Opinion and Economic Analysis

Hicks: Tax rates only half the story of government

April 17, 2014

With the passing of April 15 and the annual ritual of tax filings, news pages are filled with discussion about the size of federal, state and local tax burdens.

The Hicks household paid 16.3 percent of earnings in federal tax and 4.1 percent in state and local income tax. Property and sales taxes or Social Security and Medicare taxes constituted an additional 10 percent-plus.

Altogether, nearly one of three dollars my household earned was paid in taxes. Like most citizens, I am not so simple that the price of government is all I care about. Value matters also, and as with any value determination, the price (or tax rate) is only half the story.

I reside in Yorktown, where, in the last election, a referendum merged municipal and township government. Value-wise, I am most pleased. My children attend Yorktown Community Schools, which ranks in the top 10 in the state. Having shuffled my kids through some very good schools in Ohio and some inexcusably poor ones in West Virginia and Indiana, I am delighted. The Hicks household would pay more to ensure continued quality in these schools.

My home is also in Delaware County, where continued fiscal mismanagement was a prime motivator of property tax reform. It is necessary to note that many municipalities in the county, including Muncie, are working hard to overcome this burden. Still, our treasurer was just indicted for 46 felonies and one misdemeanor.

Beyond the pure entertainment value provided by our county government, the value proposition is elusive. While I repeatedly make a passionate and informed argument for more fiscal autonomy for Indiana’s local government, this is a hard argument to sustain in the wake of my county’s follies.

At the state level, I am fairly satisfied with the value proposition. States frequently have a light role in the business of citizens, and Indiana is no exception.

It is my federal taxes that bother me most. Even while spending perhaps 30 percent more than tax revenue would allow, one has to look hard to see benefits.

It is naturally difficult to see the benefit of national defense or a court system. That is the nature of a public good.

But I cannot see how the federal departments charged with education or energy do anything more than shuffle my money around. The same is largely true with agriculture, commerce, and housing and urban development. Those total $1.2 trillion of dubious value, of which Indiana’s share is bigger than our annual state budget.

I am sure Yorktown’s schools can spend it better.•

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Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
 

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