Redistribution and Public Services

A blog about business and economics.
Oct. 4 2012 3:22 PM

Redistribution and Public Services

There's nothing particularly remarkable about New York City Public Advocate Bill de Blasio kicking off what I assume is a nascent mayoral campaign with a call to raise taxes on the rich to fund education programs but it's the very non-remarkableness of it that I think is the problem.

What does De Blasio want to do? Well, he wants to "provide more prekindergarten classes, and after-school activities for students in grades six through eight." That sounds reasonable. And he wants to do it because he thinks that "improvements in early childhood education were critical to growing the city’s long-term economy and its middle class" which also sounds reasonable. But it is worth asking—if these public services are a good idea, why not pay for them with broad taxes rather than "a small tax surcharge on New Yorkers who earn $500,000 or more"? Conversely, if the idea is to tax the rich for redistributive purposes why not tax the rich and redistribute the money?

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If I ran the zoo, that'd be my main idea. We'd start out with things like congestion fees and carbon taxes that serve non-revenue policy goals but do raise money. Then we'd add on some land taxes and VATs and such to fun public services. Once that's squared away, you can do redistribution with a progressive payroll tax, a small wealth tax, whatever.

But standard practice among Democrats has become to argue that we should expand public services and pay for them by taxing the rich. This feeds into a poisonous dynamic that's bringing the country low. On the one hand, it means that Democrats are insuffiently attentive to the question of cost-effectiveness. The pitch to taxpayers isn't "this is a cost-effective use of your money to provide valuable public services" it's "wouldn't this be nice, and besides you won't have to pay." Then on the other hand, you unleash a toxic dynamic whereby rich people's desire to not have their wealth redistributed gets channeled into a ferocious ideology of claiming that no public services are worth financing. So rather than having two separate debates—one about the provision of public health, educational, and transportation services and the other about redistribution—we have one big combined debate. The result is that we underspend on public services, and then tend to spend the dollars that we do spend ineffectively.

Back to de Blasio talking about the difficulty pitching this idea to a bunch of rich donors:

“It’s a roomful of people who know our educational status quo is unacceptable,” Mr. de Blasio said. He added, of his proposal, “I’m sure they’d love it if there was some other way to fund it, but I bet they will not disagree that this is fundamental to our future success.”

This just seems like impoverished thinking to me. If the program is fundamental to the city's success, it should be worth doing on a less-narrow tax base.

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