The dangers of deficit fever

Why study history? After all, many people (particularly students) find history boring. However, there are excellent reasons for studying history. By observing our actions in the past and their effect we can predict with a fair amount of confidence whether they will work again. For example, based on our experience during the Great Depression, cutting spending lead to less economic activity and prolonged the Great Depression. Lesson: the government should keep spending in ways that stimulate the economy until a recovery is sustainable.

So what are we doing as we just begin to emerge from the Great Recession? Why, we are cutting spending! With history as our example, we now know that we are almost guaranteeing a double dip recession. Moreover, what we are cutting suggests profoundly stupid choices. It appears that whenever we finally emerge from our economic doldrums and near double-digit unemployment, our status of still being a superpower will be problematical.

It is easy to look at countries like Greece, which is in the midst of a terrible deficit-driven crisis, and figure we need to buckle down ourselves. Greece is buckling down, largely because it had no choice. Here is what austerity is also bringing in Greece: a sharp and marked drop in standards of living, a rise in already high unemployment rates, and credit that is hard to get and when available only at usury rates. There is also a lot of civil strife. Students, pensioners and government employees are marching in the streets. Rioters have already killed some people and damaged considerable property. Greece is on the edge of anarchy.

However, here in the United States both our “welfare state” and our total debt as a percentage of GDP is a fraction of Greece’s. This suggests we are in no danger immediate danger from excessive debt. In fact, as financial markets now look shaky again, even more money is flowing into U.S. Treasury bills. So our country is still seen as a safe haven for money, and our debt is seen as good debt, at least compared with other investments. Unlike in Greece, only a small percentage of us retiring at fifty-five or sixty are retiring on a pension. Most of those retiring are retiring only because they lost their jobs and no one will hire them.

Having lost their jobs, they have far less money in their pocket, so they are spending less. When people spend less and earn less, governments collect less in the way of taxes. For the most part, state and local governments cannot raise taxes enough to make up the difference, so they must cut services instead. And since states and local governments have little in the way of bloat, essential services are being cut. Firefighters, police and teachers that thought they had steady jobs are finding themselves unemployed. Here is a real trickledown effect. Because they have less to spend, retailers receive less and perhaps cut their workforce, or reduce hours. When retailers sell less, they need less from wholesalers who also cut jobs. When wholesalers need less, producers and manufacturers make less so they cut jobs. So the economic effect keeps trickling down, exacerbating unemployment, reducing tax revenues and extending our economic doldrums.

Moreover, our supposedly precious children are getting inferior educations. They are stuffed into classrooms with more students, lose opportunities for extracurricular activities and in at least 120 school districts have four-day school weeks. We will depend on their income in our own retirements, but it’s hard to understand how. By teaching them less today, they will likely be behind children in other countries. All these negative effects are because we are now alarmed over short-term deficits that it appears we can comfortably sustain over the short term.

If you have trouble starting your car, you might pump the accelerator hoping the engine will start. The same is true with our economy. What you don’t do is the moment it sputters to life stop giving it gas.

Deficits remain important in the long term. However, Republicans don’t seem to understand that raising taxes is a viable way to solve deficits. If deficits are truly more important than anything else is, then raising taxes has to be on the table. Otherwise, keeping taxes low is more important than deficits, which is the philosophy they have traditionally embraced. It is also important to get spending in line with revenues. But first things first. First the economy has to be vibrant enough so that economic activity reduces unemployment and drives wealth. When this happens, tax collections also increase, reducing deficits.

Unquestionably, we waste and misdirect much of our tax dollars. Our spending on war in Afghanistan is an egregious waste of money because it is a lost cause. A lot of the money given to the Afghan government instead lines the pockets of its largely corrupt Afghan officials. It also goes to pay off warlords who look the other way so our supply trucks carry cargo safely to remote locations. Aside from the wars in Iraq and Afghanistan, huge amounts of money are wasted within the Department of Defense. Secretary of Defense Robert Gates agrees. There is also huge waste in the Medicare system. Some of these expenditures, like building aircraft engines we don’t need, do feed American families. However, but they don’t go to buy things we need to make our country stronger and safer.

It’s pretty clear what we do need to do.  We need to create jobs for the unemployed that will leave us with a stronger country. Jobs provide money, but also feed faith in the future. You don’t get there by laying off teachers, policemen and firemen. These are our first priorities, which is why it makes no sense for Republicans (and one turncoat Democrat) to kill a bill that keeps them employed. You also get there by building and rebuilding bridges and roads, funding innovative research for the 21st century and by investing in the educational needs of all our citizens, activities that are underway but where more money is likely needed. You don’t get there by cutting off unemployment benefits because people have been two years without a job. All that does is breed poverty and homelessness. However, if a chronically unemployed person at least has a check coming in, maybe he can pay his rent and buy food and clothing. That money stimulates a lot of economic activity.

You also raise taxes where it makes sense to do so. Aside from the poor economy, what is feeding the deficit? Mostly tax cuts that we gave to the richest Americans. These are people who can certainly afford to pay more taxes and in some cases genuinely want to pay more taxes. These huge tax cuts drove the problem that caused our deficits to explode. Certainly now is not the time to raise taxes on middle and lower income people, but those who can afford to pay more in taxes certainly should, particularly when richer Americans historically have paid much higher tax rates and still maintained a great standard of living.

Perhaps to achieve fiscal solvency it will be necessary to extend retirement ages or cut benefits in social programs like Medicare and Medicaid. These cuts become much more likely though in a hampered economy. I know my lifestyle would take a severe hit if I lived on half my income. The same is true with our government. A thriving economy will be the engine that creates this wealth again, as it did under Bill Clinton.

We need to spend more to get this economy moving again, even if the debt numbers look scary in the short term. Just as importantly, we need to spend wisely, investing on essentials like education, our state and local governments, and our infrastructure. Doing so prepares us for the economic challenges of the 21st century. To narrow the deficit, we need to repeal tax cuts given to the rich. At the very least, we need to redirect wasted money from places like Afghanistan into useful activities, like maintaining basic services for our citizens. What we do not need is what we have now: a panicky and foolish Congress that cannot see that their version of austerity is just another word for continued recession, unemployment and our quick descent into a second world country.

