RALEIGH – Like rainwater, spilled milk, and sewage leaks, longtime politicians typically follow the path of least resistance.
That’s the main reason why there is so much incoherence in public policy – be it in federal, state, or local government – and why we have the spectacle of some liberals in Raleigh reportedly scheming to head off cuts in education and social services budgets by raising North Carolina’s most regressive taxes, on retail sales, tobacco, and alcohol.
Debating the fairness of the tax code is all well and good, but when it comes time to make a choice, many modern-day liberals would rather have a bigger government with higher taxes on the poor rather than smaller government with lower taxes on the poor.
They may adopt this position because they expect most North Carolinians of modest means will still come out ahead – that the value of government benefits they receive is larger than their extra tax bill. That’s not at all clear, however, particularly if you consider that the economic costs of higher sales taxes are disproportionately borne not just by consumers but by low-income workers in the retail and personal-service sectors.
But more to the point, the basic dividing line between fiscal conservatives and fiscal liberals does not concern the distribution of the tax code. It’s about the size, scope, and power of coercive government. Fiscal conservatives tend to favor a smaller government that leaves more money in the hands of the people who earn it, to spend as they wish. Fiscal liberals tend to favor a larger government than transfers more of the control of income from earners to central planners, to spend as they wish.
A recession, then, is seen as catastrophic not primarily because it reduces the flow of income to private decisionmakers but because it reduces the flow of revenue to government decisionmakers. Liberals instinctively see the latter as intolerable, even if they see the former as regrettable.
While accepting the need for some budget reduction to close recessionary fiscal deficits, liberals emphasize the need for more “revenue” or “public investment,” by which they mean tax hikes. Although all taxes are essentially income taxes, in that by definition they involve transferring income from those who earned it to the government, there are three broad categories of taxes based on their formal structure: income, property, and sales.
So why are few state lawmakers talking about higher income taxes and few local lawmakers talking about higher property taxes? Because these are the most unpopular forms of taxation. It’s no accident that income and property taxes are also the most transparent, the taxes for which North Carolinians receive an annual bill. Asked in the Civitas Institute’s May poll which type of tax they disliked the most, 34 percent of respondents said the property tax and 27 percent of respondents said the income tax. Only 11 percent cited the sales tax.
That’s pretty much all you need to know if you find the tax-policy debate in Raleigh puzzling. Don’t try to assess it on the basis of quantifiable data, consistent principles of taxation, or coherent argument. Instead, imagine that someone has spilled a pool of odious liquid at the top of the hill and it is starting to trickle down.
The sales tax represents the easiest, quickest path to the bottom.
Hood is president of the John Locke Foundation