Tax Philosophy
The debate over Connecticut’s film tax credits has been fascinating – and there’s a new post up at the WFP blog that tries to sort it all out by characterizing both sides of the argument.
On the one side, it’s a massive giveaway from the State of Connecticut to companies that don’t necessarily create jobs or spend money in our borders. That sucks. But, the massive giveaway creates good jobs in other places, and maybe someday those jobs will come here.
I’m trying to be briefer than usual without being rude, but that’s really the heart of it. And what it illustrates is the sorry state of, for lack of a better phrase, tax philosophy in our political system.
If you believe in the theory that the government can do counter-cyclical spending to boost the economy in a recession, then you’d come up with a range of different ideas to help boost the economy in appropriate ways. As Gary LeBeau says in a post linked from the WFP blog, film production has some excellent qualities:
* It is second only to aerospace as the top export of the United States.
* It is a clean industry that is high tech, high value added and highly skilled.
* It brings excitement to wherever it is located and a magnet to keep young people.
The film industry also, due to high levels of unionization, pays workers at all levels a fair wage that will generally re-circulate in the economy. Those bullet points might also apply to financial products, but dropping a billion dollars on the financial services industry won’t stimulate the economy in the way that putting cash in the hands of middle-class workers will.
So if you wanted to promote the film industry in Connecticut, why not give them in-state stuff credits — paying for the cost of their carpentry, for vehicle rental, subsidizing production staff, etc? Or, just offer grants for artists working in the state. Art is nice, and more utilitarian than the also-made-in-Connecticut F-22s. So why not spend money on films by Connecticut residents? And failing all of that, you could just have the state government buy movie tickets and send them to people, because theater employees will then spend their money on rent and groceries, and at the very least we’ll be able to enjoy some movies in the process. And that money would be partly recouped by the state as is circulates around. Spending money to subsidize work that is being done in California might be a legitimate public policy interest, but one that should be handled by the Federal government.
Similarly, there’s an idea that you tax things you want less of, and subsidize things you want more of – think sales taxes on junk food but not on produce – and was recently reflected in the state plastic bag bill which died on the calendar without a vote this year. The bill would charge a nickel for every plastic bag purchased, and spend that money to enhance local recycling facilities. Of course, since it went down, towns are introducing legislation on plastic bags, preferring outright bans to revenue-enhancing fee measures.
Anyway, this dovetails nicely with this tidbit from Ezra Klein’s interview with Bruce Bartlett, a not-insane conservative economist, who offers a theory about why our tax policy is so stupid:
I think the administration made a mistake approaching the funding of health-care reform how it did and I think Republicans made a mistake refusing to seriously debate the issue or its funding. [...]
I think there’s a couple of reasons for that. Both sides are pathologically afraid of advocating any kind of tax that would be paid by the average person. Republicans are opposed in particular to the VAT precisely because it’s such a good tax. They fear it would become a money machine and it would help the government grow. I agreed with that for a long time. But the problem now is that we need a money machine! We have all this spending in the pipeline. It’s not a question of whether we’ll create new programs. It’s whether we’ll fund the ones that are already there.
The biggest shame is that Republicans don’t negotiate in good faith to set up our tax system in a way that is logical and functional top to bottom. Having a VAT to fund healthcare is a decent idea, and consistent with a lot of best practices both here and abroad, but since the GOP has a monomaniacal opposition to taxes at every level, we’ll probably have to do it with an cap of the tax exemption for healthcare or an adjustment to the top rate. And since there’s no rational debate about the best way to do it, nominal health reform allies will wind up being split off because they won’t be able to deliver a pony plan for free.