How should we make sense of this year’s state budget proposals? It’s important to focus on measures that represent the wellbeing of Rhode Island residents.
Governor Gina Raimondo recently unveiled her budget proposal for the coming year. The proposal includes an increase in spending, from $9.6 billion to nearly $10 billion, which prompted a number of conservative commentators to protest that it would put an unbearable tax burden on Rhode Islanders if enacted. Ostensibly hoping to shed more light on these criticisms and the budget proposal in general, Providence Journal reporter Paul Edward Parker set out to compare the cost of government across different states. In the piece, titled “Is R.I. government too big for its riches?,” the author’s point of comparison is state and local government spending per state resident. It is important and admirable to seek to investigate a prominent criticism of the budget proposal. However, a focus government spending per capita does not give readers the full picture in three important ways because it does not in any way represent the wellbeing of residents.
First, the approach and its results say nothing of how state or local tax systems distribute taxation across the income distribution. By using per capita government spending, it is implied that government levies a tax equal to per capita government spending on each person. This is not how state or local governments levy taxes, though. Instead, the amount of state and local taxes paid by someone depends on a number of factors such as income, property value, consumption patterns, and so forth. Average government spending per person doesn’t tell us anything about what amount of taxes is levied on the median person.
For instance, a state could reduce government spending and correspondingly eliminate the income tax on any person who earns more than $500,000 per year (or it could, say, cut the estate tax). Per capita government spending would decrease, as would average tax liability, but the median person would be no better off (and many may in fact be worse off—but more on that later).
I assume the intent of the article was to compare the amount of taxes paid by people who are roughly middle-income across states. For this comparison, a more suitable source of information may have been the Institute for Taxation and Economic Policy and its annual report on the extent of state and local taxation across different income quintiles.
Second, even comparing the amount of taxes levied on middle-income people in various states is an incomplete comparison because it overlooks the fact that state and local taxes are collected to fund services and benefits that are not distributed equally among people of different incomes. To leave unchallenged the assertion that tax liability is a measure of government legitimacy is to, perhaps unwittingly, adopt an uncompromisingly conservative or libertarian economic perspective on the economy.
All but the most conservative or libertarian ideologues agree that some degree of resource redistribution is necessary to achieve a state of economic fairness. Because the scope and extent of benefits granted through redistribution differs across individuals, considering only tax liability does not provide a full view of one’s relationship to the tax system. For instance, the high-income tax cut mentioned above could be accounted for by a corresponding cut to cash assistance to poor families. This would reduce per capita government spending and average tax liability, but it would leave a middle-income person no better off and a low-income person worse off. If we consider tax liability, or the financial size of government, without considering the scope and extent of benefits provided, taxation in most forms seems principally unjust and we are led to reduce government spending regardless of the impact on broadly-accepted conceptions of fairness.
Lastly, the analysis does not account for the way governments’ legal and regulatory structures confer advantages. This is a more esoteric point than the other two, but it’s still important. Without government defining and enforcing property rights, it would not be possible for individuals to accumulate income or assets. In assessing the legitimacy of government spending, it is necessary to also assess the extent to which the outcomes created by these laws and regulations are legitimate.
By considering only government spending without accounting for the legal and regulatory structures that determine the extent of income and wealth accumulation, it is implied that all government behavior is burdensome. This implication misses the fact that government behavior is what makes economic activity possible in the first place. Instead of treating government spending as principally wrong, we should assess the extent to which government spending and the taxation it necessitates align our economy with what we consider just.
We should all welcome discussion, evaluation and criticism of state budget proposals. In these discussions, evaluations and criticisms, though, it is important that we all stay focused on the proposals’ impacts on the wellbeing of Rhode Island residents.