The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (23 page)

Think about the cost of police we hire with our taxes. Now compare that with a society with few or no police, a society where citizens bear the individual expense and risk of guarding their property and their lives. Think of those third-world cities where people live behind high walls topped with broken glass or barbed wire, prisoners in their own homes. An extreme example is the wealthy in Rio de Janeiro: even cars with armor plating and guards in vehicles running in front and behind don’t always provide enough protection, so the very rich travel by helicopter. America is not immune to urban dangers: there are neighborhoods where thousands of homes are equipped with heavy steel security contraptions and iron bars cover ground-floor windows. Such ugly security measures are a warning sign about what happens when society fails to create enough jobs to keep people busy and fed, fails to fund programs that keep teenagers occupied and fails to instill in children a conviction that study and hard work will be rewarded.

The urban dangers in America should remind us that taxes, per se, are no more dangerous than a gun in a locked box, no more helpful than a book sitting unread on the shelf. What matters is how we use our taxes. That is the crucial issue on which we need to focus:
what we spend our taxes on
.

We need to look at taxes both for what they buy for us
and
the price we pay when we let others reduce or escape taxes. Known to economists as
tax expenditures
, tax favors are tax breaks and subsidies that encourage various behaviors, ranging from home ownership to charitable giving to spending on renewable energy. Tax breaks for independent oil and gas
companies, gifts of tax money to Walmart and Warren Buffett, tax exemptions for new factories and office buildings, and lowered tax rates for golf courses and amusement parks are tax favors for the few—but a form of taxation for the rest of us. They shift the burden of taxes from those who get these deals on to those who do not. In short, lower taxes can cost you more money.

The economic health of our society can suffer when we fail to properly fund basic services. Criminal and civil justice systems, for example, are central to a stable society. When we neglect to fund them properly and encourage people to turn to private vengeance instead of adjudication we add to our costs. We incur costs for more police and prosecutors and, especially, prisons, all of which consume tax dollars. And when we fail to achieve what our Constitution calls “domestic tranquility,” we pay in a reduced quality of life, as well as a risk of the loss of innocent life from stray bullets, drive-by gang shootings, and the inability to walk safely outdoors in some neighborhoods after sunset.

Taxes spent to make sure children grow up to become productive adults who work for decent wages reduce the need for taxes to address social pathologies. This is by no means a new insight. Aristotle warned 2,500 years ago that extreme inequality produces strife and violence.

Consider another area where socializing a cost through taxes saves us money. Getting rid of your local fire department would reduce your taxes, but the loss of general fire protection would soon enough cost considerably more in both property and lives. Politicians and pundits who complain that taxes make us poorer seldom mention how successful socialized fire departments have been at saving everyone a lot of money.

One community in Tennessee learned a lesson about the wrong way to finance firefighting in September 2010. A teenager burning trash in a barrel was not attentive and the flames spread. First his grandfather’s shed caught fire; pretty soon the house was ablaze. But the firefighters in nearby South Fulton, Tennessee, would not put out the blaze because homeowner Gene Cranick had not sent in his $675 annual fee. Cranick insisted he had always paid and that this nonpayment was just an error of omission, but the firefighters stood by and watched his house burn, killing a dog inside.

Once fires routinely burned down whole cities or blackened vast neighborhoods. People acting individually could do little to stop it. The fire that legend attributes to Mrs. O’Leary’s cow knocking over a kerosene lantern on the evening of October 8, 1871, destroyed a big swath of Chicago and took about 250 lives. That same night a much greater fire
several hundred miles to the north engulfed the Wisconsin town of Peshtigo, killing as many as 2,400 people.

During the nineteenth century, most fires were fought by volunteer brigades. Some scholars attribute the original organization and training of such brigades to the inventive Ben Franklin. Today in rural and suburban areas, where buildings tend to be just one or two stories high and not very large, a volunteer fire department may be sufficient. But not so in urban and industrial areas where construction is dense and buildings rise many stories. Without taxpayer-financed fire fighting, urban life would at times literally be consumed by infernos.

Imagine the costs today had we not socialized fire-suppression measures and mandated preventive ones. We taxpayers invested in training and studying how best to put out all sorts of fires in all sorts of buildings. We bought fire trucks and installed water mains. We invested in research that transformed building codes, making buildings less likely to catch fire and slower to burn. Some of those codes imposed private expenses, such as requiring sprinklers in large buildings, more costly construction materials or an end to central staircases that acted as chimneys when a ground-floor fire broke out, spreading flames quickly. Those regulations can be seen as a form of tax because the spending is mandated for those putting up structures. But the savings in lives, in property and in heartache is a huge social dividend made possible by taxes and well-designed government regulation.

How about schools? Parks? National defense? Bridges across mighty rivers and tunnels beneath bays?

Taxes are also a key reason why people are less likely to die in accidents than they were a century ago. The rate of death from accidents today is less than half what it was in 1902, despite the remarkable mobility that characterizes our lives. Exclude automobiles, and the accidental death rate in our time is about a third of what it was a century ago. Back then a greater share of the population worked in factories and on farms. That meant more people used equipment that could crush hands or whole bodies, relied on unsafe wiring that caused electrocutions, and were forced to work using dangerous construction and mining techniques. That accidental death toll has been slashed because we spent tax money on safety rules and regulations and on research and development for safer manufacturing, construction and mining techniques.

The idea of requiring employers to invest in safety equipment was denounced a century ago as morally and politically wrong, just as it is today. Business owners said the government had no role in deciding what
equipment they bought or how they used it. But as unions, progressive politicians and engineers who believed in safety worked on these issues, laws were enacted to address worker safety. In time both accidents and deaths declined.

