Tax and Spend

We have been arguing over the past few weeks with the tax sanguininity of our friends over at the Drum Major Institute. Some of our ripostes have been sarcastic, but the substance of the debate reveals deep disagreements about the salutary role of government, and the impact that taxes have on economic growth.

The debate is put into sharp relief by the story in this morning's NY Post that reveals that New York's "overall tax burden is the heaviest in the nation..." Not surprisingly, the story isn't covered at all over at the ("We've never met a tax we didn't like") NY Times. The reason for the ranking is that NY has a bloated and over paid municipal work force, skyrocketing Medicaid expenses, and "school spending well above the national average..."

It is in this over taxed climate that we find the calls for greater "progressivity" to be both alarming and counter productive. Alarming because there is no evidence that the city of New York has the ability to use these taxes in a way that improves the quality of life of the average tax paying citizen. These folks, of all races and ethnicities, are the homeowners in the boroughs whose basic requirements from government are more or less limited to safe streets, infrastructure repair, and a well-functioning school system.

The higher taxes are counterproductive because they lead inevitably to the exodus of our most productive citizens and to fleeing retirees who can do much better on fixed incomes in low taxed southern and western areas of the country. A companion piece in the Post about a fleeing businessman, a lifelong Brooklynite, underscores this point.

The point is driven home by a spokesman for the Business Council who tells the Post that New York is "one of only four states that is losing population." And in the midst of all of this we have the anomaly of a businessman mayor who, perhaps because he is so wealthy that he has lost touch with the facts on the ground, feels that New Yorkers can't complain about taxes because of the gold plated services they demand.

What we have is a city that is caught in a time warp, governed by folks who forget that the 1970's revealed in a stark fashion (and wonderfully chronicled by Ken Auletta's book, "The Streets Were Paved With Gold"), that you can't run a quasi-socialist local government in a capitalist economy. Unfortunately the governing class and the chattering class collude to perpetuate the situation, and Mike Bloomberg is the perfect embodiment of the city's zeitgeist.

At some point the tax and spend impulse will collide with reality. The greatest gift that the city's
poor can receive from their government is a business climate that encourages robust job growth, and quality schools so that the up-and-comers can take advantage of the burgeoning opportunities that will follow economic initiative. Cutting taxes is the only sure methodology for insuring the continued health and vitality of NYC.