When raising taxes works

There are a few times when I think raising taxes is a good thing. If the unemployment rate is down? You might want to raise them. If it’s on an industry that is making more than it could ever need (i.e., the oil industry)? You might want to raise them. If the tax rate is extremely low already and you need funds, a la Illinois? Raise them. That doesn’t mean we always want high taxes. We don’t. But this no-taxes-ever mentality needs to stop. It’s just plain bad economics/greed.

Recently the mayor of Omaha raised taxes and some fees. He was heavily criticized, and in fact, he was almost recalled. But it’s a good thing that city has Jim Suttle.

[Recall] Organizers accused Suttle of supporting excessive taxes, breaking his promises and pushing for changes that threaten the city’s economic future.

But the tax increases helped the city generate a $3.3 million surplus by the end of 2010 and restore its AAA bond rating, meaning it can borrow money on more favorable terms.

It seems to me that the primary motivation for low taxes in all scenarios, aside from the usual greed and dismissal of poor people, is that people think the sooner they get money, the better off they will be. But that is not always the case. In fact, when it comes to investing in infrastructure, something the U.S. has largely been ignoring for the past couple of decades, it is absolutely the long term view that wins. In Omaha’s case, the investment was in gaining a better bond rating. (That isn’t to dismiss the short term win here as well; the massive increase in revenue has helped with the city’s current fiscal crisis.)

So are there times when it is best to raise taxes? Absolutely. In Omaha’s case, it has very low unemployment (4.7%; 4.4% for Nebraska). That doesn’t mean it would always be good to raise taxes. If the city had no shortfall, then why do it? But in tough times, people have to learn to sacrifice. I know that’s an unpopular notion in the 21st century, but it’s the only way a healthy economy can be sustained sometimes.

10 Responses

  1. You are right on some counts but you skate over a major issue, spending.

  2. When I mention investment, I’m talking about spending. We have our necessary, short term spending that yields necessary, short term benefits, but we all too often ignore our needed long term spending because we aren’t going to see immediate returns on it. One recent example is the cancellation of the tunnel project in New Jersey.

  3. We too often spend where we shouldn’t. I’m not talking about infrastructure investment.

    It’s also hard to claim that spending ruinous amounts of money we don’t have and don’t make allowance to pay back is good for anything, even if it does go into infrastructure.

    The biggest long term issues lie in entitlements we are shortly not going to be able to pay for.

    How exactly is the debt going to be paid down to a manageable level?

    We too often ignore our long term debt is what we too often ignore.

  4. Again, Nate, you divert the discussion to something else. Michael is making several valid points and you are diverting to a different topic. Its an obsession with you.

  5. Points I agreed with to a point. Points that I think can’t be taken without other considerations.

    It isn’t taxes in and good investments out. It’s taxes in, some good some bad investments out and some things that are not even investments but things we call entitlements.

    There is also the issue of debt. I assume you own a home, Bob. At the very least you would be familiar with why home ownership is an investment. A good one. Just not always, for example if you have no means to pay the mortgage.

    These things are not separate from one another and really shouldn’t be taken as such. Raising taxes to cover a budget shortfall should rarely ever have to happen.

    They should have been raised to pay for whatever caused the shortfall to begin with. In that way we would be more likely to not borrow outside our means when we do make investments and create entitlements.

    You can delude yourself into thinking these things exist separately, but they don’t.

    You think I’m really on a different topic? I beg to differ and luckily I’m not tied in anyway to your commonly narrow views of what encompasses a topic and what does not.

  6. I’ll just ignore the off topic stuff. Nice post Michael.

  7. That’s nice. Debt, spending and taxation are not related to each other. Someone should tell the treasury, they will be interested in this discovery.

  8. No one is arguing that, its only in your head…LOL

  9. You just got done telling me I was off topic for mentioning those things.

  10. Being related and being off topic are different. Unsubscribing now, time being wasted here by off topic nonsense.

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