The Government Trickle Down Effect

As the May ballot process swings into high gear, two of those depending on the support of taxpayers are lining up to put additional taxes on the ballot. Whether we are talking about the City of Toledo or the Toledo Public Schools (TPS), the claim is that they simply no longer have the money to make ends meet. 


While I believe that many of us suspect that their claims are less than genuine, let's set that aside for now. The interesting thing to me is the economics involved with the request. The city rightly claims that there are streets to be paved and plowed, fires to put out, and crimes that its citizens need to be protected from. Unfortunately, they take a legitimate observation and abstract the flawed result from it that the only way to balance the books is to extract more from the citizens. 


TPS likewise rightly claims that the children of Toledo need to be educated. And in spite of the fact that the number residents, and therefore the students that it serves appear to be going down, the money required to educate these young people continues to increase. TPS further correctly claims that the state is no longer supporting education at the level that it once did in the past. (They might further claim that the state is still funding education in violation of a court order, but that's for another day.) The flaw in their reasoning is much like that of city, that this or any other revenue shortfall must be made up from local residents regardless of the service provided or the numbers requiring it. 


The state in turn, claims that it is suffering under increasing unfunded mandates from the federal government and has a debt problem of its own. And while it is not currently making a request for additional funding directly, it has passed legislation to delay impending state income tax cuts and stabilize their own revenue levels (which is pretty much the same thing). 


The federal government has just passed legislation to increase its debt ceiling by $1.9 trillion, which I think speaks for itself. And in spite of the fact that some tax cuts passed during the Bush Administration are set to expire and will not be renewed (which would qualify as a tax increase), there seems little doubt that this will hardly slow the increase of the federal budget shortfall. The federal government would be in even more trouble in balancing its books, but has found some solace in its ability print money at an alarming rate. 


The amazing thing about all of this is that the federal government is certainly not taxing us less than they have in recent years. In spite of this however, there appears to be less money to share with the state. The state in turn has not significantly lowered their own tax rate, and yet they appear to have less to share with the cities and with the local school districts. Neither the city nor the school district have lowered their taxation demands, but they too are unable to make ends meet. 


I have often been told by both the media and Democratic politicians that the concept of "trickle down economics" from the Reagan years were in large part a failure in spite of their bringing the economy back from the very brink of disaster that the Carter Administration left it in. We were told that giving more money back to the people thorough tax cuts was in no way capable to stimulating the production of revenue for either the government or the people paying the taxes.  


Government however, appears to be more impressive in reproducing the this trickle down effect. The process in which Government allows not money, but increased levels of taxation trickle down is proving particularly effective. Unfortunately for the government and for us however, the result appears to allow not only increasing taxation, but increasing debt to trickle down to the state and local levels.