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.