Chinese drywall: a case in point for why we need government

Does anyone like paying taxes? I doubt it. I don’t. Who would not want to give less of their hard earned money to the government? While like most Americans I don’t like paying taxes, I also understand that civilization (like freedom) is not free. So while I don’t like paying taxes, and know a lot of our tax money is wasted (something that should be addressed, of course), I prefer this to the alternative: anarchy.

During the recent snowstorms here in the Northeast, at one point I ended up with twenty-nine inches of snow on the roof of my deck. From my bedroom, I heard my deck’s support timbers creaking from time to time. I watched its roof warily and wondered if it was going to collapse under the weight of all that white stuff. Trying to shovel if off was not really an alternative, as there was no way to get a ladder into my backyard to even attempt it.

After I thought about it for a while, I recalled back to 1999 when we had the deck rebuilt and covered for the first time. I remembered how cranky the builders were when the county building inspector came over to check their work. Some of his requests seemed silly, like adding outdoor spotlights so people could come up the stairs safely in the dark. Others, it turned out, were spot on. One roof support beam every eighteen inches or so was not up to code, he told them. Double them. They grudgingly agreed, not like they had a choice. Likely because my county has competent building inspectors and modern building codes, the roof on my deck weathered a record snowfall.

I was thinking about this roof the other day when I read this article. The Consumer Products Safety Commission (CPSC) ruled that thousands of homes constructed with defective Chinese drywall must have the defective drywall gutted and replaced. In additional, the entire house’s electrical wires, fire alarms, gas pipes and even the circuit breakers must be replaced as well. The defective drywall has been linked to the corrosion of electrical wires and metal pipes, which mean that affected homeowners now also have to worry their house could catch on fire. Then there are the possible health effects including high levels of formaldehyde and sulfur dioxide that may be responsible for numerous reported cases of nose, throat and lung irritation registered by people living in these houses. Most of these houses are relatively new and include many houses that were reconstructed in the aftermath of Hurricane Katrina.

Imagine you are a homeowner with this problem. Think of the cost of gutting the entire inside of your house and rebuilding it. Think your insurance is going to cover it? My guess is, probably not. You might have some sort of home warranty that came with the house, and you might be able to use it to file a claim. Most likely, you will try to sue to recover the damages, probably by joining a class-action lawsuit. Meanwhile, you will probably cross your fingers that your house will not burn down or that you are not sent to the emergency room suffering from lung inflammation. Now that the government in finally on the case, CSPC chairman Inez Tenenbaum will be flying to China to seek redress from its government. Let’s hope the Chinese do the honorable thing.

We software engineers know that it can cost up to one hundred times as much to fix a problem after a system is delivered as it would be to get the requirement correct the first time. What software engineers know is true of most project-oriented endeavors, like building bridges or constructing houses. Clearly, had this Chinese drywall been known to have been defective it would never have been installed in U.S. homes. Maybe homeowners might have paid a little more for safe American-made drywall, but any homeowner now affected by bad drywall would certainly agree that they would rather have rather paid a little more than to have deal with the huge hassle, expense and health hazard before them.

The CPSC, like many ordinary federal agencies over the last few decades, has had reduced funding. Even the Obama Administration has given the CPSC short shrift, asking for $107 million for the agency in FY10. Congress to its credit realized this was niggardly, and partially because of another scandal (lead in toys produced in China), the CPSC’s budget for FY10 was increased to $136 million. It’s a hopeful trend, but as Consumer Reports has pointed out, the CPSC has been woefully under-funded for years. It appeared that the Bush Administration was trying to strangle it. Not surprisingly, with only 401 full time employees proposed for the agency in FY08, setting up and enforcing standards for safe drywall was on no one’s agenda.

Is government wasteful? Certainly, and there are many places where you can document huge waste and fraud, such as in fraudulent Medicare billing by many health care providers. Does that mean that government cannot provide useful and cost effective services? Absolutely not. I have no idea how much it might cost for the CPSC to create and enforce drywall standards. Let’s say it’s a million dollars a year. Even if it were ten times that much, our slightly higher taxes would more than pay for themselves in the assurance that our home are safer. The state cannot take on this responsibility. Inspecting cargo for compliance with our laws is a federal responsibility.

Perhaps in the Republican mindset, each homeowner would have their drywall independently tested by a private laboratory before having it installed or simply take their chances that they did not install defective drywall. In the real world, this is silly. This is why we have governments, because it makes no sense for every homeowner to do something like this when it can be done once by a government agency at the cost of chipping in a couple extra pennies a year in taxes. Moreover, that’s all it is. Even with a $136 million dollar budget, split among three hundred million Americans, we buy the safety we get from the CPSC for about forty-five cents per person per year. I know I would have no problem paying five dollars a year, or more, to have a lot more assurance that the products I purchase are safe. Nor would most Americans, if the argument were framed this way.

You get the government you are willing to pay for. If you are so insistent in restraining the size and cost of government, even if it means you or I may die because the government is not inspecting foreign drywall, then frankly, I think you are letting ideology override common sense. Perhaps it is time to move to Angola, where you are unencumbered by taxes. As for me, this is why I pay taxes. I am happy to pay whatever taxes are needed to ensure our products are safe. It’s crazy that so many Americans are even disputing this!

Good luck with the budget voodoo, Governor McDonnell

In case you haven’t heard, not only does Massachusetts have a new senator-elect, but Virginia has a new Governor. Bob McDonnell, your typical grey haired white Republican male with a toothy smile and a blonde arm candy wife was sworn in a week ago. He won election by promising no new taxes (a position few find hard to argue with) but also by promising all these new services. Yes, he has a four billion dollar budget hole to fill, but somehow he’s going to cut spending and add services. This includes increasing funds to the Virginia Department of Transportation, which is already decades behind where it needs to be in providing sufficient roads to handle Virginia’s burgeoning population.

Good luck with that, Governor McDonnell. Not that I am wishing you any bad luck or anything, but you are hardly the first governor, Republican or Democratic, to promise all these magical new services without raising any additional taxes. In a way, it’s an easy promise to make. After all, you don’t have to worry about reelection. Virginia governors can only serve one term.

