So, far Craig Westover and I seem to be doing better than the fellows in the Argument Clinic.
We started our conversation with this story about social services providers continuing to work through the government shutdown, and then we discussed his "first lesson" here and the second regarding the private sector/government relationships here.
Though we may continue hammering away in the comment sections of those posts, it's time to move onto the third lesson, which Craig formulated this way:
A third lesson is one shouldn’t put all one’s economic eggs in the state basket. It’s also another reason “tax the rich” doesn’t work.
Williams was in a financial bind because all (most) of her revenue came from the state. In her case, the problem was a state shutdown; in the future, it might be a recession that reduces the income of the “rich,” which significantly reduces state revenue from taxes. The problem with highly progressive taxation is in dollar terms a relatively few people are supporting everyone else. They take a hit, and the ripple effect is disastrous.
The solution for Williams is multiple revenue sources, which implies a market solution.
Craig, you'll get no argument from me about the "all-in-one basket" caution, but your explanation of it betrays you once again peering from the fat end of the telescope.
The clients at All About Kids daycare are indeed subsidized, but we don't know how much of Williams' revenue came from the state. The story says, "All of her clients are low-income and struggle just to pay their $2 to $24 sliding fee." Sounds like multiple revenue sources to me.
This is one reason I picked the story to discuss. The subsidy is supplemented with client funds based on their ability to pay — sort of a progressive scheme, just like the income tax. As their circumstances improve, they pay more.
Perhaps this model could be employed more widely. Not simply, as in the case of health care vouchers, as a way to throw people out of public plans, but as a client-centered, outcome-based approach to helping people at the margins Republicans seem none too interested in.
You argue Williams' problem came from being too dependent on the government payments. I'd argue her revenue shortfall came her choosing to serve a segment of the population that is disproportionately affected by policies that favor your favorite constituency.
The shutdown occurred because the representatives of wealthy Minnesotans didn't want them to pay higher taxes, and guess who paid the price? A recession definitely affects the income of the wealthy and lowers government revenues, but it affects the low-income clients Williams serves even more.
Well-to-do taxpayers have lots of options that don't affect their lifestyles one whit. They can lay off workers, book losses against future tax bills, draw from savings or take capital gains. And the progressive income tax rates on high earners, remember, are historically quite low.
Last year, with the "help" of some tax losses, our combined effective state and federal income tax rate was 13.1%, although our household income put us right on the cusp of the top ten percent of earners in the state. We aren't hurting, and I'd be surprised those making substantially more are, either.
