Taxation with Representation

Our country has a long history of people complaining about taxes.  I guess every country probably does, because nobody likes giving their money away involuntarily.  The statement, “Taxation without representation is tyranny” fueled the passions of patriots back 233 years ago.  Now we HAVE representation, and sometimes the taxes we pay still feel a little like tyranny.

There’s an organization called the Tax Foundation (www.taxfoundation.org) that investigates and compares taxes at all levels of government.  They’ve been doing it since 1937, so they aren’t a creation of the tea party phenomenon.  Their mission statement talks of their belief that “the dissemination of basic information about government finance is the foundation of sound policy in a free society.”

They’re perhaps best known for their identification of what they call “Tax Freedom Day.”  The concept is that if we paid all of our various taxes starting January first, without keeping any of the money for ourselves, Tax Freedom Day is the day we would have paid all our taxes, and start to keep the money we’re earning.  That day usually comes sometime in April, though it has been as late as mid-May.  It varies by state, of course, since states have different tax rates and types of taxes.

Those of us who live in Wisconsin have the opportunity to be very generous against our will.  Last year our Tax Freedom Day was April 13th, which made us the 12th highest taxed state in the nation.  Not counting the federal bite, Wisconsin’s state and local tax burden is 9th highest.  Our 2010 business tax rating is 8th highest.  Our property tax rates put us 11th in the nation.

In fairness, it must be said that our schools are pretty good, and our parks are nice.  We have more paved roads than most states, and our weather is tough on those roads, so it’s costly to maintain them.  It’s also true, though, that our state provides services at a level that lower taxed states don’t.  That’s the trade-off, I guess.  And, that’s what makes it hard to cut taxes.  It takes courage to say no to a constituency that’s getting something from the state.

Unfortunately, it seems very likely to me that the folks in Washington will be raising taxes soon – at the very least eliminating the tax cuts that the last administration put in place, resulting in a de facto increase.  And, the many state government jobs “saved” by the stimulus package will either be lost, or will require state tax increases to continue, making state and local tax increases likely.

I wouldn’t be surprised to see Tax Freedom Day move into May before long, and for people who make more money – the people who used to be able to spend their money on things that others made their living manufacturing – may find their Tax Freedom Day moving into June or July or beyond.

Here’s worse news: the average American household will be paying approximately half of what the federal government is spending this year.  In other words, if our federal taxes were doubled this year, we’d be able to keep our deficit the same – and that’s before the health care bill is factored in.

It’s a difficult time to be a governor, a legislator, or the President.  We have some real problems to content with.  I worry that our approaches to those problems are making bigger problems for the future, and key among those problems is the damage our tax burden will pose.  Not letting people keep what they earn removes the incentive to take risks, like investing in a new business, or hiring new employees.

There certainly are no easy answers or simple decisions to cure all this.  In a family budget you know that in order to be solvent you can spend less or make more.  In government budgets neither option is without consequences.  But, because we have representation, it’s possible that those who make such decisions might be more open than usual to hearing your thoughts.

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