I guess it wouldn’t work to tell voters the truth: that state services, already cut to the bone, have zero fat in them already. To close the four billion dollar gap outgoing Governor Tim Kaine outlined, most residents are going to squeal when they see what it actually means. Virginia’s total budget is around $38 billion, so $4 billion is hardly a drop in the bucket and amounts to about ten percent of the budget. I doesn’t take an accountant to figure out that if you are not going to raise taxes, you are going to add services and you already have a large projected deficit, then you are going to have to further cut services somewhere. You already promised to give more money to transportation and increase the portion of state money given to fund teacher salaries. The only problem is that both the easy and the hard cuts were made years ago.

How crazy has it gotten? The last cut to VDOT budget was $42 million from the road maintenance fund. How much is Fairfax County getting from the state for road maintenance this year? Zero dollars. That’s right, despite being the most prosperous county in the state as well as providing more tax revenue to the state than any other county as well as tons of revenue in gas taxes which is supposed to go for things like highway maintenance, we will get zero dollars for maintenance. So either we just let the potholes get bigger or we raise county taxes to pay to fix potholes which hitherto has been at least partially a state responsibility.

Now as a frequent driver, I’m all for changing this, so I think it’s great that our new governor is going to add to VDOT’s funding but I just don’t see where the money is going to come from. Education, health and human services, and transportation, in that order, are the biggest consumers of state tax dollars. It doesn’t look like education will be cut, unless it is subsidies to state universities, which have already been dramatically reduced and have students howling over their tuition rate increases. You say that transportation will get more funding which leaves human services as a likely place to use your budget knife. These services of course have already been pared to the bone. It’s hard to see how you reduce spending more there. It’s not like Medicaid is optional. It’s a nice gesture that you and your senior staff are going to be taking pay cuts, but that’s all it is and will do almost nothing to address a four billion dollar shortfall.

As best I can tell, you are pinning your hopes on two scenarios. One: the overall economy will improve to the point where more tax revenues come in. I would not take that one to the bank at least for a year or two. The other is your hope to sell oil leases off Virginia’s coast in 2011 and using some of that money to fund the state budget. I’d say the odds are pretty long there too. First, you have to get the federal government to agree to do this. Second, you have to hope that oil companies will be willing to front the money. Lastly, you are assuming that environmentalists won’t tangle this up in the courts for years.

So good luck governor but as Virginia is not licensed to print money, it’s pretty easy to see what’s going to give. Since you promised not to raise any taxes, it likely means that our overstretched state services are going to be more overstretched, which is to say the state will have to stop doing stuff that states typically do and we’re already pretty much giving up on road maintenance. I think it is much more likely that you will find reason to consolidate prisons and let non-violent prisoners out early in an attempt to make your budget math work. You just have to hope Virginia voters do not notice. As costly as prisons are, you still won’t be able to cough up four billion dollars in savings from them.

One promise I can make is that when you leave office in four years we will be lucky if our transportation funding is where it is now and our public school teachers do not have an extra four or five pupils in their classes. As for my fellow Virginians, shame on us for falling for these lies once again. Just once, I’d like to hear a Republican run for office promising no lower taxes and fewer services because that’s what it always means. Virginians would be well advised to buy extra heavy-duty shock absorbers for our cars. There will be many bumpy days ahead.

Suck it in, America

As you may recall, President Obama ran for office by saying that he would not raise taxes on the middle class. Recently in a town hall meeting in Shaker Heights, Ohio, he also said that he would not sign a health insurance bill if it added even one dime to our deficit over the next ten years. Presumably, paying for all these new programs cannot be done solely through taxing the rich and by ending wasteful government programs. Every president in my memory has said they will cut government waste. None of them succeeded in any meaningful way because Congress would not allow it.

Polls show public nervousness about the cost of all these new initiatives as well as our record deficit spending. This nervousness is understandable. As I noted back in 2003, civilization does not come cheap. The gap though between our needs and our resources has probably never been wider. All sorts of bills are coming due. The vast majority of Americans want health insurance reform but are also frightened by how much it costs. Granted they are also frightened about losing their health insurance. If they have health insurance, they are worried about whether they can afford to keep it.

Other bills for our Great Society are coming due. Medicare may get high marks from seniors, but it requires huge subsidies to keep it solvent. Medicaid is also costly and during this recession, its costs are more than the states can bear. This year, for the first time in its history, Social Security will give out more money than it collects. It remains solvent since it has large amounts of government securities it can cash in. Nevertheless, in twenty or so years time if nothing changes the Social Security system will be requiring subsidies just like Medicare. Then there are all those other fixed obligations, like civil service pensions for people like me, which the government may not default on as well.

Hitherto, we have been largely successful in hiding the cost of government through additional borrowing. Unlike the State of California, the federal government can print more money to pay expenses. By doing so of course, it only cheapens the value of the currency, making all our assets worth less and feeding inflation. Understandably, the Treasury prefers to borrow the money rather than create it. Our principle creditor, China, is one of many wondering if putting their foreign reserves in American dollars is still a smart thing.

To paraphrase Bilbo Baggins, the United States Government is like too little butter being spread over too much bread. Government needs to do something it doesn’t like to do: govern competently. In a perverse way, all the deficit spending we accumulated may finally force the conversation about just how big a government we actually are willing to have. The real question is this: do we raise taxes to pay for the government we want, or do we take a meat cleaver to our government instead? We are reaching the point where we will have to do one or the other. We are reaching the end of trying to borrow our way out of making hard choices.

I am sure most conservatives out there are hoping for the “liberal” use of a meat cleaver. The irony though is though that Republicans and reputed conservatives actually in government do not really want to shrink the size of government. They want it to grow. They cannot come out and actually say it but this is in effect what their votes have demonstrated over the years. Every Congressman is in favor of cutting services in other districts, but want to expand them in their district. We saw this absurdity played out last week. Conservative “Blue Dog” Democrats were trying to restrain the cost of health insurance reform, while writing in provisions to raise Medicare reimbursement rates for their own rural districts.

Barring a constitutional convention, the only way to make unpopular decisions is to come up with a mechanism where it can be done without your senator or Congressional representative taking the heat. It worked before with the Base Realignment and Closure Commission, which decided which military bases to close subject only to congressional override. Something similar has been proposed as a way to pay for health insurance reform: have a panel of experts decide what care should be paid for and what reimbursement rates are reasonable subject only to a congressional override. It’s a good idea because it recognizes the reality that when given the opportunity Congress will choose pandering to governing.

