On Taxes, Part II

The second in a series on tax policy. (Read Part I here.)

Redistribution at the State Level
Different counties have different per capita tax bases. As a result, it makes sense that school aid to Maryland counties should take wealth into account with the key caveat that each county must raise its fair share of taxes. This is one of the key ideas behind the much-debated Maintenance of Effort law. Poor counties cannot simply pocket aid from the state without raising their fair share in terms of their tax base. Nonetheless, school aid should not be on a simple per student basis.

Additionally, in estimating the amount redistribution between counties or individuals, we need to take into account both taxes and spending. Expenditures on colleges and universities disproportionately help middle-income and wealthy taxpayers.

Redistribution at the County Level
In all the discussion of economic inequality, it often seems lost that the greatest redistribution occurs towards those with children in the public school system. Educational spending takes up an enormous share of county budgets and overwhelms spending in other areas. This is why double-income no kids families are such desirable residents—they contribute a lot in taxes but demand less in the way of services. Sure, we all benefit from having an educated population but paying for it is a transfer from those without to those with kids.

Subsidy Abolition
The competition among states through subsidies for large companies is execrable. Conservatives should hate them because they are economically inefficient and businesses should go where it makes sense. Progressives should hate them for the additional reason that they result in levying higher tax rates on businesses that do not have the leverage to advocate for them. It’s probably just a pipe dream but the states should negotiate a compact to end them.

Internet Taxes
We subsidize businesses located out of state by de facto exempting them from state taxes. (De facto because you’re supposed to pay state and local taxes on these purchases but nobody does.) The effect is that brick-and-mortar stores that actually employ people in Maryland must collect taxes but Internet businesses located elsewhere do not. This makes no sense to put it mildly and is increasingly economically distortive as more business occurs in the form of e-commerce.