What if we had Tax Day and no one showed up?
Look at the calendar. During the coronavirus crisis, April 15 went by unnoticed and without any fanfare. July 15 is the new deadline to file income taxes for those who missed it.
The delay is good news for you and me. But it’s a bad development for the local and state governments that provide most of the public services that you and I need and enjoy.
Government, from the feds down, pays all of us taxpayers instead of the other way around. That may sound great, but it’s not sustainable.
Meanwhile, we’re hearing some strange rumblings coming from Washington and Sacramento. First, at the federal level, we have a relief package that is bigger than anything we’ve ever seen before.
We witnessed the unusual sight of Republicans voting for direct-to-taxpayer stimulus checks of $1,200. Those who normally claim the mantle of fiscal conservatism suddenly became OK with voting on something similar to Andrew Yang’s universal basic income idea. There are some merits to that idea, it turns out.
We’ve also seen something just as odd on the other side of the aisle — Democrats accepting the idea of loan disbursements for huge corporations and direct to small businesses. The stimulus includes the paycheck protection program, which is going to forgive — let me say that again, forgive — money spent by businesses on payroll and rent or mortgages.
Maybe Democrats realize now that corporations and business owners who traditionally opposed minimum wage increases aren’t so evil after all. We can only hope.
At the same time, here in California, we shoulder the highest tax burden in the country for the sake of calling ourselves progressive. Supposedly, our state is the country’s best hope to solve the problems of poverty and homelessness.
There was even serious talk about delaying property and sales tax collections, on top of the decision to delay the collection of income taxes.
Astoundingly, Gov. Gavin Newsom recently said that this next year’s budget is just going to “keep the lights on.” Just a month ago, Newsom was a big spender who wanted to raise taxes for $15 billion of general obligation bonds. Now we’re belt-tightening.
Don’t get me wrong. I’m glad we’re talking differently. Crises force us to turn our assumptions upside-down and adopt new ways of thinking. That’s always good.
But most local and state governments are built like houses of cards. They’re structurally unsound. What they spend doesn’t match what they bring in through revenue. And that’s true whether they’re led by conservatives or liberals.
Take California and Texas, each of which wants to serve as an example for the nation of how to get things done. California lives feast to famine on capital gains taxes; Texas does the same on oil revenue. Both states thrive when the economy thrives. And like bad businesses, they’re too exposed to market risks at the times when they need cash. When things are bad, they’re really, really bad. It’s a vicious cycle downward for both.
Local governments are worse. In California, sales and hotel taxes are the untreated addiction for municipalities.
A couple years ago, when the leaders of the city of Chula Vista told me they needed to fund law enforcement, I asked them why they didn’t pursue a tax on parcels. This is something more stable, instead of the indefinite sales tax increase they were hustling.
Now, just when they need law enforcement the most to ensure that people practice social distancing, guess what? There are fewer tax dollars to pay for cops, who are putting their lives on the line, and fewer tax dollars to put into their pension programs, which by the way just got more expensive with the economic downturn. Way to go, Chula Vista.
The hits to state and local governments are going to be bad. Yet when the current crisis subsides, I worry that we’ll just go back to the way things were and miss the opportunity to do the serious makeover on local and state government ledgers that we know is needed.
We’re going to rebuild. But when it comes to the system for financing local and state government, we’d be smart to seize the chance to rebuild something new.
Hong is the president and CEO of the San Diego County Taxpayers Association. He lives in La Mesa and is on Twitter, @honghd.
