Tax and Budget Reform

In a debate too often dominated by rightwing tax cut rhetoric, there is a real opening for progressives to demand a fairer, more accountable tax and budget system.  The public has a strong commitment to funding both social services and the long-term investments needed for economic growth, but state residents are frustrated by governments that they believe tax low- and middle-income residents too much and upper-income residents and corporations too little.  Hidden economic giveaways to companies receiving tax breaks and government contracts only add to voters' suspicion that state budgets serve those with money, not the average taxpayer.  In response, a range of reforms at the state level are creating more transparent tax and budget decisions and strengthening voters' trust that their tax money will actually go towards the important public services that they do support.  These approaches include:

• Make Tax Systems More Progressive
• Fix Failed Tax Subsidies
• Reform Government Contracts and Restrict Privatization

Tax reform that eases the burden on working families while demanding that the wealthy and corporations pay their fair share should be a core principle of the progressive movement.  An April 2008 Gallup poll showed that 63% of Americans think upper-income people pay "too little" and 73% think corporations pay too little in taxes, with many state polls showing up to 80% of voters calling for higher tax rates on the wealthy.  This desire reflects the reality that corporations and the wealthy pay a lower percentage of their income in state and local taxes than working families.  Easing the tax burden away from working families is therefore a key part of creating broader political support for expanding popular support for social programs and public investments. 

Budget and Tax Transparency as Strategy:  To expose inequities in our tax and budget systems, a prime goal for progressives should be to promote "truth in budget" reforms that track the tax burden for different income groups, the extent of corporate loopholes and other tax giveaways, the hidden deals made when contracting out public services, and which companies receive state economic development money and government contracts.  Such reforms give the public the tools for a more robust understanding of what really goes on with state money.  And once special deals for corporate interests are exposed, it becomes easier to enact reforms that save taxpayers money and free up resources for other needed state programs.

Stop Failed Corporate Rip-offs of the Public: More transparency will highlight that tens of billions of dollars each year are lost to corporate tax loopholes and subsidies that deliver little in return. Progressives need to establish clear policies to eliminate such wasteful use of taxpayer dollars.  States also need to crack down on wasteful economic development deals handed out to large corporations who have little to show in decent jobs created for state residents.

The other side of budget malfeasance is insider privatization-deals that hand fat public contracts to politically connected corporations.  Privatization often just pads the corporate profits of those receiving public contracts and leasing government-owned assets (like highways).  All across the country, "pay to play" corruption has led to indictments of public officials selling off government to the highest bidder.   And the cost is not only the public trust, but poorly delivered public services, fraud, and the undermining of state economies as companies pay poverty wages and even offshore jobs overseas.  Policies that create accountable standards for government contracts are needed to prevent corruption and help guarantee that public money is used to promote broader public policy goals.

A New Progressive Message on Economic Growth:  In times of economic troubles and recession, the standard rightwing calls for more cutbacks on public investments and more tax giveaways to try to lure businesses to the state become that much louder.  Yet the worst thing policymakers can do during temporary hard times is to cut back on the investments in education, university research, physical infrastructure, and worker training that actually do determine where companies want to do business in the long term. 

In Rethinking Growth Strategies, author Robert Lynch highlights the fact that state and local taxes are too small a part of a typical company's costs to determine plant location, so cuts in public services are likely to cost more jobs than any jobs potentially attracted by low taxes.  Similarly, CFED's A Progressive Economic Development Agenda for Shared Prosperity, describes low-tax strategies as a "get poor" strategy, where the better approach to local economic competitiveness "needs to focus on meeting the workforce and infrastructure requirements of the New Economy." All of which emphasizes that states can best pay for those investments in public services by creating effective state tax systems where the wealthy and corporations pay their fair share.

• Progressive States Network - Dos and Don'ts of Coping With State Budget Crises
• CFED - A Progressive Economic Development Agenda for Shared Prosperity: Taking the High Road and Closing the Low
• Economic Policy Institute - Rethinking Growth Strategies