The 1911 Triangle Shirtwaist Company factory fire in New York City helped advance the idea that worker safety was a problem to be addressed through taxes. Just before closing time one Saturday afternoon, fire spread through the top three floors of a Manhattan building where immigrant women labored at sewing machines in a sweatshop. The workers had been locked in to make sure none slipped away early. When the fire broke out, some women jumped to their deaths rather than wait for the flames. In all, 146 workers died; the photographs of their bodies laid out on the sidewalk provoked public outrage. The workers’ compensation tax on your paycheck is one of the legacies of that unnecessary tragedy.

Taxes have advanced the benefits of specialization, which improves efficiency. Adam Smith tells the story in
The Wealth of Nations
of how pins—ordinary straight pins, like the ones that come stuck into a new blouse or shirt—went from being the province of the rich to cheaper than cheap, providing the classic illustration of this principle. The trick was to switch from having each pin maker fashion a complete pin to breaking the work into eighteen or so separate tasks. Smith wrote:

The result? Ten workers who could not hope to make 200 pins in a day churned out 48,000 pins every day. The price of pins plummeted until even the poor ceased to worry if they lost a no-longer precious pin.

That same principle of specialization applies to government services. Instead of workers leaving the mill or assembly line to become volunteer firefighters and shutting down production, the workers kept to their tasks. Taxes were levied to pay firefighters, who could be highly trained, more efficient, and more effective. In education? Instead of parents teaching their children as best they could, taxes paid for teachers who were trained in what and how to teach at what were known as “normal schools.” This vastly improved reading, writing, and arithmetic skills. More taxes were spent to develop public universities, advancing human knowledge and fueling economic growth. With an educated workforce,
the United States led the world in developing new technology and services. But maintaining that lead depends on continued investments of tax dollars in education and research.

Few taxpayer investments have paid a greater return than the G.I. Bill, which made it possible for one in seven World War II soldiers and sailors to go to college. Taxpayers spent about $59 billion in 2012 dollars from the end of World War II until 1952 to provide more than 2.2 million soldiers and sailors with a college education. Millions more got other education and training.

The G.I. Bill paid for the educations of 450,000 engineers, 240,000 accountants, 238,000 teachers, 91,000 scientists, 67,000 doctors and 22,000 dentists, among others. In today’s dollars that was about $26,000 per student. The higher incomes those college graduates earned, and the advances their education made possible in every field from astrophysics to zoology, laid the foundation for today’s advances in medicine, biology, software, materials and every other field in which increased human knowledge has made people better off.

Taxes also lengthen lives. American life expectancy at birth in 1900 was just 47.3 years. One century later it had been extended to 77.2 years, a 63 percent gain. The biggest single reason for that change: public health measures financed by taxes. Publicly funded projects provide clean water and sanitary sewer lines to take away wastewater and treat it. In 1906 the Pure Food and Drug Act and the Meat Inspection Act launched a food safety revolution.

Opponents of each of these measures in their time said that the costs would be ruinous. They were wrong in every case. The costs of
not
taxing ourselves would have been ruinous, both in the quality of life and its duration. Diphtheria, pertussis (whooping cough), and measles are still around, but they rarely kill, unlike a century ago when every parent feared them. Polio no longer cripples, putting its victims into braces, wheelchairs, and iron lungs. Smallpox is gone. Tax dollars were central to the development of vaccines, blood plasma, lifesaving drugs, and new diagnostic and surgical techniques. All of this came about because of taxpayer spending to improve the common good through research, education and infrastructure.

Taxes have made Americans safer on the job and while traveling. They have made us healthier, better educated and more productive; they’ve reduced misery and lengthened lives. Those are big things. But on Council Rock Avenue, we appreciate the small ones, too, as increased taxes
have bought us six quiet mornings each week while putting more money in our pockets.

Rising garbage removal bills are an individual problem mostly in suburban areas, where about half of Americans live, and rural areas, where another fifth of Americans live. In urban centers, though, where the other third of Americans resides, businesses and large apartment buildings often hire cartage firms, and in many cities refuse removal is a basic municipal service.

The public health and aesthetic reasons for this are more obvious than the economics. Rotting garbage attracts rats and other vermin. It only takes one family that does not, or cannot, arrange for garbage collection to make the whole neighborhood stink on hot summer days. But the economics also favor this approach, as universal service through government lowers costs compared to having competing trash-hauling companies. More trash is collected per mile, per hour of labor, per gallon of diesel fuel. It is also cheaper to prepare and send one bill than many thousands of individual bills.

In suburbs and rural areas, garbage removal is more often a business in which homeowners and small businesses contract individually with a cartage company. In a competitive market, the ease with which customers could move from one company to another would tend to hold down prices. Any company that unilaterally raised prices would lose customers, or so economic theory holds. But that theory has been buried at landfills owned by the biggest garbage companies.

The $47 billion that garbage removal costs annually nationwide works out to about $150 per person each year, figures disclosed by the two largest trash-hauling companies indicate. When only residential removal costs are counted, the monthly household bill often runs $40 a month in suburban and rural areas, or $480 annually, plus sales taxes.

Your garbage bill will typically have add-ons for the costs of fuel and for dumping the trash at a landfill, even when the company that hauls your trash away owns the landfill. Your total bill can easily run $50 a month to have two cans of trash emptied each week and your sorted recycling hauled away.

These prices should not be climbing, based on what the big trash companies tell the Securities and Exchange Commission and their shareholders. Waste Management wrote in its annual report to its shareholders and the SEC in 2010 that “the solid waste industry is very competitive.”