Taxes: A Love Story

What impact do taxes have on the budgetary process?  A conference hosted by the Center for American Progress (CAP) on September 30, 2009 featured panelists who discussed this question and other issues regarding the national debt.

Senator Mark Warner (D-VA) discussed how some of the budget reforms he made while he was Governor of Virginia could be a “model for how we take on this issue at the national level.”

Warner claimed that his “predecessor had set” a budget shortfall of $3.8 billion, which eventually “grew” to $6 billion.  Jim Gilmore, Warner’s opponent in last November’s Virginia Senate race, was quoted in the Virginian-Pilot on October 4, 2008 as saying that “there was never a budget shortfall.”   Warner was nevertheless convinced of Virginia’s alleged economic crisis and required his opponents to choose sides.  He told the CAP audience that, at the end of the day, it was about “who was for Virginia and who wasn’t.”

“We acknowledged we had a crisis.  We acknowledged that we had a structural deficit,” he said.  “We pounded ‘structural deficit, structural deficit’ into a press corps that had never heard the term before.”

Then, Warner’s administration proceeded to make “massive budget cuts,” which were made “much to the chagrin” of Warner’s Democratic allies.  The cut that Warner said really “drove the point home” was shutting down the already overburdened Virginia Department of Motor Vehicles (DMV) for one day a week.

“[This] resulted in the greatest outrage around.  I think I was ‘burned in effigy’ many places around the state,” he said.  “But the value ended up being that it drove home the point to the folks in Virginia that we had a real crisis.”

Warner said that his administration had to “sell the problem,” adding that credit agencies had placed the state’s AAA bond rating on “credit watch.”

“This became that kind of outside validator that the crisis was real and that we had to act” he said.  “It allowed us to rally the business community, it allowed us to find some good allies across the aisle and building that coalition…we then went out to sell a solution.”

What Warner didn’t mention was that the largest tax increase in the state’s history was passed under his administration.  In a July 28, 2005 Wall Street Journal article, Stephen Moore, a former Business & Media Institute advisor, decried the idea that such tax hikes were “necessary” because shortly before the tax hikes would take effect, the states revenue office reported a “massive 7.5% surge in tax receipts” from 2003. (Moore will be speaking at Accuracy in Media’s 40^th anniversary conference on October 23, 2009).

Warner initially supported a ballot initiative where Virginians could decide whether they wanted a $1 billion tax increase to fund roads.  55% of Virginians voters said “no.”

Speaking on the same CAP panel, New York Times columnist Paul Krugman argued that “this is a really bad time to engage in fiscal retrenchment,” insisting that “government spending [and] government deficits do not crowd out private investment, in fact they crowd private investment in.”

“Think about what would happen if we…canceled the rest of the stimulus program.  The economy would shrink, we’d be more depressed and private investment would fall,” Krugman said.  “Because [we] are in a situation right now [where] private investment has already fallen…mainly because businesses don’t want to invest because they are awash in excess capacity.”

He added that it would be a “folly” for government to restrain deficit spending at this point in time.  According to Krugman, the current financial crisis is due to “global excess savings,” in which “the amount that people around the world want to save…is greater than the amount that people around the world are willing to invest…”

The question then turns to how the federal government will continue to fund its future spending.  Krugman suggested that we could fund “climate change” initiatives and current health care proposals “entirely through taxes.”  He also agreed with Warner on “spending cuts,” particularly in the area of defense if we have “a more peaceful world” in the future.

Panelists then addressed the issue of how we go about raising such revenue, particularly in a situation with tax receipts set to drop to 18 percent, according to an August 4, 2009 Associated Press article.

“Our tax system is one of the most important ways that we express our values as a country,” said Lilly Batchelder, Professor at New York University School of Law. “It’s necessary to raise revenue to fund and maintain and create programs if we want to help people that are less well-off.”

Batchelder argued for a “progressive income tax,” saying that the current system is “mildly progressive” but that it could be “much more so.”  She further expressed her disdain for creating tax provisions allowing people to save in tax-free savings accounts, calling this a “horrible idea.”

“I want to emphasize, it’s not just a mediocre idea.  It’s basically the single worst program you can imagine,” she said.  “It ends up helping the affluent the most, basically doing nothing for less-affluent people.”

CAP’s panelists would be hard pressed to cite the provision in the United States Constitution which mandates how people choose to save their money.  Moreover, the questionable circumstances surrounding the ratification of the 16^th Amendment (which allowed Congress to collect taxes on incomes) have been pointed out by groups such as the We the People Foundation for Constitutional Education.

An even more interesting discussion would be how one can reconcile the Internal Revenue Code’s (IRC) definition of “income” (defined as “income from whatever source derived”) and the Supreme Court’s definition of taxable “income” (defined as a “corporate profit” in the case of Doyle v. Mitchell in 1918).

In her new book, Slaying Leviathan, former Accuracy In Academia executive director Leslie Carbone challenges these and other similar notions concerning the morality of the tax code, and argues that tinkering with the code in order to provide incentives desired by progressives leads to the populace looking to an impersonal government to dictate their personal behavior.

During Accuracy in Academia’s Author’s Night on October 15, 2009, Carbone said that she was “encouraged” by the new and vigorous debate about these constitutional issues.  Those who attended this summer’s town halls and Glenn Beck’s 9-12 Project would certainly agree that as this movement gains momentum, Carbone’s message is timely and her optimism is well-placed.

Brittany Fortier is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.