Terry H. Schwadron
July 22, 2020
The pervasive thought is that in a time of pandemic, we ought to suspend as many taxes as possible, as a break for individuals and an incentive to businesses to rebound.
But then there is the equally persuasive idea that states and localities are going broke, and need actually to raise existing taxes, like property or “sin” taxes, to pay for police, fire, teachers, hospitals and the basic services we still celebrate daily for taking the front line in the battle against contagion.
Strangely for our divided times, this is an issue that rises — or could rise — about politics to be about, say, mathematics. You can only spend what you bring in or borrow, and localities lack the flexibility of the federal government to raise new money or deepen debt.
It’s all leading to a very bifurcated view towards taxes as a tool to do whatever the speaker wants them to do. And the biggest speakers are wanting to do whatever is politically expedient, especially in an election year.
Even the usual divides are out of order: Many Republicans see the adverse effect of coronavirus on state and local budgets, slashing income taxes and adding huge new spending in the name of public health, and actually are opposing the latest attempt by Donald Trump to cut payroll taxes on those still working as part of an overall virus stimulus package before Congress this week.
Making that proposal even more questionable is the idea that the proceeds from payroll taxes goes to support Social Security and Medicare — two areas that Trump himself says he would not want to cut. But then, he may not be president when his proposal actually would take effect. And who ever accused this president of consistency?
The Pew Center has an accounting of state and local tax proposals that show that there is a great deal of confusion out there about how to approach taxes.
How Bad Is It?
Pew reports that the liberal Center on Budget and Policy Priorities, based in Washington, D.C., estimates that state budget shortfalls will total $555 billion by 2022. Its president, Robert Greenstein, says that total portends “quite severe budget cuts at the state and local level . . . causing a lot of hardship.”
Of course, it also underscored the absurdity of Donald Trump and Education Secretary Betsy DeVos threatening budget cuts (which they likely cannot do without Congress) for communities that do not fully open schools with in-person classes next month. Schools clearly need more money, not less, to comply in order to create physical and financial protections for students and adults in the schools.
Cities like Nashville, TN, are raising property tax by 34%. Seattle is taxing 800 larger businesses to raise $200 million a year, and the District of Columbia is dropping some tax breaks and raising its gasoline tax. Chicago is considering property tax increases, and San Francisco wants to target high earners from stock transactions.
New York is considering a higher tax bracket for multimillionaires in an effort to defray coronavirus costs, though critics say the well-to-do will simply move to another state, as Trump himself has done. California has put a repeal of business tax breaks on the ballot for November, while surveys suggest that will run into big opposition.
It seems clear that we will be hearing a lot more about all this as coronavirus contagion spreads to all states in large enough numbers to affect state and local tax revenues and spending everywhere.
What’s to Come?
Still, the same economic meltdown that has blown holes in public budgets is crushing many small businesses and residents. Moody’s Analytics predicts substantial job loss without an infusion of federal cash.
There is no agreement yet in Congress about how to respond to all this. While the total of any spending package will be high, the debate is on to determine what will and will not be supported, including local aid.
In Trump World, this is exactly when the federal-stat sword gets unsheathed, and Donald Trump announces that he has no responsibility here: This is a local problem, not a federal one, he says.
Just last night, he repeated that no state needs help, despite some governors are saying about lacking protective equipment and testing. Still, he acknowledged that the disease front will worsen before it improves, and for the first time, advised wearing masks in groups.
Weirdly, Trump sees the federal-state split absolutely upside-down: He is eager to send unmarked federal agents into Portland and other cities for policing, clearly a local function, while eschewing responsibility for heath and pandemic, clearly a federal coordinating need.
For the public, it’s always someone else who is supposed to pay the bill. The bill is now due, and we need to be serious about who is getting the check,.