Conceptually this is a great model that should be extended to much of government. However, if you do too much of it, you wonder what is the point of having a legislature at all. Our representatives are supposed to be making hard choices instead of avoiding them.

Another possible solution would be campaign finance reform. At least this way a congressional representative would feel freer to vote their conscience rather than placate the sponsors that fund their campaigns. Attempts have been hit or miss, but more importantly, our Supreme Court as it is currently constituted seems hostile to the very idea. This means, of course, that nothing will change and those who provide large campaign contributions will receive a disproportionate share of the federal largess.

This implies, perversely, that the easiest solution for paying for the cost of government is to raise taxes. Granted the idea in general causes hives among most members of Congress. What choice do we have, really? We can either make sure our revenues meet our expenditures or we will effectively reduce the size of government through inflation. However, if we choose inflation your dollars and your investments (at least those valued in dollars) will be proportionately worth less too. Whether we like it or not, our individual wealth is intricately tied to the solvency of our federal government.

If you think of the nation like a group home where we all have a room, would you rather have it shabby with holes in the roof and termites eating at the foundation? Or would you rather it well maintained? For most of us, we would demand the latter. It would be miserable to live in a house that was largely a wreck where the paint is peeling and cockroaches skitter across the floor. We wouldn’t put up with it. Neither should we tolerate a country that is a shabby representation of its former glory.

For myself I would rather have my taxes raised. Granted, I will have less money to spend on other things, but at least some of that money will go to things that matter to me, like making sure when I need health care I can get it, or when I retire there will be enough non-inflated money in the till to pay my Social Security benefits.

I just wish we could have an honest conversation about taxes. I wish the American people would get out of its collective cognitive dissonance. We cannot have it both ways any longer. We must either raise taxes because we agree that civilization in our modern world costs more money, or we must reduce the size of government while understanding that by doing so we are really doing the equivalent of chopping off one of our limbs.

It’s time to stop whining and pay for the government we have. We need a president brave enough to tell us the truth. President Obama, I am looking at you. This is what leadership is really about.

A new inconvenient truth: we need to raise taxes

Way back in 2003, I penned this post that more than five years later still gets regular hits. (It has received eighty hits since the start of the year, according to Google Analytics.) I was very politically incorrect back then when I suggested that we are not paying enough in taxes. I still feel this way and I am sad to say that recent news articles bear me out. We are woefully behind simply maintaining the infrastructure that we have. This was tragically borne out a year ago with the catastrophic bridge collapse of the I-35W Mississippi River Bridge in Minneapolis that killed thirteen people. As a direct result of this event, federal and state money suddenly materialized to replace this bridge. The replacement bridge will cost $234 million and is scheduled for completion by Christmas.

You would think that this event might have changed the dynamics. However, as the Associated Press found, just twelve percent of our most structurally deficient high use bridges have been repaired. It would cost an estimated $140 billion to repair just the bridges that need to be repaired right now. Yet, President Bush is threatening to veto a transportation bill because it spends $1 billion more than he likes. It will not surprise you to learn that Bush’s motives are wholly ideological. He is a conservative and conservatives do not believe in raising taxes or spending money on projects not considered essential. Apparently, despite overwhelming evidence to the contrary, bridge construction is not essential to this president. Our War in Iraq though is essential, and at least some of that money is going to build new bridges for Iraqis. Apparently, bridges are essential for Iraq, but are not essential for the United States. Go figure.

I picked bridge repair as an example only because it is easy to see the consequences of inaction. In fact, our infrastructure is crumbling all around us. Here in Virginia, our state House of Delegates once again bollixed up attempts to raise transportation taxes. The result is that not just bridges that are suffering, but cars spend much time sitting in traffic and consequently unnecessarily spewing emissions. So far this year there have been three Code Red air quality days for the Washington region, and twelve Code Orange days.

Better air quality, like safe bridges, are solvable problems. Neither is solved by rocket science but by the application of money and will. Just as maintaining your car means you extend its useful life, bridge life can be extended through regular maintenance too. Instead, we would rather defer the cost of maintenance to have a little more cash in our pockets today. The result is like driving your car on a half a quart of oil. You can do it for a while, but at some point, you are looking at some very expensive consequences. It is pennywise and pound-foolish.

The anti-tax crowds, epitomized by nuts like Grover Norquist, are pennywise folk. They are convinced that all expenditures of money by governments are ultimately wasteful no matter how much they address a public need. Their philosophy though amounts to living in the moment and closing their ears when the application of their philosophy results in inconvenient news, like what happened in Minneapolis one year ago exactly on August 1, 2007. These problems do not go away by ignoring them. They simply get worse and more expensive to fix.

The irony is that if instead of aggressively cutting taxes we had prudently kept the old tax rates then we would have had the money back then to fix many of the systemic problems that are cropping up all over the place today. Our tax rates seemed quite acceptable to the American public when our president was inaugurated. We were even paying back some of our massive debt. Granted, even back in 2000 we were not quite spending what we needed to spend to address problems like deteriorating bridges. This was due in part to federal gas taxes not having changed since 1993. However, construction costs have increased during that time. The result is that there is less money available to fund projects like bridge maintenance. Rather than raise gas taxes, thus far Congress’ solution is to charge it. Hopefully only as an interim measure, the House of Representatives voted overwhelmingly to add eight billion dollars to the Highway Trust Fund by supplementing it with money from general Treasury funds. In other words, we will go into more debt to pay for it and pass its cost on to future generations.

Our fiscal crisis in many ways mirrors our blindness with the oil crisis. We buy more foreign oil because we are used to an oil-based economy and do not want to think about how hard it would be to change to something else. We know that recoverable oil is a finite resource that in general will only get pricier because it will be harder to extract. Similarly, we borrow money from creditors on the expectation that they will always be willing to lend it to us. As some overleveraged homeowners are finding out, if your liabilities exceed your assets no one is willing to loan you any money. The same can happen to the United States government. Our weak dollar, trading at record lows, suggests the time may not be that far off.

To solve the oil crisis we must realize that we cannot drill our way back to our previous lifestyle. To solve our fiscal crisis, we have to realize that we cannot indefinitely depend on our creditors unless we first show a willingness as a nation to roll up our sleeves to fix some of these problems. In short, we need to raise taxes.

