Taxes = Power

On tax day today, we should remember a key reason why taxes keep going up:  Taxes equate to power for elected officials.  The more money they have to spend, the more power they have.  The more money they have to spend, the more people have to kowtow to them and send campaign contributions either to 1) score a share of the loot or 2) get a special deal or treatment on their own taxes.

We have a sense that there is more corruption than ever in politics, but I think its demonstrably true that people and politicians are not any more or less evil than they were 100 years ago.  The only difference is that the sums in play from political influence are so much larger.  Its a concept I try to explain to people all the time.  The way to fix corruption in politics is not through campaign finance reform, it is through reducing the size of government.  Because no matter what restrictions one puts in place, if we set up a system where it pays to invest in politicians, then people will find a way to do so:

In a remarkable illustration of the power of lobbying in Washington, a study released last week found that a single tax break in 2004 earned companies $220 for every dollar they spent on the issue "” a 22,000 percent rate of return on their investment.

The study by researchers at the University of Kansas underscores the central reason that lobbying has become a $3 billion-a-year industry in Washington: It pays. The $787 billion stimulus act and major spending proposals have ratcheted up the lobbying frenzy further this year, even as President Obama and public-interest groups press for sharper restrictions on the practice.

The paper by three Kansas professors examined the impact of a one-time tax break approved by Congress in 2004 that allowed multinational corporations to "repatriate" profits earned overseas....The researchers calculated an average rate of return of 22,000 percent for those companies that helped lobby for the tax break. Eli Lilly, for example, reported in disclosure documents that it spent $8.5 million in 2003 and 2004 to lobby for the provision "” and eventually gained tax savings of more than $2 billion.

These returns rival those in the narcotics trade, and you know how well we have performed in stopping that.  We are seeing this effect right now in Arizona, where the County Commissioners of Pima County (centered on Tucson) are under investigation for rigging electronic voting machines to pass a recent tax increase.

Under the scrutiny of criminal investigators, election workers in Phoenix have spent the past week in a painstaking recount of 120,821 ballots that were cast three years ago for a Pima County transit tax.

The primary objective is to determine whether someone rigged the election by tampering with the optical-scan polling machines in Pima County, transforming "no" votes into "yes" votes.

The ballot measures wound up securing a half-cent increase in sales tax to provide cash for roads, buses and other transportation projects.

The reason -- taxes are power, and more taxes are more power.

  • morganovich

    i'm not so sure that the level of corruption has not increased. in a nation with small government, the avaricious empire builders would be less attracted to politics. toss enough money on the table, and all the scheming malefactors come out of the woodwork and want in on the action. further, as the role of government increases, so too does the incentive for private interests to sponsor/buy politicians in order to make sure they do well out of it.

  • Captain Obviousness

    Another thing to remember, I think something Ron Paul said: The true cost of government is not what it taxes, it's what it spends. It's an important distinction - what they spend has to be paid for eventually, somehow, regardless of how much they tax us now.

  • DrTorch

    After living and working in the DC area for nearly 13 years, I agree 100%.

    All other methods to improve gov't are cumbersome and largely ineffective. Cut the money (spending) and it all gets better. Corruption goes down. Lobbying goes down. Bureaucracy goes down. Costs to consumers go down, as industry doesn't spend so many dollars dealing w/ DC and its regulations.

    Even the political left should favor this:
    Urban sprawl in MD/VA would decrease. Traffic, and thus fuel used and emissions produced, would lighten up.

    Cut taxes/spending and the US has a chance of getting better.

  • http://politicalcalculations.blogspot.com/ Ironman

    The thing about corruption is that it pays both ways. For the rent-seeking lobbyist, the return on investment that they get from their Congressional "investment" can be really substantial while the politicians at the opposite end of the transactions realize the gains of this trade through something a lot like how dividend yields work.

    The thing that's really amazing is why the politicians' dividend yields (their cut) is so low. It turns out that this kind of corruption is a highly competitive business, so they have to make it up on high volume on account of the low margins.

  • Bill

    Rent seeking activities can be quite lucrative.

  • http://blagnet.net John

    "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators."
    —P.J. O'Rourke

  • Pieter

    Do you really believe that there's more corruption now than there was 100 years ago? 100 years ago, the Tammany hall system was at the height of its power in New York, and the situation was similar in other major cities.

