By: John Hulls

April 15, 2005, Point Reyes Light (CA)

April 15 is thundering down upon West Marin yet I find myself asking the contrarian question, "Does America pay enough taxes?" One of the sacred cows of the current administration’s economic policy is that tax cuts increase prosperity. It just isn’t true.

Recently, the conventional economic theories have been taking a bit of a pasting at the hands of scientists and mathematicians. The Laffer curve and its "trickle down" economic theorists should at least have been able to model the outcome of tax cuts, but they couldn’t.

"If you can’t to that, you’re dead in the water," pointed out J. Doyne Farmer, a physicist at the Santa Fe Institute studying wealth distribution.

Indeed. As Sergio Rebelo of Northwestern University and William Easterly of NYU concluded, statistics that show evidence that tax cuts stimulate short-term growth–even slightly–"is disturbingly thin." In fact, it turns out that nations with higher tax-rates tend to be more prosperous. Since 1950, the periods of greatest American prosperity have gone hand in hand with higher taxes.

It all makes sense if you think about depreciation. The tax code clearly recognize that if a business don’t repair and replace assets it uses , its value goes down. This goes for societies too. If you don’t educate people well enough to replace retiring workers with ones just as skilled, and keep roads and public works repaired, the value of the country’s workforce goes down. So governments need enough tax revenue to keep their citizenry in good working order. A little tax increase here and there is usually needed to even improve things – to a point.

An example? One has to look no further than the GI Bill. It was in 1944 that Public Law 346, The Serviceman’s Readjustment Act, paved away for the working classes to reach higher education. Dubbed by opponents as a government give-away to slacker soldiers trying to avoid going back to work, it paid any returning GI’s college tuition, lab fees, books, health care and housing, plus up to $1,440 a year (more than $12,000 in today’s dollars) depending on the size of the GI’s family. Even its supporters figured that only a few percent of the returning soldiers would take advantage of the program. But they were wrong. When the US went to war in 1941, many of the soldiers would never have dared to dream of going to college. Yet with the passage of the GI Bill, many took advantage, flocking to the nation’s campuses. The number of graduating engineers, scientist, doctors and professionals exploded.

And the bottom line? A 690 percent return on investment – not bad for a public undertaking. A 1988 government study showed that over the working life of graduating GIs, the US got back more than $300 billion dollars; that is, for every dollar invested, the federal government got back six dollars and 90 cents. Beats the heck out of the returns on bankrupt Enron and the massive tax cuts for the top 2 percent and anything that Wall Street might be able to do with privatized social security accounts.

The original GI Bill is a stark contrast to our system that now graduates students thousands of dollars in debt, and a California system that has gone from the top rank of educational spending to near the bottom.

For me, the thought that taxes are the way we come together to finance the future of the country helps take some of the sting out of April 15. I just hope we can get the folks in Washington and Sacramento to start making some better investment decisions.