Where’s Goldilocks when we really need her?
You all know the story of Goldilocks and the Three Bears. While the ursine owners of a house in the woods are absent, she seeks the right porridge, the right chair, and the right bed among their possessions. This story has produced both the “Goldilocks Principle” and the “Goldilocks Effect.” According to Wikipedia, “The Goldilocks principle states that when some quality of the items in a sufficiently large given sample can be arranged on a scale ranging from one extreme to another extreme (for example from extremely cold to extremely hot), some items will fall in a moderate range between these extremes. When the effects of the principle are observed, it is known as the Goldilocks effect.”
As the campaign for the Stephenville city council progresses and as Tax Day (April 18) nears, perhaps we should note how Goldilocks’s quest for porridge and furniture mirrors our quest for the right tax policy, while considering some of the dangers of tax rates that are either too low or too high.
The greatest danger posed by tax rates that are too low is that they won’t supply enough revenue to allow the government to meet the rising costs of providing public services. The government must therefore cut spending on services to meet the statutory requirement that it balance its budget.
Some advocates of lower tax rates disagree. They say that government can meet the rising costs of services while lowering—or at least refusing to raise—tax rates, since lower tax rates will stimulate more economic growth, which will produce more tax revenue even at lower rates. This was the argument of those who opposed the city council’s tax rate hike in 2013, where we raised the property tax rate from 48.5 cents to 49.5 cents per assessed $100.00 valuation. But as I’ve noted recently, while a majority of the city council is currently on record as having opposed the 2013 tax rate hike, the council has failed to cut the property tax back to 48.5 cents anyway. Maybe they realize what the tax hikers, myself included, believed: Rising costs of government require more revenue, and sometimes the most effective way to raise revenue is to raise taxes.
Other advocates of tax cuts are more realistic than those who say one can cut taxes without cutting spending, and still balance the budget. They say that one can cut “waste,” “fluff,” “flab,” or “fat” from the budget. Sometimes they’re right, and the most honest tax cutters on the city council are to be commended for their efforts to do so. But the big danger here is that so much muscle from the budget may be cut that the government in a few years won’t have enough money to keep up with the rising costs of necessary services unless it subsequently increases the tax rate after all.
But there are dangers to tax rates that are too high as well. One obvious danger is that an excessively high rate may discourage new businesses from locating to Stephenville and may even drive existing businesses away, with all the job losses and revenue losses that might follow. A less obvious danger, yet no less serious, is that should a tax hike suddenly make the government flush with money in the near term, it may embark on projects which will increase the government’s size and make it less accountable to the citizens. Yet another danger is that in expanding old programs or launching new programs with more funds, the government will have to maintain them even in cases of economic recessions which would cause revenues to decline without even worse tax hikes. This is one of the reasons why tax hikes frequently follow the adoption of state lotteries: The initial influx of lottery-generated cash allows the government to expand existing programs and create new programs. But once interest in the lottery dies down and lottery revenue dries up, the government must raise taxes to maintain the programs lest in incur the wrath of the programs’ beneficiaries. So: More taxes may lead to more spending, which may lead to more taxes to maintain the spending.
How seriously or extensively this matter will be discussed in the waning weeks of the campaign remains to be seen. But whatever the candidates say now, whether they advocate tax cuts, or maintaining the current rate, or actually raising taxes, those who win their elections will find themselves devoting large quantities of time seeking the “right” tax rate this summer. Good luck and best wishes to them all. And who knows? Maybe they can find Goldilocks and get her help too.
Malcolm L. Cross has lived in Stephenville and taught politics and government at Tarleton since 1987. His political and civic activities include service on the Stephenville City Council (2000-2014) and on the Erath County Republican Executive Committee (1990 to the present). He was Mayor Pro Tem of Stephenville from 2008 to 2014. He is a member of St. Luke’s Episcopal Church and the Stephenville Rotary Club, and does volunteer work for the Boy Scouts of America. Views expressed in this column are his and do not reflect those of The Flash as a whole.