize. Maybe, but spending would have to decrease or increase at a lesser rate than revenues for that to happen—and that hasn’t happened in Idaho for many years—at all levels of government. The City Fathers are representing the interests of developers and out of State (and country) financiers, not the citizens whose vote they begged for when going door to door prior to the last election.

The Federalization of local zoning laws with the carrot of increased Federal Subsidies (politicians call them investments which is the furthest thing from the truth—bribe is a more appropriate word in my humble opinion) will first go to the pockets of investor- developers, and only later will the “coin in the government coffer clink”. Just like with Federal subsidies to the Idaho Department of Health and Welfare (DHW) and The Department of Education (IDE), as Federal subsidies increase—now over 50% of the overall State budget, the size of government will increase and therefore the cost of government will increase. Why have a legislature or a City Council when most of the budget is subsidized by The FEDS? The Federalization of local and state budgets is a Trojan Horse. We don’t want Federal laws controlling education, medical care and access—insurance, religion, local zoning or women’s rights. These are and should be local issues.

We must first limit government spending to the real rate of wage growth and the “real” inflation adjusted property assessment. Instead at both the State and municipality levels of government they either multiply the increased property value by the tax rate or they set a budget based on the inflated revenues received from State taxes. Our solons who have pledged to first represent the citizens, cut the tax rates by less than the rate of inflation, and then they claim with a wry smile that they have cut taxes.

They can then go back to fund IACI/IMA/IEA/IEA corporate interests at the State level, increase the size of government, and have lunch at the Arid Club or a round of golf at “The Club”, if one is a local city elected official or government employee.

I believe that based on the response that I have received from my previous articles the citizens of Idaho aren’t as ignorant about government finance as the politicians wish we were.

Now is time for “REAL” tax relief at all levels of government. If it happens, we will know the commitment that Republican State and local elected officials have to smaller government. If they don’t work hard to limited government, we will know that their interests—individual and political are married to the special interests that fund many of their campaigns.