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taxes

Reducing Police Forces Can Mean Smaller Government – and Lower Taxes

by D.J. McGuire

Supporters of the Black Lives Matter movement, by and large, aren’t thinking about property taxes – and for good reason. The recent spate of visible abuses of power by local police forces has made it clear that a serious rethink is in order regarding local “public safety.” Whether one prefers Reform, Defund, or Abolish as the rallying cry, the BLM movement clearly wants smaller, less powerful, and less intrusive police departments with fewer responsibilities.

If they (or we, if they don’t mind my admittedly late arrival to the cause) can also show this means a less expensive police, then possibilities open for new coalitions that could scramble local politics across the nation.

Of course, BLM is at present focused on reorienting local government responses to non-violent local issues away from cops and toward other local agencies – again, for very good reason. That, by itself, would not necessarily free up funds to be returned to homeowners and (indirectly) renters. However, smaller police departments also mean less powerful police unions, which would rebalance the relationship between local elected legislatures (councils and boards) and police forces in favor of the former. This could make it easier for them – and their constituents – to push for further efficiencies in local police.

Additionally, smaller police forces can mean an end to the various diseconomies of scale that come from any organization that grows beyond its most efficient point. While I have not seen particular data on this one, it’s pretty clear to me that local police forces who feel empowered to abuse the people they’re supposed to protect are likely empowered to be far less cost-efficient than they could be, and should be. Of course, that leads to an additional potential reason that smaller and less abusive police forces can also save the taxpayer money: fewer court cases and legal fees.

Why am I focusing on this matter? I have two reasons. First, there was a time when I was deeply enmeshed in local political matters of Spotsylvania County. Every budget cycle, I attempted to comb the county spending plan to find efficiencies and priority changes that could either prevent increases in property taxes or lead to a reduction in them. I had two rules that governed my endeavors: avoid cuts to education whenever I could (especially instruction), and never touch Public Safety. Next budget cycle in my current hometown, I need not be held back by the latter.

More to the point for the movement, I am hoping they (or, again, we, if they’ll take me) can see the potential for political allies in an unexpected place on the political spectrum. I still believe – perhaps naively in the current era, but I’m holding to it – that a large number of center-right voters are genuine about wanting government to be less intrusive and less costly, including local government. Many of those for whom police brutality is still an abstract concept would still be willing to address the matter if it also means lower property taxes. Meanwhile, citizens for whom lowering property taxes is a priority are sure to be more likely to look at police funding now. Indeed, you are reading the musings of one of them right now.

These are not matters that will be linked together in the 2020 campaign, but rather in city council buildings and county courthouses over the next several years. That said, if supporters of police reduction and tax reduction can recognize our common interests, we can build a political force that can transform local government for the better across America.

Is Raising the Minimum Wage Really Progressive? Why I Say No.

by D.J. McGuire

Amazon’s announcement that it will pay all its employee no less than $15 per hour (with a call for the rest of American businesses to do the same) has added fuel to the flames of the minimum wage debate. As usual, I find myself at odds with nearly every other Democrat on the matter. The main thrust behind this is the assertion that the low-paid are being cheated by their employers, and thus the employers must bear the brunt of fixing the problem by paying higher wages. There is also a Keynesian macroeconomic argument that endorses transferring income to the lower paid as a way to stimulate aggregate demand. The former argument is simply wrong, while the latter is merely misguided. In fact, I would argue that income supports (like the Earned Income Tax Credit) are more efficient and equitable than a minimum wage hike.

For starters we have to remember how wages are set in a competitive marketplace. Labor demand is what economists call “derived demand” – in that it is derived from the expected revenue the firm can expect from its workers. Higher prices and higher production mean higher wages. In other words, what truly drives wage rates in competitive markets are the customers (i.e., us). So, first and foremost, this is our fault. Secondly, while the emphasis of the minimum wage debate has been on large firms like Amazon and Walmart, a very large portion of firms affected are small businesses (including franchisees, which are small businesses in corporate garb).

Meanwhile, the economic impacts of a minimum wage hike are both damaging and avoidable. Firms will respond by either cutting production (and laying off staff), increasing automation (also laying off staff), or raising prices; the most likely outcome across the economy is a combination of the three. So employment will fall and prices will rise. In effect, for consumers, a minimum wage is a hidden sales tax – and a sales tax is one of the more regressive types of tax out there (i.e., it hits the poor the most). Remember this the next time some wealthy pundit (yes, Bill Maher, I am looking at you) complains about “paying for welfare” of low-paid workers; their solution is that poorer Americans pay for it instead. This goes double for folks in the IT industry, which sees demand for their products rise as more firms switch to automation. In that context, the actions of Amazon – whose largest profit center, by far, is Amazon Web Services (cloud services) – take a much more self-interested hue. Moreover, a higher minimum wage benefits not just the working poor but also the working young (many of whom are not poor at all) and is thus inefficient.

By contrast, a negative income tax (of which the Earned Income Tax Credit is a kind) avoids all of the negative effects of a minimum wage increase, while being more equitably funded (via governments, whose reliance on income taxes ensures a less regressive impact).  Moreover, to call it “welfare” is to deny the fact that income taxes (as labelled) are not the only taxes out there. The low-paid also pay taxes on gasoline, food, shelter (via property taxes either paid directly if they own property or via higher rents from taxed landlords), and nearly everything else with a sales tax. They also still pay taxes on income (don’t forget the payroll tax). Additionally, a larger EITC would have the same macroeconomic effect on aggregate demand without the inflationary effect of higher prices.

To be fair, there are some who argue that a minimum wage hike won’t reduce employment. They focus upon markets that are less competitive – and thus, where firms have enough market power to separate wage rates from derived demand. However, I think those markets, while more likely to get our attention, are fewer than most realize. More to the point, they can be more efficiently addressed by reforming antitrust law to take into account the effects of monopolies and oligopolies on resource markets (such as labor) rather than just product markets.

Most progressive (perhaps all of them) consider minimum wage hikes to be in line with their values. Policies, however, are about methods, too. I would humbly submit that expanding the EITC and addressing gaps in antitrust law would be a more efficient and more equitable set policies to help the American working poor.

D.J. McGuire – a self-described progressive conservative – has been part of the More Perfect Union Podcast since 2015

Kiss of Death for Al? (Ep. 127)

Episode 127 of The More Perfect Union podcast looks at the latest sex scandal involving Sen. Al Franken, infamous D.C. sex scandals of the past, and which senators might help kiss the tax bill goodbye.

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On the Republican Tax Deform

by D.J. McGuire

Taxes: the one issue where – as an economic conservative – I would be more sympathetic to my old party (the Republicans) than my new one (the Democrats). As I awaited the Republican tax reform plan, I even recommended Democrats find a way to work with the GOP to improve it.

Well, the plan was at last revealed today, and about the only link this fiasco has to actual tax reform was Congressman Brady quoted Ronald Reagan from 1986 (CNN).

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​ Ed Gillespie’s Fake Tax Cut

by D.J. McGuire (who lives and votes in Virginia)

As Virginia’s campaign for governor careens to its conclusion on November 7, I do believe I have managed to solve at least one mystery of Election 2017. Namely, what in the hell happened to Republican nominee Ed Gillespie‘s tax cut proposal?

The answer is: it was a mirage.

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