The Progressive Case for Being a Fiscal Hawk

Somewhere over the past 25 years, “fiscal responsibility” became a conservative-coded phrase. For many progressives, these words conjure an image of a hectoring older man, deriding profligate plebs for daring to suggest that we have a social obligation to take care of the less fortunate.

But liberals need not cede this important policy ground to the finger-wagging right. I’m a lifelong Democrat, a bleeding-heart liberal, and a fiscal hawk who’s spent well over a decade closing budget gaps for some of the deepest blue jurisdictions in the country. So bear with me as I begin our journey with a rousing discussion of…tax burdens.

In state and municipal government, the tax base is a function of the people who live in that jurisdiction. Most states derive the majority of their general fund dollars from a combination of income and sales taxes. (The general fund is a state’s most flexible pool of funding that supports all of your favorite politician’s favorite discretionary programs.)

Now, sales taxes are always flat: no matter who’s shopping, they pay the same rate. But the more of your income that you spend vs. save? The higher your sales tax burden. And who spends more of their paycheck? The people who need every dollar of it to survive. Okay, so sales tax – maybe not the most economically progressive funding source. But what about income tax, you say?

Income tax can vary with income level, but in many states, it doesn’t. Michigan and Illinois have flat tax rates of 4.25% and 4.95%, respectively. Washington’s is 7%. Even in “blue” states with a progressive tax structure (where higher income people pay higher taxes), even low-income individuals are usually paying a meaningful state income tax rate. The lowest tax bracket in DC is 4%, with incomes between $60K and $250K paying 8.5%. In Massachusetts? The rate is 5% for your first million dollars. New York? 4%, with single incomes up to approximately $80,650 paying as much as 5.5%. Even in California, incomes between $37,788 and $75,576 are taxed at 6%. 31 states offer an earned income tax credit, usually as a percentage of the Federal EITC, but for most eligible claimants, it’s not enough to completely eliminate or exceed their state tax liability.

Here’s the bottom line: low and middle income people contribute significant amounts of money to state general funds. Significant to them, and significant to the state. Thus, every tax-supported program is at least partially funded by the paychecks of the same people it’s intended to help!

Municipal government usually derives its tax revenue from property taxes, though some also have “city” income taxes of their own. Either way, once again, the bulk of the tax burden falls upon the everyday people who actually live there. Whether you’re a homeowner or renter, property taxes are effectively a flat tax on housing. Higher taxes? More expensive housing at all levels.

So if you’re a high poverty state or municipal government? Between sales, property, and income tax (even with a progressive structure), your tax base is also inherently high poverty.

I don’t mean to suggest that state and local taxes don’t support essential public goods like education, health, public safety, and community spaces. We need taxes, and we need government services. But it’s important for everyone – even liberals – to remember where this money comes from.

As a longtime government finance professional, I leave you with three takeaways from this reality:

1. It’s on all of us to take the best care of that public dollar that we can. Taxes should be spent and stewarded in a manner worthy of the people who are sending us their money. Fiscal responsibility is a matter of respect for that hard-working community of everyday taxpayers.

2. Whatever we’re spending the money on should be more valuable than the extra cash would be in their pockets. Many policy research studies have shown that with extra income, most people do a pretty darn good job of prioritizing their most important needs. Thus, government programs, inclusive of their necessary administrative overhead, should pass a high bar for effectiveness! And governments should invest in meaningful methods of budget prioritization and program evaluation to ensure that this bar is being met.

3. A tax-and-spend mentality only gets you as far as the people who actually live in the taxable jurisdiction. And progressive tax structures are only as good as the income inequality they’re based on. In other words, any taxing jurisdiction without a sizeable proportion of high-income filers is greatly dependent on tax revenue drawn primarily from the poor and middle class. Which leads us right back to #1 and #2!