The New Tax Plan

CUP OF SUPE

“When a bowlful is just too much”

Timothy Baird, Ed.D.

Welcome to my new blog.  So why does the world need another blog from a school superintendent?  It probably doesn’t.  However, I sometimes need to write things down to clarify my thoughts and process ideas.  These thoughts are not always about education.  Sometimes these ramblings turn into an article but many times they are just an idea examined.  So, this blog is more for me than you.  If you read it and get something out of it, you’re welcome.  If you read it and it makes you angry or you disagree with me, then respond back.  I love reasoned, respectful, and appropriate argumentation.  We don’t see enough of this anymore and it is my favorite way to push my own thinking.  I’m not really a fan of anonymous attacks or hate mail so save those for someone who may appreciate it more.  Other than that, have at it.

The title of my blog, beyond being a simple play on the word, “SUPE,” is also a reminder to me about brevity.  More often than not, I will use four pages to share something that probably could be said in two.  In some cases, I may reference a longer piece for those who would like more detail.  Trust me.  In most cases, a cup is plenty.

The New Tax Bill

 For my first blog topic, I decided (more like was driven) to write about the new federal tax system overhaul.  Right now, alarms are going off all over my district because some of my colleagues think that this is about to turn into a political piece.  Calm down everyone, because this is not a political piece in the traditional sense of the word.  Much has already been written about the Democrat vs. Republican sides of this debate.  We have also seen the discussion between competing economic theories on this.  These articles have been written already and you can read compelling insights from all sides of these debates somewhere else.

I wanted to write about this issue from a perspective that I haven’t seen written about anywhere.  That is the difference between public and private spending and how that factors into the arguments made on behalf of these tax cuts.

There are many arguments that have been made on behalf of overhauling the American tax system.  Many of these arguments resonate with most Americans.  The major goals stated are to create more jobs, reduce unemployment, and stimulate the economy.  There are other factors but these have been touted by lawmakers as the driving issues behind this work.

I would argue that Democrats and Republicans both agree with these major goals.  How to try and achieve them is where agreement breaks down.  The recently passed legislation follows a familiar line of thinking.  There are two major pushes in the bill.  The first is to give money back to individuals.  This will help individuals save more and also spend more in the economy.  Both of these outcomes could be helpful to the overall economy and spending more may stimulate job growth.  The second push is to reduce taxes for businesses.  Again, this may lead to more savings and jobs.  It also may lead to additional research and development which also might lead to more jobs.  Ultimately, the hope is that as business makes more money, they create jobs and put more money in the economy.

The two questions that I have not seen anyone ask so far are, “Where is this money coming from that we are giving back to individuals and businesses and what are the consequences of shifting these funds?”  These are critical questions.  The first answer is obvious.  The money that we are giving to individuals and businesses are tax dollars.  These are public funds that will not be available for public purposes.  The second question is critical.  If we are shifting over a trillion dollars in the next ten years from public to private money, will there be consequences?  Of course there will be, and these should have been discussed more thoroughly before the legislation was enacted.  Here is part of the conversation that we should have had:

Let’s start the discussion with some basic misrepresentations around public spending.  To be fair, no one likes to pay taxes.  However, we all want our communities to be safe, have good schools, functioning infrastructure, and sound government.  These things take money.  We often believe that government spending is largely unregulated and there is waste and fat aplenty.  Any organization may have these problems, including businesses.  However, government tends to be more regulated, more structured, and less prone to these things by design.  Government operates in the open under public scrutiny.  As the superintendent of a public school system, we run all of our Board meetings in public.  Our books are open to everyone.  Everything from emails to planning documents are open to review and we get requests for this information all the time.  Public CEO salaries are miniscule compared to private.  Despite some well publicized breeches of public trust, most governments operate more frugally and more openly than most private businesses because they are accountable to the public.

So, let’s get back to the tax system overhaul goals.  By flowing money to individuals to spend on business goods or by giving directly to businesses, the hope is that this may result in more job creation which will stimulate the economy.  There is a great deal of research out there taking exception to this line of thinking.  Recent experimentation in Kansas where large business tax breaks and corresponding reductions in taxes and public spending led to economic break down also show that this line of reasoning is not always correct.  But let’s not drift off in political or economic territory.  Let’s just accept that businesses may invest back in jobs but there are other ways to spend this money.  Businesses may invest in jobs but these jobs may not be in America.  More and more this is the case, particularly in lower level manufacturing jobs.  They also may invest in technology that takes the place of jobs.  Businesses also may just give higher executive compensation or pay more back to shareholders.  Also, they may just sit on the dollars to build up capital.  There are many options here, with job creation and U.S. economic development only being a few of them.

Public expenditures are very different.  Let me give you an example from my world, the school system.  School systems are people heavy industries.  85% to 90% of every dollar given to school systems are spent upon people.  More money to schools means more teachers, more nurses, and more of other types of support staff.  These people are all American workers.  They live in your town.  In many cases, public school districts are one of the largest employers in your town.  They spend their dollars at the grocery store, in local restaurants, at local shops, and on other local businesses.  More tax dollars for schools creates more local jobs which support other local jobs which grow the local economy.  This is not one possible outcome, it is the only possible outcome. Conversely, less tax dollars for schools means fewer local jobs.  These reduced jobs impact other local jobs and their absence directly negatively impacts the local economy.

This scenario is built around school spending but most government spending is similar.  Tax dollars at the local and state level are generally used to create jobs or buy goods and services from local providers.  When a city decides to do infrastructure improvements, it puts the job out to local contractors at good wages.  This is job creation and no organization is better at job creation than public entities.  Ironically, it is at the federal level where this is less regulated.  However, much of the tax income that goes to the federal government, is given back to individuals, local governments, and state governments.  Through this redistribution, federal tax dollars end up back in our local jobs and economies.

Now some of you may be saying, “Yes, that’s the problem, public entities hire too many people and pay them too much.”  We all can recount stories of driving by a Cal Trans road project and seeing one guy working and ten standing.  We may all laugh at the inefficiencies that we saw at the DMV (they have greatly improved by the way).  That’s not the point I’m making.  Remember, the goal was simply to create jobs and grow the economy.  We are not evaluating business on the types of jobs they create or quality of work they produce.  If business manages to add additional jobs and show that they are putting dollars back into the economy, this tax cut will be heralded as successful.  Why do we not use this same metric for public jobs?  It can also be argued that even if no new jobs were created but these public dollars were simply given to existing public workers then this money would be recirculated back into the economy.  Remember, part of the tax overhaul plan was to give money back to people so that it would be spent back in the economy.  These public dollars that go to public workers already do that.  Redistributing these dollars does not improve this outcome and may actually put it at risk.

If the goal is to grow jobs and put dollars back into the American economy (particularly at the local level) then we should be putting more money into public agencies (especially public schools – just my personal bias).  Yes, this means tax dollars.  Public agencies are better at job creation than private business.  There is no comparison.

That’s this week’s Cup of Supe.  As expected, it ran long and is probably closer to a full bowl.  Oh well, brevity is a resolution that I will continue to try and achieve.  Until next time …

 

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