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  1. Government Responsibility
  2. Tax Policy
  3. Sovereignty
  4. References

I. Government Responsibility

Most people have no idea where their tax dollars go or even how much they pay to the government. Government is a type of corporation. It’s big, slow to make changes, and often criticized. It is unique in the fact that its shareholders are also its primary customers. Corporations provide their shareholders with a statement of direction and financial data. Politicians talk about issues, but rarely about a long-term direction. The common shareholder of government would be hard pressed to find financial data similar to what the typical corporation provides. It is our position that the government should publish a small summery of how much money was collected, how it was collected, how much was spent, and how it was spent. This would not be too much extra work as the county and city are required to file more detailed reports with the state and they would have this information published for internal use. If needs be, they could always hire an accounting intern from the university. It is our hope that if people were given this information they would be more active in government actions.
      We don’t expect these statements to be published by the government in the near future, so we are attempting to do it ourselves. If you would like more information or would like to participate in such a project see the description at the bottom of the Q&A page.

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II. Tax Policy - Sales tax is the preferred method for general government expenditures. Roads would be best funded by a tax on gasoline. Tax rates need to be set by economic data not fiscal policy. The Wheel Tax should be repealed.

Taxes are the most visible and despised aspect of the government. However, until a better system can be devised they are necessary. Our general policy is to limit taxes to provide enough funds to do only the basic functions of the government. Before the government considers levying a new tax it should have exhausted every other opportunity. That includes improving efficiency or perhaps cutting a program [see Spending Policy].
      Some taxes are better justified to perform a certain task, such as a gasoline tax or tolls to pay for road development and maintenance. For some items a separate tax would be desirable, however, if every program had a separate tax there would be a lot of bureaucracy and a tendency to overtax to ensure sufficient funds for each program. What we are left with is a situation in which some of the biggest programs (roads) should have a separate tax and the majority of the rest should come from one source.
      There are many taxes funding many different programs. This makes it difficult for the lay citizen to see where his tax dollar is going to [see Government Responsibility]. For example: MITS employees are funded out of three different funds. With one primary source of tax revenue, say a general sales or income tax, it would be much easier to tell how much you pay in taxes and where each program is funded.
      There is also the issue of what tax is more justified. This applies to general government programs (courts, police, fire), not to those funded by their own source. The solution is not even clear within our party, but some of the rationale for each will follow.

• Property Tax: Property taxes are particularly despised within our party. Look at what it says, you pay the government for the privilege of living in your house or sleeping in your bed. Life, liberty, and property existed before government. Government was invented to protect these rights, therefore they are not granted by the government. Back to the main point, fire protection protects both life and property. Police protection protects property from being stolen. Should these be funded by property taxes? Let’s look a bit deeper. Older and lower value housing is more prone to fires due to inferior construction. This would suggest an inverse property value tax. Police protection is also disproportionaly spent on the inner city and lower income areas. It is well known that crime is higher in poorer areas. This would also suggest an inverse property tax with regard to burglary protection. Both of these leave out the protection of life.
      Now let’s look at property tax in regards to roads. It was stated earlier that a gasoline tax would be optimal, but what about the development of subdivisions that put a lot of pressure on the county to enhance infrastructure. It seems to be that middle to upper class households are more likely to buy luxury cars or SUVs. These vehicles are heavier and tend to use more gas, so they would pay more in a gasoline tax, but probably not enough to offset the cost of the infrastructure enhancement. The developer stands to make quite a bit of money while the local government stands to lose a lot. It would not be out of the question to have the developer pay some of the cost of infrastructure enhancement on the county or city roads. The roads within the subdivision should be solely on the developer, as it is now. It is also important to note that although subdivision general house high quality housing, they may still have lower property values than downtown buildings. A property tax designed to pay for the impact of subdivisions could in fact punish others that have nothing to do with it. This is assuming that taxes are to be levied fairly across the geographic area of the locality. Subdivisions can pay there share without the need for a tax on property.

• Income Tax: Another route may be to have an income tax. This is probably the most hated form of taxation, the most visible, and the most intrusive; paying the government for the opportunity to practice your trade, your livelihood. Applying similar arguments from above shows that an income tax for fire and police protection would imply an inverse tax on people with lower income. Income tax also has the most bureaucracy associated with it. The withholding system adds the need for many more managers and lawyers for a tax agency such as the IRS. It also puts a lot of stress on workers during tax time, gives the need for tax attorneys, and is prone to so many loopholes and deductions that make it a terrible hassle.

