Taxpayers vs. the State

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Taxpayers in Revolt

by Doug French by Doug French

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A punk economy is doing what legislators around the country could never do: shrink state and local governments. California Governator Arnold Schwarzenegger has declared a fiscal emergency because his state is $40 billion in the red and may actually be completely busted by February. He even "ordered state officials to prepare to furlough and lay off employees to cut costs," according to Reuters, which would make the Golden State’s 8.4 percent unemployment rate still worse.

The city of Vallejo, California has already filed for bankruptcy protection and two small towns northeast of San Francisco, Iselton and Rio Vista, are "consulting with bankruptcy lawyers," reports the Wall Street Journal. State Treasurer Bill Lockyer went as far as to say, "California’s fiscal house is burning down."

In Nevada, where the unemployment rate has hit a 25-year high of 8 percent, that state’s budget must be slashed from $6.8 billion over two years to between $5.4 and $5.8 billion. Compounding the problem is that the Silver State’s Public Employment Retirement System has lost $4 billion on its investments since July. NPERS has always claimed it is actuarially sound but that assumes a constant 8 percent return on its investments. No doubt the 19 percent loss the system has incurred the last few months will destroy these assumptions.

Despite the loss, NPERS executive officer Dana Bilyeu told the Las Vegas Review Journal "state and federal laws prevent any reductions in benefits — including increasing the retirement age — to existing participants in PERS." That means taxpayers will have to make up the difference, so that as Review Journal reporter Ed Vogel explains: "Public employees now can retire after 30 years and receive benefits equivalent to 75 percent of their average earnings during their three best pay years. Police and firefighters receive these benefits after 25 years on the job. Some retire at age 46."

Of course that’s the difference between state budgets and the federal government’s. States cannot create fiat money out of thin air to pay bills. The federal government has a central bank at its disposal to create money and subversively tax people by making their money worth less.

Increasing the tax burden during a recession is a direct declaration of war against taxpayers when they are most vulnerable. With unemployment high, retail sales low and property values plummeting, surely elected officials aren’t stupid enough to pile on more taxes?

Or are they? New York governor David Paterson is trying to bridge a $15.4 billion budget gap in his state. He has the bright idea to tax "sugary soda, cable and satellite television, haircuts, massages, movie tickets and downloaded music, among other things," Newsday reports.

History shows that people get angry when you kick them while they are down. During the last great depression there were tax strikes. Property owners created over 1,000 different taxpayer leagues around the country, "which voiced outrage over what were perceived as needless government expenditures in a time of severe economic hardship," economist David T. Beito writes in his book Taxpayers in Revolt: Tax Resistance During the Great Depression.

Many taxpayers just couldn’t pay at the depth of the depression and others wouldn’t pay for ideological reasons, believing that government should suffer along with taxpayers. The tax revolt movement attracted 30,000 members in Chicago alone and the Windy City’s government was faced with financial collapse as property owners stopped paying.

The movement had such momentum that the federal government resorted to a national "pay your taxes campaign." Chicago teachers were even enlisted to chant "Pay Your Taxes!" at rallies around the city. Municipal and government workers, along with academics tried to sell the virtues of a more active state on the radio in a nationwide series called "You and Your Government" that ran from 1932 to 1936.

"The taxpayers’ revolt of the 1930s should not be dismissed as a fluke, aberration, or simple response to the stimulus of the depression," explains Beito. "Tax revolts in American society, including that of the 1930′s, have often reflected, and continue to reflect, persistent suspicions of expansive government, entrenched bureaucracy, and domination of political institutions by experts."

State legislators and local government officials may want to tread lightly. Beito points out that the tax rebellions in the 1930s appealed to the masses and average voters. It would be no different today. Taxpayers, struggling to make ends meet, would likely join the revolt, if taxes are raised just so 46 year-old ex-policemen and ex-firefighters can enjoy cushy retirements.

Doug French [send him mail] is executive vice president of the Ludwig von Mises Institute and associate editor for Liberty Watch Magazine. He received the Murray N. Rothbard Award from the Center for Libertarian Studies. See his tribute to Murray Rothbard.

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