Friday, September 14, 2012

Third grade math

By Terry Scanlon

My eight-year old daughter was elected to the Senate this week. After a failed bid for the presidency in a mock exercise in her third-grade class, she secured a seat as one of two senators by giving what I’m sure was a rousing campaign speech.

 “I promised to make taxes less and to give every animal a home,” she told me proudly.

You can imagine my mixed emotions. Unquestionably proud of her interest in civics, I was also devastated that my own offspring believes cutting taxes is sound fiscal policy. Faced with the question any parent struggles with when their child makes a grave mistake, I wondered where I went wrong.

After congratulating her on her victory, I told her she would have to break her campaign promise. There’s no way to provide more help for animals while also cutting taxes, I said. Slipping into my old reporter role, I nailed her with the logical question: “How are you going to pay for more animal shelters if you have less money?”

Like a seasoned politician, she didn’t flinch and managed to neatly evade the question, “Dad, it’s not real. I’m only in third grade.”

So on that count, she was, of course, right. But our talk got me to thinking, why is this mindset that government can do more with less so prevalent in our society? Why do we have so many elected officials who maintain the third grade logic of saying whatever it takes in order to get elected?

There is no evidence of tax cuts increasing revenue at the state level in Colorado. Look for more about that topic in a soon to be released issue brief from the Colorado Center on Law and Policy. In the meantime, let’s look at the federal level.  A People’s Guide to the Federal Budget by Mattea Kramer at the National Priorities Project provides a concise history lesson.

In the 1980s, personal and corporate income taxes were cut at the same time that military spending increased dramatically. The result was soaring deficits. Taxes were raised in the 1990s. Annual deficits turned into surpluses. In 2001 and 2003, income taxes were cut again and two wars were started about the same time. Deficits returned.

Today, our annual deficit — the amount that our nation’s spending exceeds tax revenue — has reached $1.3 trillion, according to the Office of Management and Budget. As a percentage of GDP, the deficit was higher only during World War II. The top tax rates were pretty high then. In 1944, it was 94 percent.

The top tax rates remained high after the war and the deficit declined dramatically. As this chart from the Tax Policy Center shows, the marginal tax rate — or the rate at which the last dollar of income is taxed — was much higher from World War II to 1982. The top rate was 92 percent in 1953. It was cut to 50 percent in 1982. Today it stands at 35 percent.

Although it apparently is not discussed much among actual third graders, deficit reduction is indeed getting a lot of attention. As it should. The grown up solution needs to recognize that in order to get the services we want and that our economy needs to be strong, we must balance increased revenue with smart cuts in spending. Only such a balanced approach will accomplish our common goals.

And in the end, my daughter realized she needed a more balanced approach. Today they're writing laws in her class. On the way to school she told me she plans to offer a bill  that would tax parents to pay for iPads in school. My guess is she'll be able to sell that policy proposal to her classmates.

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