Levine: More civility, beer and politics

The first part of this two-part column appeared on Dec. 21. It highlighted an intense-but-healthy discussion that Jack (not his name) and I had while sailing off Point Loma on a hot day before Thanksgiving. We respectfully disagreed on many key issues, but listened intently, wishing to understand before we challenged.

Reflecting upon some of the topics we covered, I could easily see why opinions can differ. For instance, on taxing estates, Jack favors keeping the estate tax, believing that wealth should be earned and not passed down. I brought up my concern that family businesses, and especially family farms, shouldn’t have to be sold to pay the estate tax. Jack agreed, but reminded me that mechanisms are available in such circumstances to bypass a possible estate tax and thus, pass ownership to family members. So, we agreed that it was okay to tax excessive wealth as long as reasonable exceptions exist. We left the definition of “excessive” for another time.

Getting to consensus on the implications of economic data is a hardy task. Extrapolating economic trends is tougher to do than comprehending the cosmos. Supply-side and demand-side theories can each find empirical support and equally “factual” denial. One must be careful in choosing which research to believe. During one search, I found a report that emphatically reported a plethora of studies supporting growth through lower taxes. Then I learned that the source’s purpose was to promote and support “pro-growth” policies. So much for “unbiased.”

Jack is definitely a supply-sider. He feels strongly that lowering taxes on businesses will directly impact economic growth. He buys into the “hope” that the GDP will exceed 3 percent per year under tax reform. He mentioned that history (as he remembers it) produced accelerated growth when taxes were reduced in the past. But his history didn’t recognize the most recent 13 consecutive years where GDP foundered at about the 2 percent mark, just barely hitting 3 percent briefly. His history also ignored the Kansas experiment of 2012, where Gov. Sam Brownback’s tax reform (very similar to current legislation) experienced total failure, dropping Kansas’ personal income growth from 12th to 41st in the nation. The Kansas legislation has since been reversed. My research, incidentally, could not find any consistent correlation between tax rates and growth. Support for supply-side economics comes from cherry-picking the studies.

One of the big sticking points in the House tax bill was the elimination of private activity bonds. These tax-advantaged bonds provide lower-than-market loans to businesses that wish to take on projects that are primarily for the public good. They are used extensively for affordable housing, schools, hospitals, roads and other public infrastructure projects. At least 60 percent of affordable housing projects are financed with PABs. Raising this point with Jack brought about a harsh response – with Jack believing that all business ventures should stand on their own feet. If a program won’t be successful on its own, why are we obligated to provide the means to push it over the top? Jack asks.

Are incentives justified? Through tax codes and subsidies, we selectively provide rewards. Why do we need to subsidize certain farm products? Why do we force car owners to buy fuel with harmful ethanol, just to prop up corn prices? Why does the new legislation remove the incentive to borrow money for a home, but increase the incentive to have children?

Back to the PABs—why would a developer build housing at less than market pricing unless there were some incentive to do so? Tax-exempt loans are a vehicle to help this happen. The preamble to the Constitution includes “to promote the general welfare” as a purpose of our emerging nation. Many of us believe that includes affordable housing, schools, hospitals, roads, etc. It is in our blood. It’s not a giveaway. Furthermore, when legislation is promoted as a “Jobs Act,” why would it deliberately remove a significant source of jobs – good jobs at that? The administration campaigned on a platform of doing something about our failing infrastructure. How does taking away a prime source of funding help the infrastructure situation? (Note: The final tax bill retained the PABs.)

Jack and I did share another position. Companies that experience poor performance or even failure can eventually trace their demise to a lack of a long-term perspective. The pressure on today’s corporations to provide immediate gratification to shareholders, with quarter-by-quarter positive returns, has led to short-term strategies at the expense of long-term stability and growth. Unfortunately, the new changes in taxation would favor the immediate gratification philosophy.

Obviously, we need intelligent, truthful, and respectful discussion and resolution. And there is room for differences of opinion. Please share your position and the research supporting it, and let’s discuss important issues civilly and intelligently.

A Rancho Bernardo resident, Levine is a retired project management consultant and the author of three books on the subject.