Friday, January 29, 2010

The Oregon Tax Hike

The recent vote to raise taxes in Oregon is being viewed by some liberals and conservatives as a shot in the arm for the flagging confidence of liberalism in America. Maybe. But many conservatives, at least, are also dismayed by the vote as another turn of the ratchet of inexorable public-sector growth. I am forced to disagree, at least in principle.

The original design of this country was based around local control. If you needed a new street in your town, you went to the town government to try to get it done. The advantage of this system was that it allowed for a lot of experimentation and competition without flinging the whole country into uncertainty and chaos. Chicago might try one system for public education; New York might try something else. An entirely different system might be appropriate for Albuquerque. Or maybe Nacogdoches wants to try something new for whatever reason. It might succeed or fail; the change might cause a lot of grief and heartache or be the start of something wonderful. But in any event, the experiment in Nacogdoches would affect only the Nacogdocheans; the rest of the country could watch what happened.

While campaigning, FDR pronounced that his administration would be exemplified by "bold, persistent experimentation". He was elected on this platform, and the experiments were suddenly everywhere, all the time. The entire business climate underwent a cold front of uncertainty; no entrepreneur wants to launch a risky new business, or expand an existing one, when the very assumptions he is operating under might be different next month.

But FDR didn't start this trend; he is more of a signpost on a long road - one reading "Caution: Sharp Left Turns Ahead". Since before his time, there has been a general shift in power from the municipalities to the states to the federal government. In most cases, federal control comes in the form of money: the deal is that you (you: the state, county, or municipality) get federal money only if you pass a mandatory seat-belt law, or whatever Congress want to control this week.

Moves like that of Oregon may signal an Oregonian desire for more government, but unless you live in Oregon that really shouldn't affect you. (In the real world, it might, since the feds have proved so willing to prop up state budgets. One reason they do this is that it keeps power flowing from state to federal government, since the more fiscally dependent a state is, the less independent it is in all other ways.) There is a grave danger that we will some day end up with thousands of local governments and our fifty state governments, all meddling and annoying us in their own ways, and mostly funded by Leviathan in the form of the federal government, meaning they are less accountable to the people they directly govern. That is a perversion of the principle of local government. Therefore we should encourage efforts by states to pay for their own outsized governments. (This does not mean that we should discourage states to shrink their governments, though, as long as they do it without offloading to the feds.)

The federal income tax makes reversing the trend a steep uphill battle, since it gives the feds so much cash to slosh around. Even when they can't quickly raise revenue through taxes, the federal government has a hugely greater ability to raise money through debt than any state does. The power of Congress to buy state compliance on any number of issues is astonishing. We would be well served as a nation to find a way to encourage power and accountability to become more diffuse and localized.

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