High Inequality in US Metros Calls for Regional Tax Bases

Everybody knows that having a national fiscal union means that some US states are “makers” and other states are “takers.” PA is a “maker” state, whose residents pay more federal taxes than they get back in public goods and services. States like West Virginia are “taker” states, who pay for less than they get:

This is a perenially annoying feature of US politics, since the very places who benefit most from government transfers tend to elect nutty politicians with a taste for vilifying the big metro regions who butter their bread.

It’s fun to grouse about it, but this is what it takes to make the currency union work, and we’re all generally better off than we’d be if it was every state fending for itself.

You see the same thing inside individual states. The top 5 PA metro regions – Philadelphia, Pittsburgh, Lehigh Valley, Harrisburg and Scranton produce 78% of Pennsylvania’s GDP. The big metros produce most of the state’s tax revenue, but don’t get back as much as they give. The big urbanized areas are subsidizing state spending in poorer less populous areas of the state.

Again, very annoying, but that’s what it takes to run the government of such a big state on both a practical and political level. If you want the Philly and Pittsburgh tax bases, you’re going to have to fund public goods and services in the massive region in between, and that’s going to require some transfers and subsidies to areas that lose money for state government.

What’s really weird is that even though the political system accepts a high level of cross-exposure and geographic wealth redistribution at the federal and state level, there’s a ton of hostility to this concept at the regional level.

Ironically, that’s the level where there ought to be the greatest sense of common purpose and good neighborly feelings. And yet, at least in the Northeast, when you start talking about regional tax bases people get all apocalyptic about mixing the suburban tax dollars with the city tax dollars.

I’m inclined to believe it’s a race thing, but whatever the reason is, people need to wise up because there’s a huge amount of income inequality within metros. However important you think that is as a standalone issue, one area where it creates a big problem is funding public services.

Within metro regions, you see these huge disparities in public service funding. One suburban tax base will have super fancy schools, and then right next door there’s an urban tax base with dilapidated schools. Despite the obvious exposure suburban micro economies have to city crime and poverty, there’s just massive resistance to the idea that any suburban residents’ tax dollars would be used to improve conditions in cities.

On the other hand, there’s a good case to be made that urban areas are really cross-subsidizing suburban development in the long run, as the maintenance bills for new greenfield developments eventually come due. In that case, suburban areas would be fortunate to be part of a regional tax base that makes intra-regional subsidies and transfers possible.

However you think it shakes out, there’s no doubt that towns in the same metro region are exposed to the economic prosperity and hardships of neighboring towns, and it would make more sense to band together in regional tax bases than to let each tiny town brave the elements on its own.

Comments

  1. John says:

    Again, city expense bases are out of control. Fraud, mismanagement, and unions have driven up their cost bases to unsustainable levels.

    Philly is drowning in a pension crisis of its own creation, as are most other large cities.

    Short answer – before you go after my money, I want to see your plan for fixing all of the above. For as we all know, and has been proven since the beginning of time, just throwing money at a problem doesn’t solve anything.

    • Jon Geeting says:

      Municipal decline is baked in because of the balkanized tax bases. Every PA municipality follows the same pattern of decline. People in Stage 1 and 2 like to moralize this, but it’s stupid. The same thing’s going to keep happening to every municipal tax base until the tax bases get regionalized.

      1. Low taxes with Greenfield Growth
      2. Gradually rising tax rates and increasing demand for services.
      3. Plateau of tax base with reductions in non-core services.
      4. Insufficient taxes or tax base with reductions in core services.
      5. Loss of tax base and distress

    • urban_LV says:

      John – Its not about Us vs. Them. Our municipalities are so small that we all drive and walk across invisible lines all the time. You don’t have “leverage” to get something from people who happen to live on the other side of the line. This isn’t about “city people” coming for your money.

      We all know that less developed (or recently developed) municipalities have temporarily lower taxes. That means if we have lots of tiny municipalities there will always be an incentive for people to move towards undeveloped land. Nobody intended for that incentive to be there, and a regional tax base is a great way to get rid of it.

  2. John says:

    Again – what’s your plan for fixing the problems?

    Seriously Jon, throwing cash at a problem doesn’t work! Just makes a bigger problem 15yrs down the path.

  3. Jon Geeting says:

    I’ve got dozens of ideas for making municipal government more economical and less wasteful, which I write about on here every day.

    But the biggest problem of them all is the 5 Stages of Municipal Death, which is solved by regional tax bases. This stops the volatility that comes with tax dollars shifting around between so many jurisdictions.

  4. John says:

    On pensions the only part of your proposal that saves expenses is consolidation – and it saves only perhaps $50MM/year, and the current state pension shortfall is well into the billions (Philly’s shortfall is $5 billion and growing).

