America is a wellspring nation-a nation built on the effervescent ideas of freedom and progress. The American idea was a purposeful anti-type to the fountain model of the dominant European monarchies of the time. Our financial system was intended to maintain the same structure, with local and state governments garnering the lion’s share of revenue, with the federal government receiving only what it needed to protect our nation and run the four branches of government.
As a whole, Americans are not overtaxed. They are upside-down taxed. By 2009, over 22%[1] of all state and local revenue came directly from the federal government. What this means is that taxes collected from the individual taxpayer went up to the federal government and were then redistributed back down to the individual localities.
Why is this necessary? This fountain model, as I call it, has a profound effect on our interstate economy. The federal government exercises immense control with its 22%, dictating educational standards, infrastructure spending and entitlements. State and local governments are in essence barred from competing in this model, effectively stripping the taxpayer of her individual rights. It is stealthily constructed taxation without representation. In addition, this laundering of funds through the federalist system is fraught with waste, mismanagement and corruption.
Simply eliminating this one facet of our tax system would fundamentally transform every level of government. Yes, state and local governments will be forced to raise taxes under a wellspring model, but federal taxes would shrink proportionally. Since local residents will now be more directly affected by the spending requirements of their district, the local elected officials will be forced to justify spending more completely.
People do not mind paying taxes if they see the benefit. Have you ever been to a wealthy enclave like Palm Beach County Florida or Monterey California? There are obvious things you’ll notice like clean streets and pristine common areas. But there are some not-so-obvious characteristics as well–namely a well-trained (and often invisible) police presence. Any disturbance of the peace is met with swift and decisive force. The wealthy residents of these towns do not seek local tax reform because they see and enjoy the direct benefit.
Now take an impoverished area like South-Central Los Angeles, or New Orleans’ 9th Ward. Residents of these parts pay little or no taxes. Do you think they would if they knew their taxes would go to protecting their families or their possessions? Has anyone ever asked them?
There is enough information sophistication throughout our society to allow local governments to maintain and control larger budgets, fund their own educational systems and manage their own road, police and fire departments with direct funding from and accountability to their residents. The federal court system is in place to ensure constitutional adherence at every level. This will also curb much of the corruption in Washington by breaking the incestuous nature of congressional spending and appropriation.
The competition created amongst localities with this model will provide a refreshing and frothy boost to American communities big and small. Manufacturing will return in force to local communities, and Federal revenue will then increase in measures plentiful enough to chip away at our national debt. Residents, as well as local government workers like teachers and firefighters, will see increases in their pay along with an increased correlation between their efforts and rewards which is the true essence of the American Dream.
[1] U.S. Census Bureau http://www2.census.gov/govs/estimate/09_summary_report.pdf