Both Justin Harnick and Matthew Zeidman, in the Port Washington Times issue of Sept. 28, make a valid financial argument when they point out that taxpayers in New York State contribute substantially more to the federal coffers each year than Washington, in its infinite wisdom, returns to New York State in the form of subsidies to the many individuals and organizations (schools, health care facilities, transportation systems, public housing, etc., etc.) as well as the federal share of major infrastructure projects.
Furthermore, I confess that I’d personally welcome the hypothetical relief from the annual tax burden that I might obtain if even a modest percentage of our federal taxes were retained here and used to fund the myriad programs that would make New York a better place to live.
However, that abstract approach overlooks a crucial aspect of governmental finance: given the existing tax structure that generates a specific, predictable amount of annual revenues, retaining that “excess” New York State amount remitted by the U.S. Treasury to other states would consequently mean that those recognizably poorer states must, unavoidably, receive so much less for just the kind of programs and projects that help keep their most needy residents and institutions afloat.
If Washington were to make up the difference, it could only do so either by raising federal tax revenues (i.e., higher tax rates) or increasing borrowing, or some combination of both (an anathema to many policy-makers). And I’m fairly sure that neither Mr. Harnick nor Mr. Zeidman would recommend further impoverishing those states and communities.
A possible solution to the fiscal conflict might well be to require those poorer states to raise their own revenues by revising their tax structures. Mr. Harnick, in particular, correctly points out that, in Kansas (hardly an impoverished state), then Gov. Sam Brownback pursued an ideological tax policy of cutting taxes sharply — with the benefits falling disproportionately on businesses and on individuals at the highest income levels — under the discredited “trickle down” theory: i.e., lower tax rates mean stronger local economies, which in turn lead to more rising personal incomes and corporate profits, and thus higher total tax revenues.
That was decisively shown not to work. Instead, the lower rates led to sharply declining tax revenues, which then led to sharply rising state budget deficits, which in turn required draconian cuts in spending for school systems and other essential services.
It would, of course, make great fiscal sense to require ALL states to devise tax policies that cover ALL essential (and otherwise desirable) expenses, so that they would not need the federal subsidies referred to in the PWT letters. But until and unless that happens, the retention of federal tax dollars by New York and other relatively affluent states would, by definition, mean a severe shortfall of revenues in those states that receive the “excesses.”
And since nearly every state in the union (there is one exception, the identity of which I admit to have forgotten) requires, by the terms of its constitution, a balanced budget, the shortfall in revenues would, ipso facto, require comparable cuts in their budgetary expenditures, e.g., firing state employees, cutting aid to local school systems, reducing outlays for construction projects, cutting subsidies for health and nutritional programs, etc., etc.
In that connection, it’s important to recall that the severe 2008/09 recession was exacerbated, and the recovery delayed, by the very fact that, in each calendar quarter for at least three years (if anyone needs specifics, I’d be glad to provide the data) the state and local component of the Commerce Department’s quarterly reports showed a persistent negative impact on the nation’s GDP — adding to the downward pressures of the private sector (consumer spending, housing, business capital investment) and offsetting a portion of the added spending (including unemployment insurance and other income maintenance programs) by the federal government.
I don’t mean to suggest with these comments that I have a solution to the inequity correctly identified by Harnick and Zeidman. Rather, I intend only to point out that the situation is far more complex than is implied in their letters. It may well be that a far more efficient, and equitable, system of taxation that overcomes ideological differences and improves the design and implementation of fiscal policies at the federal as well as state levels.
It is frankly far beyond my capabilities even to conceive of how that might be done, but until and unless such a restructuring is adopted, I’m afraid we will all have to swallow hard and accept the fact that taxpayers in some wealthy states will, for the sake of both fairness and political stability, have to continue to subsidize the economically weaker ones.
Robert I. Adler
Port Washington