    You’ve not spoken at all on fraud, corruption, union control of construction projects which drives up costs 30+%, etc.

    All you do is trot out the tired old line, “bigger is better.”

    Sorry Jon, until you prove it – and you can’t prove it until you deal with all the problems at the city level before going after the cash, – you’ll get no support at all from the majority of the state.

    And besides, every other day you trot out a story about how popular the cities are, how kids your age are clamoring to live in them, etc. If that is true, then this is nothing but a temporary problem that will solve itself and needs no intervention.

    • Jon Geeting says:

      There are two separate issues here – how the money is spent, and who pays. The debate over how to spend tax dollars most efficiently will be with us forever. The question of who pays can be answered today, based purely on your political priors. You’re against a progressive tax structure because you think it’s unfair. I’m for it because I think it’s fair.

  5. John says:

    Actually no, I am for a progressive tax structure, always have been.

    I am totally tired of excusing fraud and mismanagement, and will continue to fight your solution of just throwing someone else’s money at the problem.

    It’s not a serious solution to a very serious problem.

  6. Jon Geeting says:

    I’m all about getting better value for people’s tax dollars. It’s extremely important to me. But that is a separate question from who pays the taxes.

    • John says:

      Yes it is – and the time to deal with the problem is BEFORE the money starts flowing. Otherwise you have no leverage at all and nothing will ever be done to fix things.

      Come on Jon, this is Negotiating 101, and maybe even Remedial Negotiating.

      • Jon Geeting says:

        Suburbs would have more leverage if they were voting on the politicians running the regional tax base. It’s not like the electoral calculus is tilted against them. Y’all got exactly what you wanted with a Republican supermajority on Lehigh Commission.

        • John says:

          Man when you get a point you can’t argue against you sure change the subject quickly.

          Suburbs have all the leverage they need, nothing you’re advocating here will ever happen until the issues I’ve raised are addressed.

          • Jon Geeting says:

            I addressed your point. You’re worried that bringing suburbs into the tax base would mean they’re hitched to the same policies you think are bad, and they wouldn’t be able to change the course of policy. I say that’s wrong because the Lehigh County example shows that the electorate in the potential Lehigh County tax base skews Republican in municipal years. There’s no demographic political obstacle.

          • John says:

            Actually you ignored my point about negotiating, and that you’re dead wrong to give up the $$ before getting something in return.

            The Lehigh County example is not valid, there’s no consolidation, no surrendering of tax revenue, etc.

            The suburbs have their greatest leverage now. You don’t get the $$ until you agree to a massive set of reforms. Real easy.

          • Jon Geeting says:

            I disagree, but it doesn’t matter. The “who pays” question shouldn’t be dependent on how money is being spent. They’re two separate questions.

          • John says:

            But why would i give you the money if I think you’ll piss it away? The answer is I won’t.

            Separate questions yes, but interrelated so tightly that you don’t get to address them separately. You want my money, so I get to decide what needs to be answered.

          • Jon Geeting says:

            The way we make decisions about public policy is by electing representatives. If tax bases were combined, you would have a say in how your tax dollars get spent, exactly the same as you do now – by voting for and lobbying politicians. There’s no reason to think some kind of guarantee can be worked out ensuring that you always get your way prior to a consolidation. That’s just the nature of democratic politics.

          • John says:

            Agreed – and I support representatives that would never give away the store without a deal in place.

            So again, I have what you want, the money. You need to come to me with a plan in order to get me to agree to consolidation. So far your plan is “let’s combine tax revenues now and we’ll figure out all the other stuff later.” Your plan sucks and would never be accepted by anyone.

            Sorry.

  7. GDub says:

    Jon,

    A quick look at that document indicates a more complicated picture.

    While it is true that the SE PA region is a major driver of business activity and revenues, the major player seems to be Montgomery County, which pays far more than its share of population–and not Philadelphia, which has a decent aggregate number balanced by an extremely high poverty rate. Philadelphia County is generally just above or just below its proportion of the state in terms of most taxes and revenues.

    Now, you could argue that Montgomery County is successful because it can draw on the regional infrastructure (rail, airports, etc) of Philadelphia. But at the same time it and its neighboring counties seem to have a fairly robust economy of their own.

    I’d want to see more data on Harrisburg and Scranton as “drivers” of the State economy. Aggregate numbers wouldn’t seem to offer much to a comparison, and I suspect the GDP takes into account government expenditures, which tends to distort the figures as well.

    Eventually, for regional consolidation to work there may need to be some sort of grand bargain for governance/oversight/unions with transfers.

Speak Your Mind

*

* Copy this password:

* Type or paste password here:

82,775 Spam Comments Blocked so far by Spam Free Wordpress