Raising taxes is never convenient, particularly at a time when so many Americans are struggling. That is why my suggestion will go over like a lead balloon. That is also why if I were ever inclined to move my fantasy run for president into a real run for president, my message would fall mainly on deaf ears. Like John Anderson in 1980, I would lose spectacularly.

Still, most of us, if we stop listening to the spin and start listening to our hearts, know that we face a new inconvenient truth. The cost of not raising taxes today simply means that to fix these problems tomorrow will cost even more. So yes, for a while, those extra taxes would hurt. At some point, you sufficiently address the under-funded infrastructure problems and taxes can be eased. Nevertheless, taxes must never be eased beyond the point that we can adequately maintain the infrastructure we need to run our modern society.

Instead of running for president, all I can do is be that fly in the ointment. I am more than willing to pony up my share of additional taxes. Most likely, I would pay disproportionately more in taxes than many of you, since I have a six-figure income. I do not like paying more taxes either, but I am willing to do so. I do know that despite laughably naïve men like Grover Norquist, we are interconnected. We critically depend on our infrastructure and our social safety nets. Since like you I get great value from these things, I am not afraid to pay my share.

As was true when I wrote about it in 2003, things cost money! They cost what they cost because that is how much it costs! No ideology can change this. I expect to pay close to $200 on Monday to have a locksmith fix a bad lock, which must work with our house key. It seemed like a lot of money to me too, but that is the going rate for fixing a problem that I cannot fix by myself. I would rather pay the $200 than find that anyone could get into my house or that I could not get out when I needed to.

We have a great nation that thanks to the low tax mantra is rapidly moving from first-class status to second-class status. I think I am a patriot by coming forward to proclaim that I am willing to have my taxes raised to make sure we remain a first class nation.

Guffawing over a War Tax

It is not often that I agree with Senator Joe Lieberman. Nevertheless, with his bizarre proposal yesterday for a War on Terror Tax, I found myself in a rare moment of agreement. Yet while also nodding in agreement with the intensely odd senator from Connecticut, I was also guffawing over his utter cluelessness.

Of course, his proposal has virtually no chance of becoming law. It would not even get brought up in committee. Right now, the hardest part for his fellow senators when encountering Joe in the hallways is to avoid laughing aloud. It would be charitable to call him just a jokester, but his proposal apparently was delivered while he was completely sober. In doing so, he is demonstrated how completely out of touch he is with political reality.

Raise taxes to fund an unpopular war? It is clear that taxes will not be raised on Bush’s watch, no matter how much debt we have to incur. While a Democratic Congress might be inclined to raise taxes on the rich to fund programs for the poor and middle class, it has zero appetite for a special tax to pay for Bush’s War on Terror.

This is too bad because, looked at from a non-political perspective, there are virtues to his proposal. Democrats keep trying in vain to find a means to get our troops out of Iraq. In the Senate, even holding a formal debate a non-binding bipartisan resolution expressing concerns about Bush’s planned “surge” of troops in Iraq became politically impossible. A war tax though, if it could be signed into law, would definitely end our involvement in Iraq for good. However, it would also end the Democratic Party’s control of Congress and send any senator foolish enough to vote for a War Tax into permanent retirement. That is why those senators who understand political reality will not touch it with a ten-foot pole.

What is strange is that it appears that Senator Lieberman actually thinks Americans could be persuaded to support a war tax. Exactly the opposite would happen. It would infuriate the American people. They might ignore it for a while, but they could not ignore it when it came time to file their taxes. Imagine Joe Taxpayer’s reaction when their annual income tax refund suddenly disappeared to pay for a war instead.

Bush may appear to be stupid, but he was at least smart enough to put Karl Rove on this staff. While Rove’s batting average has been off lately, in 2001 he was astute enough to realize that the War on Terror could be used to ensure a Republican grip on power. It could be done by substituting knee-jerk flag waving for genuine sacrifice. The War on Terror became a No Sacrifices War, except for those who felt called to serve their country. Bush hopes that economic growth that will fund the War on Terror.

In reality, it is foreign creditors with piles of cash burning a hole in their pockets that are funding this war. After all, you cannot make any interest stuffing all that dough in a mattress. Thank goodness for the U.S. Treasury. Its appetite for debt appears to be insatiable.

It is ironic that cash rich nations like China are funding the War on Terror. In helping us fund a lost cause, China is in effect helping itself. China is our nation’s second biggest creditor. As of last November, it held $346 billion dollars of our debt, more than any other country except Japan. Put another way, every American currently owes $1153 to the People’s Republic of China, and the amount continues to grow. If we need to go to War with China, who will fund it? I think we can rule out the Chinese.

Here is a bulletin for Senator Lieberman: the public is simply not vested in the War on Terror. Yes, we cared about it immediately after 9/11. Moreover, we were still scared a year later, when Bush erroneously told us to invade Iraq because Saddam was “grave and gathering danger” we could no longer ignore. However, the War on Terror is so five years ago. Now we simply give it lip service. We were told to fight the enemy by spending money as if the War on Terror never occurred. So we did. As in the War on Drugs, the War on Terror has been outsourced and abstracted. We have been trained to be complacent and to assume Big Brother had it all under control. Now that we realize Big Brother bungled it beyond redemption we simply want it to go away. Poll after poll indicates that is why the Democrats swept Congress last year.

Add a war tax though, and watch the public go ballistic. This tax would make an abstract War on Terror suddenly a very personal War on My Pocketbook. Since most of us are barely keeping even with inflation, a war tax would have the direct effect of decreasing our standard of living. In other words, it would hurt.

That is when, instead of getting tens of thousands to an antiwar demonstration in DC, protestors would be marching in the millions. The din would be so loud and so insistent that even the most pro-war Congressman would realize on what side their bread is buttered. Burned once, simply getting rid of the war tax would not do. Protestors would insist that Congress get out of Iraq altogether. No war, no war tax. It is that simple. Only Joe Lieberman would cast a dissenting vote.

So Senator Lieberman’s interesting idea, in the final analysis, simply shows how dramatically out of touch he is with the American people. As a fiscal conservative, if we must have a War on Terror then I would much rather pay for it up front than put it on plastic. I remain convinced that terrorism is a serious problem and needs to be addressed more effectively. Nevertheless, like most of the American public, I too have figured out that our war in Iraq is futile and ruinously expensive. We just need to get out.

