When talk was of investing in public good

By Elizabeth Pearson
November 28, 2012

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

8 comments

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Most of what is cited here about support for higher taxes comes from the heart of the post-WW II boom, an unprecedented and never to be repeated phenomenon (see the references to 1960s Governors). We are not in that situation. Moreover, the perpetual claim that we are not “investing” (i.e. spending)enough by not having enough “revenue” (i.e. taxes) on education is patently false. The fact is that there is not enough money in the world to satisfy the public education/ public employee complex. To give just one example, the budget of the New York City school system is $24 billion (not counting the capital budget) – to put that in perspective, the budget of NASA is about $19 billion. To the extent there is public support for higher taxes, that support largely comes from those who themselves pay little or no taxes – so the support is hardly surprising.

Posted by SayHey | Report as abusive

Your historic perspective is correct. However, taxes have been raised at the state level in many cases to levels which do harm to their own economies. CA for example. It will now have the highest taxes in the country but is ranked as the worst run state in the country. Near the bottom in education and infrastructure and the worst place to have a business. They have siphoned the entire state budget for self dealing benefits packages for the AFSCME and SEIU. AZ and TX are flying executives to visit friendlier environs to run a business.

Posted by Caldreamin | Report as abusive

SayHey: You’re wrong. Since around the time of WWII tax receipts have averaged just over 18% of GDP. In 2011 the federal government took in 15.4% of GDP in taxes, which is actually up from the previous two years where revenues were 15.1% of GDP. That’s the lowest amount in tax revenue receipts relative to GDP since 1950. Considering we entered into two major, and expensive, wars (Iraq and Afghanistan) without raising taxes to pay for them, as we had always done in the past, and considering the amount of debt and the size of our deficits, it’s just grossly irrational to maintain the lowest intake of tax revenues since 1950, particularly since America’s wealthiest have profited amazingly well for a long time now, while everyone else has seen their earnings stagnate or decline. This is why increasing taxes only on the wealthy simply makes practical sense. With clear, non-partisan, non-lobbied thinking, it’s the obvious thing to do. And the rich will continue to be rich and increase their earnings by double digits, while the rest of us will continue to languish in stagnation. But our nation, and its future, as a whole will benefit in important ways by increasing tax revenues.

Thank you, Elizabeth Pearson, for stating in clear terms what needs to be said. It’s comforting to know there are minds like yours analyzing our world, helping us to become better aware of it. Lord knows we need it.

Posted by flashrooster | Report as abusive

SayHey: You’re wrong. Since around the time of WWII tax receipts have averaged just over 18% of GDP. In 2011 the federal government took in 15.4% of GDP in taxes, which is actually up from the previous two years where revenues were 15.1% of GDP. That’s the lowest amount in tax revenue receipts relative to GDP since 1950. Considering we entered into two major, and expensive, wars (Iraq and Afghanistan) without raising taxes to pay for them, as we had always done in the past, and considering the amount of debt and the size of our deficits, it’s just grossly irrational to maintain the lowest intake of tax revenues since 1950, particularly since America’s wealthiest have profited amazingly well for a long time now, while everyone else has seen their earnings stagnate or decline. This is why increasing taxes only on the wealthy simply makes practical sense. With clear, non-partisan, non-lobbied thinking, it’s the obvious thing to do. And the rich will continue to be rich and increase their earnings by double digits, while the rest of us will continue to languish in stagnation. But our nation, and its future, as a whole will benefit in important ways by increasing tax revenues.

Thank you, Elizabeth Pearson, for stating in clear terms what needs to be said. It’s comforting to know there are minds like yours analyzing our world, helping us to become better aware of it. Lord knows we need it.

Posted by flashrooster | Report as abusive

Cut spending…

Posted by Crash866 | Report as abusive

These sentiments which were common in the english speaking world through the 60′s and 70′s were long ago destroyed by the disastrous policy of mass immigration. It has all but eliminated formation of social capital in the nation, while transfering wealth from labor to capital. It’s hunker down and every man for himself in a society were increasingly no one is related genetically or culturally anymore. Read Robert Putnams work on the effects of this, or better still look around you.

Posted by lamentable | Report as abusive

Elizabeth, wake up from your slumbers. You’re smarter than this, or you couldn’t be at Berkeley.

Obviously, income distribution is ever less equal, economic mobility over one’s lifetime and between generations is in decline. The voting public is so uninformed, inattentive, and spun this way and that by sound bites that they have no idea of their own economic self-interest. The elected officials are ever more at the beck and call of campaign contributors. Not only is the level of public discourse reaching new lows each year, but the level of scholarship on the Supreme Court is in a parallel downtrend.

If you’re going to write about something, write about how we can experiment with new ways to actualize democratic self-government, because what we have now shows zero progress from Plato’s critique of democracy in the REPUBLIC. Make some useful proposals! Don’t write backward looking pulp that does no more than preach to the choir.

Get a grip, Elizabeth. Keep your eye on the big target.

Posted by benfct | Report as abusive

29 november 2012 thursday 8pm

“with due respect this is my statement
with regards to this fiscal cliff”
reuters.com
the great debate
when talk was of investing in public good
by elizabeth pearson | november 28, 2012

11 november 2012 sunday 9am

this is what they say:

cnbc.com
published: saturday, 10 nov 2012 | 11:24
10 november 2012 will the economy boom
if washington fixes the ‘cliff?’
by: justin menza
news writer
http://www.cnbc.com/id/49762248
economist . . . expect . . . dealing with . . .
can re-ignite economic growth.

all i can say:

“with due respect to all the bright and clever economists
in this universe. please don’t get me misunderstood.
sorry to say . . . really? – is it true?”

i wish to invite everybody to my facebook account:

thegreatdepression.part2@yahoo.com

“i respect all the economists, all the leaders in this world”
the simplest and accurate answer to “the fiscal cliff” is
for the two distinguished party – the democrats and the
republicans to rumble day and night.
this is the “only thing” they could do. why? there is no
absolute answer to this sorry to say d . . . cliff. again why?
the economy moves, in the wrong directions. that’s why
fixing this d . . . cliff is obsolete. again why? same
result – sorry to say d . . . “debt”. thanks’

please take care and God bless . . . . . . . raul

Posted by nlcraul | Report as abusive