Budget Deficits Force Local Governments to Do the Right Thing for the Wrong Reason

There are legitimate reasons for local governments to own land, but surely it doesn’t make sense for them to hold on to surplus acreage. Better to get that land back in private hands, where it will be used for some productive purpose. This is why the downturn does have a silver lining. A handful of local governments are so anxious for more property tax revenue that they are going out of their way to make extra government-owned land available to private owners at rock-bottom prices. Ideally, they should have privatized their holdings years ago, but better late than never. Here’s a blurb from the New York Times about this development.

Give away land to make money? It hardly sounds like a prudent scheme. But in a bit of déjà vu, that is exactly what this small Nebraska city aims to do. Beatrice was a starting point for the Homestead Act of 1862, the federal law that handed land to pioneering farmers. Back then, the goal was to settle the West. The goal of Beatrice’s “Homestead Act of 2010,” is, in part, to replenish city coffers. The calculus is simple, if counterintuitive: hand out city land now to ensure property tax revenues in the future. …Around the nation, cities and towns facing grim budget circumstances are grasping at unlikely — some would say desperate — means to bolster their shrunken tax bases. Like Beatrice, places like Dayton, Ohio, and Grafton, Ill., are giving away land for nominal fees or for nothing in the hope that it will boost the tax rolls and cut the lawn-mowing bills. …Officials acknowledge that the benefits sound modest, in the thousands of dollars annually, but say the revenue is needed. “What is the value of a lot to us if it’s empty?” said Tom Thompson, the mayor of Grafton, where an offer of 32 city-owned lots, promoted with a television advertising campaign, has quickly led to eight takers so far. “This is strictly financial — a way to go upstream from the trend.” In Dayton, officials are offering thousands of vacant, foreclosed or abandoned properties under certain conditions for nominal fees — $500, in many cases, to cover the cost of recording fees or $1,200 if the city must initiate tax foreclosure proceedings. The prospect of city savings on mowing fees alone is enormous: each year, Dayton spends $2 million to cut grass on the properties.

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Great Moments in Government Waste

Isn’t it nice to know that the federal government has about 100 separate programs to fund community activities that supposedly help fight crime? And isn’t it even nicer to know that there is no evidence that the money (which gets spent on things like pool parties and donut-eating contests) actually does any good? Senator Coburn has released a report about this wasteful spending and CBS News has a story about how the Department of Justice is squandering your tax dollars.

With a $13 trillion debt, why is the Department of Justice spending money on parties and rollercoaster rides rather than investigating crime, drug cartels, prosecuting terrorists? Untold millions of your tax dollars are paying for recreation in the name of crime prevention: pool parties, rollercoaster rides, and police donut-eating contests. The idea is that fun activities keep kids out of trouble, build self-esteem and prevent crime. …Now, the U.S. Government Accountability Office (GAO)has found nobody is measuring just how much is spent on the recreation – or whether it even works. Sen.Tom Coburn, R-Okla., estimates well over $100 million tax dollars over five years has been spent on recreation to fight crime. Coburn says poor tracking leads to questionable spending. At least $200,000 was spent for officials to attend conferences at golf resorts in Florida and Palm Springs, or a film festival featuring “Santa, The Fascist Years.” …Just last month, an Oklahoma City program was found to have misspent hundreds of thousands of dollars in federal crime prevention funds on things like a giant flat screen TV, 40 pairs of binoculars and $200 Japanese-style swords. Police said most of the binoculars were never used and there was “no legitimate purpose” for the swords. Twelve other federal agencies and 99 programs fund similar community programs.

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The White House Has Declared Class War on the Rich, but the Poor and Middle Class Will Suffer Collateral Damage

The 2001 and 2003 tax cuts are scheduled to expire at the end of this year, which means a big tax increase in 2011. Tax rates for all brackets will increase, the double tax on dividends will skyrocket from 15 percent to 39.6 percent, the child credit will shrink, the death tax will be reinstated (at 55 percent!), the marriage penalty will get worse, and the capital gains tax rate will jump to 20 percent. All of these provisions will be unwelcome news for taxpayers, but it’s important to look at direct and indirect costs. A smaller paycheck is an example of direct costs, but in some cases the indirect costs – such as slower economic growth – are even more important. This is why higher tax rates on entrepreneurs and investors are so misguided. For every dollar the government collects from policies targeting these people (such as higher capital gains and dividend taxes, a renewed death tax, and increases in the top tax rates), it’s likely that there will be significant collateral economic damage.

Unfortunately, the Obama Administration’s approach is to look at tax policy only through the prism of class warfare. This means that some tax cuts can be extended, but only if there is no direct benefit to anybody making more than $200,000 or $250,000 per year. The folks at the White House apparently don’t understand, however, that higher direct costs on the “rich” will translate into higher indirect costs on the rest of us. Higher tax rates on work, saving, investment, and entrepreneurship will slow economic growth. And, because of compounding, even small changes in the long-run growth rate can have a significant impact on living standards within one or two decades. This is one of the reasons why high-tax European welfare states have lost ground in recent decades compared to the United States.

When the economy slows down, that’s not good news for upper-income taxpayers. But it’s also bad news for the rest of us – and it can create genuine hardship for those on the lower rungs of the economic ladder. The White House may be playing smart politics. As this blurb from the Washington Post indicates, the President seems to think that he can get away with blaming the recession on tax cuts that took place five years before the downturn began. But for those of us who care about prosperity more than politics, what really matters is that the economy is soon going to be hit with higher tax rates on productive behavior. It’s unclear whether that’s good for the President’s poll numbers, but it’s definitely bad for America.

Treasury Secretary Timothy F. Geithner took the lead Sunday in continuing the Obama administration’s push for extending middle-class tax cuts while allowing similar cuts for the nation’s wealthiest individuals to expire in January. …The tax cuts, put in place between 2001 and 2003, have become an intensely political topic ahead of the congressional elections this fall. Republicans have argued that extending the full spectrum of tax cuts is essential to strengthening the sluggish economic recovery. Geithner rejected that notion, telling ABC’s “This Week” that letting tax cuts for the wealthiest expire would not hurt growth. …On Saturday, the president used part of his weekly address to chide House Minority Leader John A. Boehner (Ohio) and other Republicans who oppose the administration’s approach, saying the GOP was pushing “the same policies that led us into this recession.”

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