If it takes a War on Terror tax to do the trick, I will be writing my Congressman.

Communication Taxes are Obscene

It is not often that I agree with a Republican. This article in today’s Washington Post though had me agreeing with Virginia Republican Delegate Samuel Nixon. His bill before the Virginia Legislature, which is now in session, would replace a number of ad hoc communication taxes with a flat 5% state tax on phone bills, cable bills and various other forms of electronic communication services.

As long time readers know, I do not object to paying taxes. I believe taxes are the cost of civilization. I believe that in many cases we need to pay more taxes. We clearly have been stinting necessary services like road maintenance. I do though think that tax rates should be fair. I am completely supportive of graduated income tax rates. Lord knows I have paid plenty of income taxes, given my comfortable financial situation. I am less enamored with sales taxes, which hit both rich and poor equally, but I think they have their place. What I really object to though are over the top, usury taxes. My telephone bill is Exhibit Number One. It seems like every year the bills expand with newer and higher taxes, while the value I get from the service remains constant.

My telephone bill last month was $35.77. That is clearly not a whole lot of money. It would be a lot less though if it were not for the extra taxes and surcharges. My actual bill is $24.81. It includes a $1.88 for a non-listed number. The rest ($10.96) include a variety of taxes, almost all of which are state and local.

As a percent of the total phone bill, I am paying a tax rate of 31%. As a percent of the total of services billed, the tax rate is 44%. I cannot think of any other form of tax that is so usury. Interest rates this high are rightfully outlawed. Why do we tolerate tax rates this high that also sock it to even our most income challenged citizens?

Where does this $10.96 in taxes go? $3.00 of it helps pay for a 911 center. $5.77 goes to my county’s general coffers. 77 cents goes for federal taxes.

Of course, I pay other communications taxes. The taxes on my cable and internet bill are more modest. Cox Communications is our ISP and cable provider. Our bill is $85.65 a month, of which $3.47 are local taxes. This is about a 4% tax rate. We also have cell phones. Since we are cheap and tend to use email instead of cell phones, my wife and I carry Virgin Atlantic prepaid mobile phones. Even when prepaying for minutes though there are taxes. We pay $1 in taxes for every $20 in minutes, or a tax rate 5%. We also have a long distance provider. Again, we hardly ever call anyone long distance. I was sick of plans that required a minimal monthly payment. Therefore, I found Pioneer Telephone, which has a plan where I pay only 2.7 cents a minute with no minimum monthly payment required. For many months, my minutes were tax-free. Although my bill last month was only 93 cents last month (29 minutes), 15 cents were tacked on for various taxes. The effective tax rate is 16%.

How did this sad state of taxation evolve? Apparently, over the years it was easier to nickel and time telephone customers than to make other choices, like raise general sales or income taxes, or cut spending elsewhere. Most of this money goes to local governments, which are often constrained by the state on charging other forms of taxes.

I certainly do not want to stop funding 911 centers or the salaries of operators that help the hearing impaired. That too is part of the cost of civilization. I just think these taxes should come from general revenues. While these taxes might amount to a couple hundred dollars a year for me, that may be a lot of money to someone on a fixed income. An impoverished woman who is living month to month on social security may be splitting pills in order to pay these taxes.

Therefore, this bill is a sensible step in the right direction. If all my communication services were taxed at a flat rate of 5% then clearly my telephone bill would take a nose dive. On the other hand, taxes for my cable and internet services would go up. At least the taxes would be reasonable. I would happier if these services were just considered part of the cost of state and local government. I believe is better to marginally change income and sales tax rates than to slap such exorbitant fees on services that cost relatively little, but which we all need.

Stop Selling Our Highways

The State of Virginia recently received an unsolicited offer from a group of businesses. This consortium wants to take over the operation and maintenance of the Dulles Toll Road, a major thoroughfare here in Northern Virginia. The details are sketchy but the group appears to want the right to run and improve the road for the next fifty years. In return they will give the Commonwealth about a billion dollars in ready cash and commit to making modest improvements to the road.

The Dulles Toll Road connects Northern Virginia inside the beltway and the Capital Beltway with the key business and residential areas in Northern Virginia. These include Tysons Corner, Reston, Herndon and Washington Dulles International Airport. (Airport traffic rides free on the Dulles Access Road. The Dulles Toll Road runs parallel to and outside the Dulles Access Road.) The Dulles Toll Road also connects with the Dulles Greenway, a private and obscenely expensive interstate quality road that for those who live in northern Loudoun County.

The Dulles Toll Road is one of these roads that most residents can neither live with nor without. With four lanes of traffic in each direction, it moves a crushing number of commuters every day. During our extended rush hours, and particularly where it merges with the Capital Beltway, it acts as a giant parking lot. Cars spew tons of hydrocarbons tediously wait to merge onto the beltway. On the other hand, there are not a whole lot of alternatives during rush hours. The back roads, such as they are, are just as congested. The typical commuter now pays $1.25 each way for the privilege of waiting in traffic. The tolls were recently increased fifty cents in each direction, ostensibly to help pay for a future extension to the Washington Metrorail system to Dulles Airport.

The current group-think is that corporations must be able to do everything better than government. So naturally there are plenty of people (most of them Republicans) who would be glad to turn over essential services like maintaining our roads to the private sector. Virginia has been doing a lot of this “innovative thinking” lately. For example, the state plans to let two companies create HOT (High-Occupancy Toll) lanes on 14 miles of the Capitol Beltway. Apparently, the Virginia Public-Private Transportation Act legalizes such dubious deals. Naturally, Congress wants to smooth the way for more of these private sector road projects. Yes, Congress wants to give corporations the right to raise money for private toll roads with bonds that are exempt from federal income taxes. (And guess who will be left holding the tax burden.)

Why is the Dulles Toll Road is under the radar of private developers? It is no mystery to me. First, it is a beautiful and well-maintained road. Second, it is a huge and profitable cash cow, generating profits in the tens of millions of dollars every year. It has a captive set of customers with few alternatives except to move out of the area. Third, while the consortium can make claims about making improvements to the road, there is not much they can really do to speed up the traffic. That is because the traffic simply bottlenecks at the exit points. These are principally Tysons Corner and the Capitol Beltway. Oh sure they promise to widen exit and entrance ramps from the beltways onto the toll road. Fat chance that will do much good. Until the dubious day that the beltway gets eight lanes in each direction, the traffic during rush hours on the toll road will not speed up.

