The Stupid Zone Revisited

[Chuck Stromme]

Back in 2007 I started a tax blog that I never followed up on until a couple of weeks ago. I've gone back to it and I enjoy it so far. It's not like here, where I love my fellow writers and their subjects. The other one is mostly where I rant and point out a few things that just might need attention. Maybe. If I am to be believed, which you do at your own risk.

Today Jon Carroll ran a particularly stupid SFGate (SF Chronicle) column called The Stupid Zone, although that title now seems to have disappeared. I responded thus to him, in my tax blog and now here:

* * * * *

You wrote "The people who need the money the most are the people who will not be paying taxes at all..." Then you quoted Ed Quillen's sublimely libertarian notion: "If people can afford to build in Stupid Zones, let them. But let them cover their own risks." Are you immune to irony?

Change "build in Stupid Zones" to "drop out of school" or any other pet peeve of personal irresponsibility. Should the same consequence apply -- "But let them cover their own risks"? I agree with that sentiment for both irresponsible groups. Do you? The drop-outs are, of course, "the people who will not be paying taxes at all." One common consequence of personal irresponsibility is not having any money. Another is seeing your isolated, unprotected and uninsured home burn to the ground. We are, in general, responsible for the consequences of our choices.

And you really should get it right before you propose a national policy. The government only wishes it came first in matters of creditor priority. The general rule of "first in time, first in right" applies to most creditors including the IRS, presumably your whipping boy on behalf of feds in general.

Mr. Obama said during the campaign that taxes aren't about revenue, they're about fairness. That must have surprised a few tax policy wonks, but who cares about people who actually think about taxes (or creditors)? You are obviously not such a person. Will no one dare to ask "If taxes aren't about revenue, why have them at all?"

If taxes ARE about revenue, then shouldn't a rational tax policy create and collect more tax revenue than an irrational one? For instance, if lower tax rates on people who pay the most taxes will create more revenue than lower taxes on "people who will not be paying taxes at all", then isn't the former a more rational tax policy than the latter? It's a simple proposition: If you want more tax revenue to spend on the "people who need the money the most" then choose a tax policy that lends itself to increased revenue.

Your column has plenty of appeal but no merit. You also wrote "I actually have a swell plan for helping people in need." What I saw was "I have a Stupid Zone plan that I hope no one squints too hard at.

"We tax all the others and pass the revenue on to you."

[LC-Hawk]

Not sure if I understand your argument, but then not so sure I understand his position either. But a few thoughts:

1) I will assume the tax breaks the "upper crust" have enjoyed under the current administration will be allowed to lapse. The additional revenue will have to offset the new tax breaks

2) I thought flood insurance only covered internal destruction. If the water comes from outside the home I didn't think you were covered.

3) Living on the coast I have seen plenty of Stupid Zones. The explosion of building outpaced the demand. We have several new developments that were build in places that required 60 foot rip-rap walls and others that were build on land that was previously designated marsh lands. Guess which homes have suffered serious damage or are in danger of coming down on the homes below them after the weather we have experienced over the past four weeks?
We have a Civic responsibility to stop allowing building in areas like that, much like the areas described in the article for Idaho and western Montana. I am not sure I disagree with his point.

But for the most part it went right over my head....:-)

[Chuck Stromme]

1) I will assume the tax breaks the "upper crust" have enjoyed under the current administration will be allowed to lapse. The additional revenue will have to offset the new tax breaks

I don't think that either the lapsing tax breaks or the additional revenue are safe assumptions.

In the planning stage we think that Tax Policy A will produce Revenue Stream X. The trap is to think that an increase in a tax will produce a corresponding increase in the revenue stream and a decrease will do the opposite. Turns out, that's not necessarily the case. Otherwise, Mr. Obama would not already be backing away from his promises to eliminate tax cuts on the upper crust.

Imagine a tax on luxury cars, $2,000 per. It generates Revenue Stream X, it's easy to administer and it doesn't affect Joe Sixpack (thank you, Mike Royko) in the least. Joe's dream car is a Chevy, not a Benz, so why should he care what the rich guys are paying? He gets the benefit of the revenue at no cost to him. To everyone but the upper crust and the makers of luxury cars, this is an ideal tax.

