Wednesday, February 23, 2005

Dumbest Quote of the Week and McKenna Watch, Day 23

Columnist Cindy Richards in today’s Chicago Sun-Times [] tells us that “…he [Gov. Rod Blagojevich] also promised to oppose a plan that would shift some of the burden for education funding from local property taxes to a higher statewide income tax. The tax swap would benefit everyone -- not just homeowners in heavily taxed suburbs -- because renters pay more, too, when property tax increases are passed along in the form of higher rents.”

The statement that “The tax swap would benefit everyone,” is just patently false. It is one of those statements that one would hope, if a journalist wrote it, he or she would immediately recognize it as dumb and hit the delete key. Unfortunately for Richards, she apparently resisted that instinct, or worse, didn’t have it. Further, Richards apparently never heard of TANSTAAFL, that is "there ain't no such thing as a free lunch."

Yes, Richards is correct that most homeowners [and renters], at least initially, would benefit from lower real estate taxes [and lower rents]. However, most proposals for tax swaps in Illinois, including HB750, which the Governor said he opposes, are not tax revenue neutral. That is, state income taxes would increase by more than real estate taxes decrease. So, the average taxpayer would have his total tax bill increase. Everybody better off? I don’t think so.

Also, some people may currently have very little of their wealth in land and a lot in current or future earnings. Certainly these folks don’t reap a net benefit from a tax swap. Everybody better off? I don’t think so.

Although some would argue that residents of Illinois would receive more or higher quality total educational services as a result of the net increase in education spending, others would disagree and assert that higher costs do not necessarily equate to better quality or more educational services. Moreover, the distribution of such services would not benefit everyone equally. For example, people who pay higher taxes, but who have no kids in the public schools may not put much value on the higher expenditures for their neighbors’ kids. Also, any good economist would tell you that you can’t make total consumer welfare decisions by trying to aggregate individual winners and losers to see if there is a net societal gain. Everybody better off? I don’t think so.

Also, there is a significant body of economic literature that argues and finds empirical support for the proposition that the greater the share of the educational dollar that comes from a local source, such as the property tax, the higher the over-all quality of education in the state. The theory for this proposition is that local sources of financing result in greater accountability than say, federal sources. In short, a suburb or city will do a better job of education oversight than Springfield and Springfield will do a better job than the Feds. Everybody better off with a tax swap? I don’t think so.

Of course, none of this is to say that one couldn’t intelligently argue for tax swaps, even if it might be something that I would disagree with. For instance, one might argue that although there will be losers, as there obviously will be under a tax swap, she still favors it. This would be because she thinks that the tax swap would narrow the geographic disparity in per pupil education spending and that she favors that because she values helping the winners under the proposal more than she cares about the losers under the proposal. She might also argue that, in her view, the distributional or equity gains offset the efficiency losses.

If Richards made such arguments of equity or personal preference without arguing “everyone benefits,” I might still say that I disagree with the advisability of a tax swap. That is, I might argue that there are better ways to narrow the educational disparities than with tax caps. For example, I might suggest, as Democrat Senator Joe Lieberman did a while ago, school vouchers that are inversely correlated with parental wealth. Under such a program, we would give all kids school vouchers to spend at the school of their parents' choice, but we would make the amount of the voucher more for low income parents than high income. After all, as Richards argues elsewhere in her column, those are the kids who need the most assistance from the State. And, even though I would be saying we differ, I at least couldn’t say that Richards’ statement is patently false.

Oh yes, the Illinois State GOP, under new Chairman Andy McKenna, Jr., included Richards’ column in its daily “Illinois GOP news round-up,” using the Richards’ title, “Gov’s math off on school funding.” I would suggest that the State GOP try to include items in its round-up that constitute intelligent, not mindless, criticism of the Governor. Otherwise, people might start to think that the State GOP,under new Chairman McKenna, approves of or engages in mindless criticism of the Governor and I am sure that could not be the case.
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