mercredi, août 23, 2006

Taxation without Representation

This morning, NPR had an excellent piece on the movement, within cash-strapped state governments*, to lease their roads to private companies who convert them to toll roads and operate at a profit. Indiana leased a stretch of highway to a foreign company for $3.6 billion dollars. They plan to use the revenue to make up for budget shortfalls elsewhere. The private company (a.k.a the lessee) is allowed to increase toll fees during every year of the lease.

Better government brought to you by the Republican Party and the fools in the tax limitation/libertarian movement.

States are trying to solve two problems by outsourcing toll road management.

1. The problem of limited revenue; and
2. The problem of not being able to afford to maintain infrastructure.

We can’t raise taxes; so let’s outsource services for a profit.

If taxpayers paid for maintaining roads (rather than having users pay), a couple of better things would happen:

The cost of maintaining the roads would go down (the state would not use the roads for profit in the way that private companies do – the state could be required to run it as a non-profit enterprise, thus reducing overall costs).
The costs would be spread among all taxpayers in the state instead of among people who use the road (yes, I recognize that many who use the road are not from the state wherein the road is located. But, if you think about it, those users are (or should be) paying to maintain roads in their own state. Stop the madness).

What fuels this outsourcing movement, in my opinion, is weak government. The movement exists as evidence that libertarian philosophy is not sound and actually produces the opposite of its desired outcome.

Libertarians argue that private enterprise can perform many governmental roles more efficiently than governments can. They apply this reasoning to prisons, schools, emergency services, roads and etc. While it may be true that, from a resource standpoint they’re more efficient (they may operate the same entities with fewer people, they may pay them less, they won’t give them nearly the benefits package), the end result does not lead to efficiency for the taxpayer. Private companies bid for the lease rights, which inflates the price to win the contract. States desire this outcome because they need revenue for other things. In order for it to be a good deal, the winning bidder inflates the price for use to accomplish two objectives: (1) to get a return on their investment, and (2) to make a profit. Not only did they pay more than the road was worth, but now users are paying for managers and executives and nice fat bottom lines.

Let me grossly over-simplify it with three hypothetical models:

Model A (State as the non-profit; no tolls)
Annual cost to maintain road: $10,000,000
Cost to taxpayers: $10,000,000

Model B (State as revenue stream, State manages tolls)
Annual cost to maintain road: $10,000,000
Revenue from tolls (controlled) $12,000,000
Cost to users**: $12,000,000
Revenue to State $2,000,000

Model C (State revenue from outsourcing tolls to private corporation)
Annual cost to maintain road: $10,000,000
Revenue to state from lessee: $15,000,000
Profit margin: 30%
Cost to users: $19,500,000
Profit to corporation: $4,500,000

Fair taxation, and well run government is a better alternative. Courageous leadership willing to call a bad idea a bad idea is all we need.

*State governments are hampered by reduction in federal financial support which, IMHO, is a direct result of tax cuts and a climate, cultivated by Republicans, that taxes should never be increased. While that’s a great policy from a re-election standpoint, it’s rings hollow when you actually see the net result (more costs to fewer people).

**Assume many users are taxpayers.