Monday, December 1st, 2008
A commenter in my Detroit posting said, “The Feds absolutely should not get into the game of helping turn around Detroit or Cleveland or Michigan or Ohio or anywhere else. It is the competition for jobs, talent, investment, and population that should be protected. The problem with usurping that natural competition among locales is that you fail to address the poor leadership and local inertia that contributed to the urban decline in the first place.”
I agree with a lot of this. People and businesses have choices about where to locate, and competition between those locations is key to maintaining efficient, innovative, and responsive governance. The government should not choose winners and losers. And clearly the leadership of much of the Midwest has not met the challenge it is facing.
But I think this misses a more important point. America cannot survive and thrive as a country if it is divided into a two tier society. We have to maintain the concept of a true commonwealth, where the prosperity of the county is broadly shared, and the costs of protecting it broadly borne. While there will be winners and losers, when entire broad sections of the entire country are in dire straits, where people struggle to obtain the basics, employment and wages are in seemingly permanent decline for a certain class of the population, this is not a recipe for civic health. The United States can survive with an Appalachian region, a relatively small, isolated, self-contained, and persistent blemish of poverty. But it will not thrive or reach its potential if a good 1/4 to 1/3 of the country does not see itself as benefiting from the globalized 21st century economy we live in today. Revolutions have happened over less in some countries. I won’t suggest that will happen here, but clearly at least some of the extreme polarization we’ve seen of late in our politics must be driven by the increasing polarization between the haves and have nots.
Does the Midwest deserve some of the blame for its current conditions? No doubt. But again, who among us can truly say that we’ve never done anything which could not have, by rights, ruined our lives permanently? I know I can’t. If such a thing has not yet happened to me, it’s not for lack of trying. I have been blessed with a pretty good life which I attribute to three primary things – good genes, good upbringing, and good luck – none of which I had anything to do with and which I must attribute to Providence. Others have not been so fortunate, or have taken the proverbial bullet while I dodged one. I doubt there is anyone who can say honestly that the the good things they have are all the just due of their actions, or that they did not sow a bitter harvest that they somehow avoided reaping. There but for the grace of God goes you and I.
What’s more, people in Detroit and the rest of these struggling Midwestern places are our fellow citizens. How can we go on reveling in what we have while they are left behind to lose their life’s possessions when they can’t afford the payments on the storage locker they rented after getting their house foreclosed on? Today, they need us. Just as in the past and perhaps again in the future, we’ll need them. As I’ve said before, it’s not charity. It’s a common people sticking together for the common good. Even purely selfish motives must concede that the situation in the Midwest and industrial Northeast is a deadweight drag on our economy.
Note that I’m not advocating a bailout. I’m not talking about the government protecting gold plated union contracts, politically connected car dealers, or any city’s delusions of future grandeur. Rather, it is realistic, pragmatic assistance that honestly addresses the fundamental challenges, and the in many cases unpleasant answers, facing a broad swath of this country. We’re not talking about picking the winners and losers. The losers have already been chosen. It’s now about helping the losers to pick themselves up, dust themselves off and get back in the game. I won’t be so arrogant as to say my suggestions are The Answer. But at least we need to be willing to try some new and different things so that we eventually arrive to an answer.
In a similar vein, the burdens of society must broadly be shared. I’m also concerned about the class warfare rhetoric being used to demonize the “top 2%” or whomever, as well as tax policies that are again separating America into a two-tier society: those who pay taxes and those who collect benefits. According to the Tax Foundation, out of 134 million tax returns filed, 43 million paid no income taxes whatsoever. That’s almost a third of everyone filing. And plenty of people surely didn’t file because they didn’t owe any taxes at all. The top 50% of filers pay virtually all income taxes. The top 1% already pay over 40% of all income taxes (versus receiving 20% of income) and pay as much in taxes as the bottom 95% combined.
While one can debate its utilitarian merits, I’ve certainly got no ethical issue with strongly progressive taxation. But when a small group of individuals pay the vast bulk of all income taxes, this is likewise not healthy for a society. Everyone except the poorest of the poor needs to have a personal financial stake in lean, efficient government, and in rational provision of services. Income taxes fail the test, and unfortunately that is the tax that dominates discussion of federal taxation policy. (Individual income taxes are the largest single source of federal revenues).
A great example of what I’m talking about happened in Indiana a year ago. For various reasons, property taxes in much of the state skyrocketed. Property taxes are progressive, but also broadly paid by all homeowners, and indirectly by renters. The result was a broad-based outrage that led to serious and significant reform to how Indiana organized and financed its local government. Several elected officials lost their jobs in the process, and a number of positions are being eliminated entirely as some functions are consolidated. Additional government consolidation it being proposed for next year. Had only a small slice of the population paid the bulk of that tax, it is unlikely any real reform would have happened.
Clearly there are other taxes such as sales taxes that are more regressive. So let us not make the mistake of viewing income taxes as the sole source of government funds. But the principle remains. Just as we should not view the suffering of a large chunk of our fellow citizens as their own personal problem to solve, neither should we view the financing of our big dreams and plans for our cities as someone else’s to fund. The principle should be clear, not absolute equality or an absence of winners and losers, but an American commonwealth, with prosperity broadly shared and costs broadly borne.
Update: I’d like to clarify the taxation point. I’m not saying you can’t have a strongly progressive taxation system or make the top 1-2% pay the bulk of the taxes. What I have a problem with is when large numbers of people don’t pay anything at all into the federal government’s top revenue category. Right now it looks like about 1/3 of households pay zero and probably another 1/4 pay next to nothing. Regardless of how much they pay of the total collected, which can be very small, almost everyone, say 85-90% of households should pay something, and something that is financially meaningful to them so that they have a stake in the tax rate and spending policies.