When talk was of investing in public good
Washington negotiations to avert the “fiscal cliff” now include the role that tax increases could play in addressing the federal budget deficit. Serious cracks are appearing in the Republican lawmakers’ anti-tax firewall, as fewer new GOP legislators are signing Grover Norquist’s pledge and some high-profile signatories are questioning it.
Norquist is urging policymakers to look to the states for inspiration in crafting federal budget reform. But his claim that states want to eliminate key sources of revenue is out of step with reality — and with the broader history of tax reform at the state level.
Throughout American history, in fact, popular support for higher revenues to fund key public services has been more common than today’s anti-tax advocates realize. State legislators and governors have long relied on new revenue to fund crucial public services.
Democrats and anyone now seeking a bipartisan solution can take a lesson from these state tax reform efforts. They demonstrate that Americans will support higher taxes as part of a broader public vision for investments in education and services.
This was clear when California voters on Nov. 6 supported Proposition 30 to fund public education, raising state income taxes on upper earners as well as the sales tax.
Consider the postwar period in the United States. From the late 1940s to the early 1970s, most state governments adopted new taxes or raised existing ones to support substantial expansions of public institutions and services, including new public universities, increased support for primary and secondary education, and matching funds for federal health and welfare programs.
State and local revenue as a share of gross domestic product more than doubled as the number of states without a major tax switched from a majority to a small minority.
Eight states adopted the individual income tax during this period, while 22 states instituted a sales tax.
Today’s policy makers have much to learn from Republican and Democratic state lawmakers in the postwar period. For them, “fiscal discipline” meant adopting new sources of revenue to put an end to budget tricks and annual fiscal shell games.
Tax-reform battles were hotly contested. But in state after state the debates led to decisions to generate new revenue to support the services demanded by a growing population. Most notably, higher taxes underwrote school districts across the state and the development of public university systems that would educate a generation of Americans.
Voters generally supported these new taxes, frustrating the anti-tax groups that gathered signatures to place tax referendums on the ballot. This was particularly true where legislators were able to implement new taxes immediately, and voters quickly came to see tax revenue in terms of the benefits it secured.
For example, Massachusetts voters rejected by a 2-to-1 margin a 1966 referendum to overturn the state’s new sales tax. By the time voters headed to the polls, the new tax had already funneled millions of dollars in overdue state reimbursements to local governments for municipal health, education and welfare costs.
Similarly, Maine’s legislature approved an income tax in 1969 that covered the increasing cost of state services and provided greater subsidies to local communities to help meet education needs. In 1971, Maine voters overwhelming rejected efforts by anti-tax groups to repeal the new tax, with 75 percent of votes in favor of the tax’s retention. Voters in Idaho (1966), Nebraska (1968) and Ohio (1972) also rejected efforts to overturn new taxes that were delivering property tax relief, aid to local governments and increased school funding.
Tax advocates generated support for higher taxes by cultivating a vocabulary around taxation that is largely absent in political discourse today. Taxes, pro-tax coalitions argued, were investments in states’ futures. States that refused to adopt new revenue sources would be relegated to the bottom tier of national rankings in education spending — stretching the same funding to cover an expanding school-age population and falling behind as other states attracted the economic growth offered by postwar prosperity.
These arguments sometimes came from surprising quarters. Though Republicans and Democrats often preferred different types of taxes to solve fiscal problems, officeholders of both parties recognized the need for new revenue.
For example, Republican Governor John Volpe of Massachusetts urged the adoption of a sales tax in 1966 to “meet our most important obligation to provide our people with services essential to their health, well-being and prosperity.” Without new revenue sources, Volpe argued, Massachusetts was leaving federal matching funds unclaimed, failing to pay back outstanding obligations to local governments and endangering the state’s credit rating.
Democratic Governor Kenneth Curtis of Maine pressed for an income tax in even stronger terms. “We’ve reached a point of growth in this state,” Curtis said in 1969, “where if we really want to take the bull by the horns and decide we’re going to go, that we can make up for lost time and that we can advance.” He continued, “Maine stands at an historic juncture. Maine has decisions to make.”
Curtis insisted that vital state services ‑ from assistance to the poor and elderly to road maintenance ‑ were threatened without new revenue.
Echoing today’s debates, opponents of new taxes sought to pin states’ fiscal woes on unsustainable spending. New revenues, however, were required to balance state budgets over the long term. In fact, when opponents of new taxes faced the austerity that could result from a fiscal fix relying solely on spending cuts, they often embraced bipartisan solutions.
For example, when Democratic Governor John Gilligan of Ohio confronted a legislative standoff over adoption of an income tax in 1971, he announced an austerity program that meant deep cuts to education and welfare and eliminating 2,800 state jobs. He also closed most state parks and laid off the state capitol grounds crew, prompting recalcitrant Republican legislators to mow the statehouse lawn themselves in 90-degree heat.
The state survived for seven months on monthly interim budgets as lawmakers argued over the income tax. Ultimately, however, they concluded that new revenues were essential to maintaining state services. They adopted an income tax that would easily survive a 1972 repeal ballot measure that had been promoted by opponents in the legislature.
Revenue increases have been a key to guaranteeing the sustainability of crucial state public services. The real historical lesson of state-level tax policy is not that taxes are political suicide but rather that political courage has long involved making a pro-tax case to the American public.
PHOTO: The University of California Los Angeles (UCLA) is one of the many important public universities built and funded with state taxes. September 18, 2009. REUTERS/Lucy Nicholson