• Sales Tax: Sales and excise tax were the sole source of funds for the federal government for the first half of our countries existence. Many in our party favor a sales tax to other forms of taxation. Sales tax does seemingly reduce discretionary spending as products are more expensive. On the bright side if the other general forms of local funding are reduce citizens will have more money to buy goods. This tax also seems to be fairer to different social-economic classes. Lower income households tend to spend less than the more affluent ones. It may also be deemed necessary to have staples tax exempt, although this doesn’t seem necessary when Wal-mart sells a loaf of bread for fewer than fifty cents and the poverty level consists of a car, cable TV, and descent food and shelter. A more pronounced sales tax may limit spending, but that is not necessarily a bad thing. A higher savings rate would likely raise investment and contribute to future economic growth. Many Americans are in debt and perhaps these seemingly higher prices may help them cut spending (habitual debt is probably more serious of a problem and this is unlikely to solve that). The government should not be using taxes to adjust social issues; this is more of a possible side effect. A sales tax seems to be the lesser and most effective of many evils when it comes to taxation. 1
      A common misconception among many people is that when more revenues are needed taxes must be raised. Governments have limited authority on increasing taxes. They can only increase the tax rate, but doing so may not increase revenues. In fact raising the tax rate may decrease revenues. The tax level that maximizes revenues is typically lower than what is currently set. In the case of the US the revenue maximizing point is at a total tax rate of 43.2% with the highest income tax bracket at 22.5%. The productivity growth maximizing point is somewhat below this point (Overall of 19.3% and income tax of 11.3% for the US), but if the government wanted to just maximize tax revenues, it should lower taxes.2 This point will differ based on the economic conditions of the locality. A study would need to be conducted to determine this point. This would not be very difficult to determine and should be on the minds of policy makers.

• Wheel Tax: One of the more controversial taxes is the recently passed Wheel Tax. This was passed by a narrow margin by those who were not up for re-election (that doesn’t mean those who voted no were not sincere) despite massive popular disapproval. The tax imposes a $20 fee on any vehicle weighing less than 11,000 pounds and more for larger vehicles. It is our position that this tax was hastily passed without full consideration of the alternatives. It seems that there was no effort to cut costs and no other tax proposal was discussed, at least in public.
      Any tax funding roads must consider the weight of the vehicle. Elementary physics tells us that weight alone does not determine wear on roads; we need to consider the weight as well as the area in which it is applied. Trucks apply more than twice the pressure to the road as do cars. Trucks are not affected by the Wheel Tax. Most trucks are registered by a state and end up going all over the country. Trucks that come through this county are not likely to be registered in this county.
      Another point of interest is bicycles. Bicycles apply the most pressure to roads of any vehicle. This may seem surprising at first, but bicycles are designed to be energy efficient transport vehicles and there is minimal tire to road contact (this is most pronounced in the racing style bike that has the thin tires). Other road vehicles are regulated heavily by the government and must meet strict regulations on the pressure exerted on the road. Bicycles are not subject to these restrictions. In addition, bicycles are generally used on the shoulder of the road, the weakest part. That makes the damage much more pronounced. Although there aren’t as many bicycles as cars on the road they still share some of the blame and if this resolution is going to be fair, it should tax bicycles as well. Obviously bicycles don’t use gasoline, so the gasoline tax would not work in this case; however, any effective road funding policy should take them into account.
      The Wheel Tax neglects any transportation from outside the county, which includes almost all shipping. Households and businesses have to pay a tax on their vehicle whether they use it or not. If there was a shipping company in this county it would have a tough time staying in business without relocating and there is no chance a transportation firm would relocate here. Any business would be dissuaded from thinking of operating in Tippecanoe County. It promotes people to move across county lines and commute further. It may even promote people to drive more.

It’s bad!

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III. Sovereignty - Counties are better representative of their constituents than the state and are better able to act in their interest.

The United States of America is a group of states united. The power of the federal government comes from the states and the power of states comes from the people. The power of counties in many states is granted by the state and not directly from the people. Citizens are best represented at the lowest level of government which is the city or other locality. The locality can not do anything without the state’s approval. This puts the local governments in a bad position as they are given limited option and strict guidelines. Due to this, some poor decisions, like the Wheel Tax, come out because the local government could not implement a more justified tax due to state restrictions.
      Another event that is a result of state control is that funds are redistributed between the counties. The new Colts stadium in Indianapolis may be an example. There is no decision yet, but there was talk of raising some taxes in the surrounding counties to help pay for the new construction. There are many funds that are collected from state taxes and redistributed to counties. We believe that if a county could not afford a program with its own tax revenues, perhaps it should not be doing that project or it needs to look at cutting unnecessary functions. Income redistribution among counties is no better than income redistribution between people.
      Solutions to these problems are not easily obtained. One would be to re-write the Indiana constitution to say that the state is formed by the counties, similar to the US constitution. That is unlikely to occur. A more probably option is to try to keep tax dollars in the county, unless it is collected for a state project. As for the options available to government, the state could provide more options to counties or grant them more freedom to operate, but neither seems very likely.

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IV. References

1. Stephen Moore and Dean Stansel, “The Myth of America's Underfunded Cities," Policy Analysis No. 188, February 22, 1993, Cato Institute, 1000 Massachusetts Ave. , NW, Washington, DC 20001, (202) 842-0200. [Information provided by NCPA website: ]

2. Tax Rates, Tax Revenues and Economic Growth by Gerald W. Scully. National Center for Policy Analysis. NCPA Policy Report No. 98, March 1991.

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