The Need for Funds

Hilzoy writes about California paying the high price for the anti-tax Proposition 13. The price comes in two forms — one is inadequate revenue and the consequences that follow from that, and the other is in distorted policy as when revenue does need to be raised it isn’t raised in the most straightforward and efficient manner:

The result, of course, is that California has been deferring maintenance for a very long time. Now their judges will be working from home, their schools will fall further into decay, and their bridges will continue to crumble. With any luck, Obama’s stimulus plan will help out with the worst of it; my only regret about that is that it will postpone the day when Californians have to confront the idiotic tax policies they put in place.

In fairness to California, however, everyone knows that the California “tax revolt” that led to Proposition 13 went national in at least a metaphorical sense spread nationwide in the 1980s. In practice, it’s been exceedingly difficult to increase revenue at any level of government anywhere. At the same time, the costs of delivering a large set of labor-intensive public services — cops on the beat, preschool teachers, taking care of the elderly, etc. — have gone up while the existing infrastructure has aged and the population has grown. But without the possibility of new revenue, it’s impossible to meet those needs. And an incredibly large proportion of the efforts that have been made in recent decades have had to be packaged inefficiently as “tax credits” rather than properly structured programs.

Thanks to the global recession, concern about the deficit is temporarily out of the window and nobody wants to raise taxes. But if we’re fortunate enough to pull out of this in a reasonable amount of time it’s still the case that getting the country on a long-run path to broadly shared prosperity is going to require the ability to raise revenue.