    As for taxes, the reason most people have experienced rising taxes is that the tax burden has been moved from the wealthy to the middle class. The total amount of government tax revenue has remained more or less stationary since the 1950s, as a percentage of GDP, but the amount paid by the wealthy has fallen substantially. Partially this is because tax brackets haven't been properly indexed for inflation so that more people are finding a larger portion of their income falling into the highest tax brackets, and partially this has been exacerbated by changes in the tax code that have benefited the wealthy at the expense of the middle class. In the early 1950's, the top marginal, federal tax rate, only affecting the truly wealthy, was about 91%. Starting with the Kennedy tax cuts, that rate has now fallen to a top rate of 35%. As for tax brackets, let's compare married filing separately thresholds (which are the most clearly listed across historical periods). In 2009, you needed to earn $186,475 to fall in the top tax bracket. In 1951, you had to earn $200,000, or roughly the equivalent of $1.6 million after adjusting for inflation.

    http://www.taxfoundation.org/publications/show/151.html

    http://books.google.co.uk/books?id=1CkRqHX0caYC&pg=PA417&lpg=PA417&dq=US+tax+revenue+as+a+percentage+of+GDP+historical&source=bl&ots=lOAPyEM4BY&sig=4S61OE5ebwyy7U5DWdBNEt1LS0I&hl=en&ei=DjHnSae-KsTA-Aao_53EBQ&sa=X&oi=book_result&ct=result&resnum=4#PPA418,M1

    Government spending has remained steady as a percentage of GDP. If you're paying more, it's because the very wealthy are paying much less.

  • http://twitter.com/ourenemy The State

    thought you might enjoy this twitter

    http://twitter.com/ourenemy

    it's from the point of view of the state

    thanks man!

  • Pieter

    I tried to post earlier, but apparently the internet ate my message.

    First, I find it hard to believe that corruption now is worse than it was 100 years ago, at the height of the Tammany hall era. I think proximity and 100 years of progress have just made today's corruption seem worse.

    Second, government revenue as a percentage of GDP has been stuck at pretty much the same rate, just under 20% (federally, in the US), since at least the early 1950s'. If you're paying more, it's because someone else is paying less. Generally, there's been a big shift in tax from the very rich to the middle class. This has been the result of tax brackets that aren't properly indexed to inflation, so that more people end up with a larger portion of their income in the higher tax brackets, and a result of tax reform that has exacerbated this trend. The tax rate on the highest income tax bracket has gone from 91% in 1951 to 35% today. Meanwhile, the threshold for the highest income tax bracket is now $186,475 (for married filing separately, which is the easiest to compare). In 1951, the threshold was $200,000, or about $1.6 million after adjusting for inflation.

    http://www.taxfoundation.org/taxdata/show/151.html

    In short, government spending hasn't changed, and the very rich are paying less tax, so rest of us are paying more.

  • tomw

    If power did not accrete with seniority, if there were no retirement benefits, if there were no automatic pay raises, in other words, if serving in the Senate or House were the *serving* that was originally envisioned, not a *CAREER*, there would be a lot less pressure from K street, as there would be no person who was the "Go To" for a specific bit of rent seeking. Just like herding cats, if they all have their own agenda, and have no plans to make it a career, they'd likely go about their business with a lot less largesse...
    [that was largess with OUR money..]

    tom

  • morganovich

    pieter-

    your claim about government revenues misses the point a bit. what you really need to be watching is government spending. it has NOT plateaued. it rose sharply from 1950 to the 90's from about 20% of GDP to over 35%. that is an astounding rate of growth. a 75% increase in the % of economic participation is utterly breathtaking. and this does not even include all the unfunded mandates like Social security and health care. using GAAP, this number would be much higher.

    they are spending our future money. deficits are the most insidious kind of tax increase - one that will need to be paid by someone later. this means taxes need to go up and expenditure needs to go down to even get back to break even. as i doubt we have the political will to do either, there is only one other option: inflate. the fed has already greatly expanded its balance sheet with longer term (and difficult to sterilize) instruments. it shows every sign of wanting to go MUCH further. only so much can be done before we debase the $. when the world economy recovers, it will become clear how much damage we have done.

    inflation is a tax. it's a tax on savings. it's a tax on the most prudent and cautious for the benefit of the reckless and profligate. but it reduces the value of debt. my advice is go into debt up to your armpits right now and lock in a nice 30 year fixed rate. in the 70's, US prices increased about 150% over 12 years. it can and will happen again. money in a mattress will get killed. however, owing a 5% loan into 7% inflation is a great plan.