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Home > Social Issues
The Trouble with TABOR
by Bob Powell, 2/27/05
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"After Notes" are appended below in which I comment on objections to what I've written in this Op Ed piece.

[Published, slightly edited, in The Denver Post on 3/10/05 with title, "In a hole? Stop digging"]

Letters, they send letters. They defend and attack TABOR. Backers applaud: It cuts "wasteful government spending." Opponents assail: It limits "needed government services." But TABOR isn't the solution to, nor the cause of, our problems. Here's why.

Cities and counties approve new growth. While taxes and fees provide near term revenue for government services, they're insufficient to cover long term costs (roads, schools, prisons, etc.). But we don't feel the increased infrastructure load for years; it takes time to build and occupy new development.

Taxes may offset what government spends on infrastructure, but what's spent doesn't maintain levels of service. Examine any new development traffic report; you'll find the level of service is degraded even after developer “improvements.”

As long term costs arise, governments raise property and sales taxes to pay for them. Because government does the raising of taxes, taxpayers are led to believe the problem is "wasteful government." Based on that belief, they've voted for laws like Gallagher and TABOR, instead of recognizing that insufficient taxes and fees on new development are responsible.

To increase revenue, growth proponents advocate more growth to "increase the tax base." Trouble is, that growth also doesn't cover long term costs; even more growth is "needed." This "doing what feels good in the short term, but is harmful over the long term" is called "addiction." This "addiction to growth" is very much like "addiction to drugs."

Infrastructure backlogs are a national problem. In September 2003, the American Society of Civil Engineers updated its "report card” on the nation’s infrastructure estimating a $1.6 trillion investment is required over the next five years.  The rate of increase is 9.25%/year, many times inflation.

As infrastructure backlogs grows, eventually even growth industries support tax increases for roads to increase the area accessible for development. Note their support is for taxes on the general population, not for impact fees and taxes on the industries that primarily profit from growth (e.g., developers, home builders, banks, utilities, road builders, newspapers, etc.). In the literature on growth, these industries are called the "growth machine" because they're informally and naturally organized by shared profit motives.

It's not in the financial interest of growth industries to acknowledge this dynamic. Even those who really believe that "growth is good" find the dynamic difficult to recognize. Their belief is confirmed by the initial increase in revenue. When costs are displaced in time and space (e.g., Fountain Creek drainage erosion), they're easy to ignore.

So what to do?

When you find yourself in a hole, the first thing to do is stop digging. In this case, determine the rate at which short- and long-term infrastructure costs are accumulated and collect impact fees to offset the marginal (not average) costs of growth. Hear the screaming?

The second, increase property taxes to drain the overall backlog. More screaming! Though growth industries have primarily benefited, it's too late to recoup the subsidies.

The trouble with TABOR is that approving development with TABOR is like charging a credit card and then not paying the bill. It locks the barn door after the horse has been stolen. It's misguided public policy that contributes to the government dysfunction the "Doug Bruces" complain about.

Not paying the bill is somewhat justified. It's sent to the wrong people: all taxpayers rather than to growth industries. The costs of growth are externalized onto the public at large rather than paid by those who profit. Such negative externalities allow companies to privatize profits and socialize costs. Those who praise "the market" should know that internalizing the costs is important: unless market prices fully capture the costs, the market cannot correctly allocate resources or properly inform purchase decisions.

Economic conservatives decry redistributing income, no matter the social good; but they have no problem with redistributing costs, no matter the social harm. So let's not beat around the bush. Those who oppose impact fees and excise taxes on new development are as much socialists as those they batter with the "socialist" label. They're socialists on the cost side ... and hypocrites, too.

For a more through treatment of the dynamics of growth, see the Growth Facts of Life and The Tangle of Growth


After Notes:

1. You should look at "wasteful" government spending on social programs before arguing we should lift TABOR. 

A reader response:

What I think Bob is missing here is the fact that we (taxpayers) worry about the wasteful government spending on social programs and other programs that should not funded by the government. Opening the barn door will not only increase spending on infrastructure, which is the purpose of government, but also on unneeded social programs and other.  This is the real trouble that he did not address with convincing taxpayers to lift TABOR. You need to look at the entire picture of what the government is spending OUR money on, before you argue that we should lift TABOR. He did not convince me.

I'm not missing a point about "wasteful government spending" at all. This issue of what government spending should and should not be on is a major debate. I address only a part of that, not the wider issue. My thinking on the wider issue can be found at Explaining Liberal Principles where I outline guiding principles for government involvement in the economy. From the tone of this comment, it's unlikely this reader will agree with them, but nevertheless I state my reasoning.

What this reader calls "wasteful" may or may not be; I'd have to hear specifics. For example, I think it's wasteful (not to mention unfair) for the public to subsidize developers and homebuilders in selling their products by allowing them to externalize the long term costs of growth. Others think such spending is "public spirited" ... and those in the "growth machine" spend a lot of money trying to convince them that it is. 

Relative to "opening the barn door," it's interesting that any criticism of TABOR is immediately seen as a position in favor of "lifting" TABOR. But I didn't exactly say that.

I describe specifically how to proceed at The Tangle of Growth page ... see the diagram there. Basically, taxes shouldn't be raised at all ... AT ALL ... before we stop subsidizing growth ... that is, FIRST STOP DIGGING. That's because the increased taxes will simply be used for subsidizing more growth (... e.g., the governor wants to earmark taxes for spending on new road construction ... a growth subsidy). That said, the "ratchet effect" should be corrected.

My main purpose here is to explain the dynamics to so many who are mystified by what's happening, but are still open minded. A longer, but still fairly brief, explanation can be found at Growth Facts of Life. The Tangle of Growth is a thorough treatment.

I certainly don't expect to convince diehard TABOR supporters, libertarians, or those who call themselves "economic conservatives."

2. On using the term, "socialist"

A friend commented:

Probably the piece would be more credible if you hadn't dropped to the name-calling level that the conservatives frequently occupy -- calling them "socialists" is the same little counterproductive game they play.  Calling them "hypocrites" probably would have been sufficient.

Yes, I used the term, "socialist" ... not that that's a bad thing, given the way the term is misused. Calling someone a "libertarian" ... now that's name calling.

My goal wasn't "name-calling" as much as conveying an important concept that I didn't think would get through otherwise. 

As he says, those against impact fees are all too willing to call liberals "socialists." As one person, refering to liberals wrote, "I prefer the more accurate term, socialists." But liberals are not socialists, because socialists call for government ownership of all businesses; liberals don't.

As I describe in Explaining Liberal Principles, sometimes privatized (individualistic) approaches are doomed to fail or certain to produce significantly less favorable results for society as a whole. In those cases, we need government (collective) approaches. That's not following a socialist ideology, it's pragmatic.

It seems that both hard core capitalists and hard core socialists would rather pursue action according to their ideology and have the system fail, than do what works. While there's truth in the need for individual action and responsibility and while there's truth in the need for collective action and responsibility, it's dangerous when either ideology takes a portion of the truth and runs with it to regimes in which it does not apply.

I've come to realize that socialist is not necessarily any more of a pejorative term than capitalist. Both can be "evil" (harmful or injurious) when applied in situations for which they aren't capable of yielding the desired results.

It's important that those against impact fees realize that socializing the costs through negative externalities is a form of socialism. They see themselves as virtuous, benevolent and upstanding capitalists who stand alone and don't burden others, but that's far from the truth.

URL: http://www.exponentialimprovement.com/cms/tabor.shtml

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