Say the luxury car tax worked so well that the government decides to increase it by a factor of 10. Problem might be, revenue doesn't increase by a factor of 10. Even to the upper crust, $2K and $20K aren't the same and a $39K Highlander starts to look as good as a $59K Lexus. Depending on the tax policy at hand, revenue might even go down. Then, to the surprise of a government which has already budgeted the anticipated revenue increase of x10, a bunch of other revenue streams decrease. For example, there are no taxes on luxury auto workers salaries because they have been laid off, plus the ripple effect of their unemployment.

I have neither an emotional nor a political dog in this fight, though I confess to a general political bias. I do know that you cannot intuit tax policy or tax admin or, as does Mr. Carroll, creditors' rights. I have been in places where government tried and it didn't work there and it won't work here. You can't make it up on the campaign trail either, or in newspaper columns. Well, you can but it might turn out to be sub-optimal. If taxes are about revenue (apparently old school) then tax policy should promote sustainable revenue generation. Rule 1: If you don't need the revenue, don't impose the tax. If taxes are about social policy (supposedly new school, but not really) then tax policy should promote social policy.

In my response I tried to compare Mr. Carroll's self-described "tax-and-spend" plan to Mr. Quillen's "let them cover their own risks". It seems to me a logical inconsistency to support both. One is Big State, the other is No State. Choose whichever you like, just fund it with tax policy that will actually generate enough revenue to cover the costs.

If "tax the rich" actually produced more revenue and made my life easier, I'd be all for taxing those buggers out of existence. The problem is, it doesn't and this is not a revelation. It has a prior incarnation in the USSR, particularly in Ukraine. When the political system of the time failed to generate enough revenue to fund national policy the "kulaks" became the upper crust du jour. It was government policy not only to tax/take everything away from them (down to searching for individual grains of wheat) but to kill them as enemies of the state just on general principle. The problem was that in doing that they also killed the goose(s) that laid the golden egg. Wheat. Whatever. Geese, OK? It turned out that they had killed the means of national survival as well as national revenue, so then they simply starved the rest of the Ukraine to death to feed Moscow and the national treasury. To quote Yogi Berra, "You can look it up."

2) I thought flood insurance only covered internal destruction. If the water comes from outside the home I didn't think you were covered.


I know neither diddly nor squat about flood insurance. There is a lot of good information HERE.

3) Living on the coast I have seen plenty of Stupid Zones.

Zoning restrictions and building codes are also part of the great universe of things I know nothing about. I am one with my ignorance. I neither support nor oppose any plans or policies. Yours make perfectly good sense to me. My point was that if a libertarian approach is applicable to one set of catastrophes ("let them cover their own risks"), why not to others, and isn't it inconsistent for Mr. Carroll to support one and not the other?

[LC-Hawk]

********swoosh******

The sound of the arguments going over my head again

"fund it with tax policy that will actually generate enough revenue to cover the costs."

Now THAT I understand. I am not sure HOW we get the $$, what are the most equitable solutions etc., and what may indeed be fair to everybody....but since I support the concept of social programs for those less fortunate than myself, I hope the people in charge get it right ;-)

[Chuck Stromme]

********swoosh******

Don't kid a kidder, LC. Too right, though. I don't fancy myself a policy wonk. That's a very hard job to do right and far beyond me.

I embrace the social safety net concept for those less fortunate and I don't resent my tax dollars being spent there. I am less sympathetic to those able but unwilling to contribute their fair share. There is a difference in being less fortunate than I -- and my life has been richly blessed -- and being less willing than I. At least, that's the way I see it.

I'm trying not to be incendiary here because I would hate to have to suspend myself from this forum.

If the tax policy folks get it right, we will have a tax policy that generates enough revenue without undue harm to the folks least able to suffer that harm. We don't yet know what that policy is going to be except in the broadest terms, with parameters that keep shifting. We'll know it soon enough, though.

Chuck