Perhaps they will turn the one lane in each direction that is currently reserved for carpools into a HOT lane. This should allow anyone with sufficient dough to cruise at highway speeds, even during rush hour. In addition, perhaps those HOT lanes could feed into the HOT lanes planned for construction on the Capital Beltway.

Do we see a pattern here? Consumers can expect higher tolls from these deals but little relief from congestion. For those with the money you will have your HOT lanes but you will pay premium prices. For most HOT lanes are designed for flexible pricing. The idea is HOT lanes should never be congested, so authorities keep raising the tolls until they run smoothly. It is another “wonderful” example of the market economy at work. Yes, it is wonderful all right. If you are rich you will get where you want to go quickly. As for the rest of us — you know the “little people” who live on normal incomes and do not get special tax breaks — we will be stuck in worse traffic and paying more for it.

Ugh. Let us just say no to more of this nonsense. Here is a crazy notion, but one that has worked well for much of our nation’s history: let us keep the roads public and free. If we have to have toll roads, let us make them equal access. Our public roads are not the airlines. There should not be a first class section for the privileged and coach class for the rest of us. Maybe in Animal Farm some pigs are more equal than others are. However, if I have any influence, it will not happen in my country.

I have written Virginia Governor Mark Warner expressing my displeasure at this brazen attempt by the private sector to pick my pocket. I hope if you live in Virginia that you will write too. Nevertheless, wherever you live, you need to be watchful and make your transportation views known. We complain about gas taxes. We raise hell if our legislatures want to up the tax by even a nickel a gallon. However, we will allow private companies to skim hefty profits off our public roads. You know what this really is? It is a tax increase. Only this time instead of any profit from these roads going into more transportation projects or, God forbid, even our public schools, they go straight to stockholders of these corporations.

No more. Sadly, this is more evidence that we now live in a country of, by and for the corporation. What is next? Is a private company going to buy the roads in my subdivision? Will I have to pay a toll to get out of my own driveway? Is this the kind of enlightened private sector innovation we want to foster? Or are we being played for fools? I suspect the latter.

Education: Walk the Walk

Some years back I opined that there are few places where we are more hypocritical than in our public schools. Therefore, I was not surprised when I heard this story today on NPR Weekend Edition Sunday. Texas, like many red states, is getting high from continually sniffing that Republican glue. Common sense is taking leave of its governor Rick Perry and its legislature. Apparently, it is more important to stand on a dubious principle than to do what is right for the children of Texas.

For those of you who do not want to listen to the seven-minute story here is a brief summary: Texas has no income tax. Its main forms of revenue are the state sales tax, already one of the highest in the country (which disproportionately affects the poor) and the property tax. The Republican legislature in its infinite wisdom requires that the portion of property taxes devoted to education must be capped at 1.5% of a house’s assessed value. Most school districts have hit the cap, but the student population in Texas is growing at around 80,000 students a year. Of course, this means that many more schools that need to be built and more buses have to be purchased. In general, the costs just to maintain the status quo have gone up. However, with property values leveling off, even wealthier districts are getting the squeeze. Large numbers of teachers are being laid off. Some school system superintendents are convinced that if the crisis continues the Texas public schools will be reduced to teaching reading, writing and arithmetic.

So why would this be a problem? From our current president and former Texas governor, these things matter. (Actually, in Texas, high school football trumps everything else.) If necessary, science, music, the arts, even gym are expendable. It is important to know how to read, write and do math. It is apparently not important to teach our children about the humanities and certainly not important at all to learn how to think critically. How do we know it is not important? When push comes to shove, we will not pay for them.

The school funding issue is a hot button one in Texas. The Texas legislature is back in session yet again to try to cough up more money to fund the schools. There is some discussion that the sales tax rate might need to be raised. However, it sounds like with the “no tax increases ever” mantra from the Republican controlled legislature that even this proposal is unlikely to go anywhere. School districts are getting so desperate that they are petitioning the Texas courts, hoping the courts will step in where the legislature fears to tread. So far the courts have been hands off, expecting (probably naively) that the legislature and the governor will do their duty and find the money somewhere.

You do not need an HP calculator to figure out the Republican’s strategy for dealing with the problem. Yes, you guessed it: they are going to expect school districts to make unspecified efficiencies and cut out the waste to solve the problem! Argh! I do not even live in Texas, but it is enough to make me want to repeatedly hit my head against a brick wall. How can our leaders grow up to be so stupid? The reality of the funding caps is already playing out in Texas schools. Teachers are being let go. Class sizes are increasing. Trailers are taking over school parking lots. The list of elective subjects is growing leaner. Still this does not seem to be enough. The obvious result if Texans are foolhardy enough to keep charging forward can be found near where I live. In Prince George’s County, Maryland back in the 1980s voters put in place a property tax cap called TRIM. The result? Twenty years of substandard education in Prince George’s County. By limiting funds for the schools, students predictably dealt with larger classes, mediocre teachers and inferior facilities. The county has consistently placed in the bottom two Maryland counties for educational test scores. It is currently on a state watch list because it is having difficulty meeting the requirements of President Bush’s No Child Left Behind law.

Perhaps the Texas legislature is apathetic because poor test scores are really not the big deal that they claim. While Texas certainly has its prosperous parts, it has many school districts that have always provided poor educations because they have never been adequately funded. Texas ranks 38th in teacher salaries ($32,426 per year) and 34th in expenditures per pupil ($5,267 per year). Despite the dubious “Texas Miracle”, Texas places in the middle of national educational rankings.

Nevertheless, Texas is hardly in unique in underfunding its schools. Nor is it unique in not doing much to actually prepare students for real life. I am willing to bet that you can graduate from high school in the vast majority of our states without ever learning how to balance a checkbook. I bet there is no requirement for students to spend time surveying the costs of independent living. As a result, I bet no student is required to put together a realistic financial and logistical plan mapping out their first five to ten years of adulthood.

