Taxpayers can be counted on to use their savings wisely

What is risky is trusting government to use tax money to advance education or other family needs?

by David Tuerck

September 3, 2000.

There is a story going around that tax cuts put only pennies in the pockets of taxpayers while starving critically important social programs. Thus a November ballot question that would cut Massachusetts' personal income tax to 5 percent would, by one account, save middle-income families just $ 264 a year, about enough to pay for a pizza a month, while costing the state $ 1 billion annually in lost revenue.

We hear similar rhetoric at the national level. Democratic presidential candidate Al Gore describes Republican tax cut proposals as being worth no more than a Diet Coke a day to the average American family.

Instead of funding America's appetite for fun food, so the argument goes, isn't it more responsible to put the money toward education or health care?

The underlying (and unspoken) assumption here is that left to their own devices, families will apply any windfall in disposable income to trivial needs rather than to their children's futures. Allowed to keep a bit more of their own money, they will choose pizza over pedagogy every time.

Ironically, these same voters, deemed incapable of choosing wisely in their personal lives, are now being asked to choose wisely in public matters by putting society's welfare ahead of their own.

This cynical view of voter intelligence echoes a sentiment expressed 50 years ago by economist Joseph Schumpeter, who wrote: "A typical citizen drops down to a lower level of mental performance as soon as he enters the political field.

Assume, however, that taxpayers are, in fact, profoundly concerned with the future well-being of their families. Assume that they are able to think responsibly about how they might apply a tax saving to their children's education.

Consider, then, the median two-earner Massachusetts family. If, starting next year, that family put the money it saved as a result of the tax cut into the commonwealth's U-Fund college savings plan, it would accumulate $ 23,930 in 18 years to apply to a child's education. That would pay for almost four semesters at the University of Massachusetts.

For all of Massachusetts' educational resources, the cost of putting a child through college in the Bay State is among the highest in the nation. In 1996-1997, Massachusetts had the fifth highest in-state tuition rate for four-year public colleges and the fourth highest for community colleges.

Contrast this to the calls for increased public education spending. In 1993, the Education Reform Act established a seven-year spending plan aimed at improving student performance in Massachusetts' public schools. Since that time, the commonwealth has increased spending by 34 percent. In spite of the expenditure of $ 5.6 billion on education, reform there has seen no measurable improvement in school performance.

In the current jargon, cutting the Massachusetts income tax rate to 5 percent is a "risky" proposition. There is, however, nothing risky about affording families the opportunity to support their children's education or to meet some other family need that may, as it turns out, go toward something more profound than satisfying a craving for fun food.

What is risky is trusting government to use tax money to advance education or other family needs? While taxpayers don't know what they'll get if the state keeps a billion dollars of their money, they know what they'll get by putting their share in the U-Fund. And it isn't just pizza.

David G. Tuerck, PhD, is chairman and professor of Economics at Suffolk University where he also serves as Executive Director of the Beacon Hill Institute for Public Policy Research.

Thi s article appeared in the September 3, 2000 edition of the Boston Herald.

Format revised on 18 August, 2004