Oy, this is but one of many egregious areas where students need some genuine education that they are unlikely to get from the public schools. Most school districts skimp on sex education. Students might absorb the practically compulsory lessons on abstinence but they will not know how use a condom should the need arise. (Why should it? When the times comes, the abstinence fairy will restrain their natural urges!) Moreover, there will likely be no classes on the psychological differences between men and women or relationship theory. There will probably be no course on personal finance, the dangers of credit cards and the wisdom of saving parts of your salary. Likewise, there will probably be no learning on early childhood education, parenting, insurance and financing an automobile. In short, a high school degree will continue to mean what it has always meant: a subset of skills that might make someone marginally marketable but will do little to prepare him or her for real life.

But by golly our students will be darn good at taking dumbed-down standardized tests. In my last entry I noted my wife’s experience teaching community college students. They want everything handed to them. And why shouldn’t they? Like Pavlov’s dogs, they know the drill. Have they not been heavily and repeatedly coached ad nauseum by their teachers so they could pass these standardized tests? When have they had the opportunity to apply any critical thinking or independent thought in the classroom? How many teachers have time for open discussions about the pros and cons of various lifestyle choices? How many of these students have learned from their parents and their churches that life is not squishy, only to find out in adulthood that real life is invariably complex and multifaceted?

We are doing serious injustices to our children who will someday run our country. Yes, it is good that they are at least getting some education. In many countries, there is no such thing as public education. However, we are not properly preparing our children for the real world. Reading, writing and arithmetic are foundations for learning, but they are not the result of education. They are tools used to allow us to engage and make sense of the rest of our complex world.

Like it or not we are sending some bad messages to our public school students. Do not think our students are not savvy enough to figure out the subtext. Here are some. Only the basics really matter because that is all we will give you. Low taxes for me are more important than giving you a quality education. We will expect you to be solid citizens and to manage your way in a complex world but we will not necessarily give you the straight facts or help you think through the complexities of the real world. Maybe your parents will help you and maybe they will not. Lastly, we will not give you many tools to deal effectively with the chaos into which you are about to be thrown. You are on your own. So do not be surprised if in adulthood that you bounce from one bad relationship to the next. Do not be surprised if you run up huge debts. Maybe if you are lucky in twenty years you will learn these for yourself. But we sure don’t care enough about you to warn you about these mega hurdles.

Sadly, our public schools have become a noxious experiment into which we inject our dubious values, philosophies and biases. Meanwhile graduate, here are ten dollars and a suit. Good luck, kid.

The Implications of Rising Property Taxes

I bet I’m not the only property owner in Fairfax County, Virginia to do a double take this week. I opened up my 2005 property assessment today to find out that my house is allegedly worth $94,045 more than last year. That’s right: my modest three-bedroom, one car garage house is now worth $454,250.

In 1993 we paid $191,000 for the house. This means in one year my house appreciated more than half the cost that we paid for it.

Does that strike you as just a little strange?

Apparently it shouldn’t. Residential properties in Fairfax County, Virginia averaged a 23% increase in assessments compared with 2004. Perhaps we got off cheap. My house had only a 21% increase.

Still my mind reels. Last time I checked our net worth was about $560K. In one year without working any harder we are now worth about $660K. At this rate in five years we’ll be a millionaires. But somehow when that occurs (and it is only a matter of when) I doubt we’ll be eating caviar for dinner every night. In fact our lifestyle will be pretty much what it is now. It may actually be worse. (More on this in a moment.)

Because of course we have all this net worth but we can’t really spend it. Because we have to live somewhere. We won’t be able to do much to leverage this new wealth unless we move into a trailer or find some modest housing far away from metropolitan areas. And although $454K for our house seems like I have a lot of money in many communities it doesn’t buy squat. If I were to move to San Francisco I probably wouldn’t be able to purchase a condominium with it.

There is no doubt that Fairfax County is a desirable place to live. There are lots of high paying professional jobs here and I live within 3-10 miles from tens of thousands of them. Our schools are excellent, our crime is low and our industry is virtually all tech. No belching smokestacks here in Fairfax County. And we have our standards. We don’t permit ugly billboards like in neighboring Prince William County.

And although my house is modest my neighborhood is laid out just right. Unlike many of the newer subdivisions that surround us our houses are not supersized. Our lawns are usually at least a quarter acre, but not so large as to require a lawn tractor. Most of the time you don’t hear your neighbor. The houses are a bit bigger than those in the neighborhood where I grew up, but not that much.

So yes we were fortunate. We bought at an excellent time (we had our pick of homes during the Bush I recession) and profited from our location and the inevitable growth in the population.

Even so, $94,045 in appreciation in one year?

What’s the downside? Property taxes, of course. Last year my property tax bill came to $4073. The new property tax rate is going to be $1.03 for $100 of assessed value. That’s $.10 per $100 of assessed value less than last year, but I can do the math. With my new assessment that’s $4678 a year, an increase in $605 from last year, or about another $50 a month.

I’m certainly all for funding the county adequately. I know we have lots of needs, including huge costs for quality schools, transportation etc. The proposed county budget is 4.47% higher than in 2004. In addition to getting more money from property taxes, the county also proposes to hike a bunch of other fees. Starting April 1st, a trip in an ambulance will cost you $300-$550, plus a $7.50 a mile transportation fee.

I am also aware that the state is not exactly generous in the money it gives to counties. Subsidies for public schools haven’t really kept up with inflation. To maintain the decent level of services that us citizens demand the difference has to be made up somewhere. So the county does it in the form of highway robbery ambulance fees and property tax rates that are routinely a point or two above inflation.

It’s beginning to dawn on me that I may not be able to afford to live in my own house once I am retired. Unless my mortgage is paid off I probably could not afford to indefinitely pay $500 or so more each year in additional property taxes. I will either have to keep working (assuming I am able) or downsize my life.

There must be a fairer way to collect taxes. Perhaps county income taxes would be fairer. I don’t feel like we should stick it to those of modest or low incomes. But neither should people like me have to indefinitely keep increasing their income to be able to afford to stay in their own home. Right now my wife is unemployed. I figured we could continue this situation indefinitely. But now I’m wondering if she must go back to work at some point simply to keep a roof over our heads.

All this and we will soon be millionaires. At some point I may be a millionaire eating hot dogs.