In the Denver Post on Sunday, January 31, Op-Ed columnist Ed Quillen paints a picture of an imaginary town called Galena. I found his story interesting, but it stopped well short of telling the whole story.
As Mr. Quillen’s story goes, the town of Galena has 1,000 households but only 980 of them are paying their fair share of taxes. Let’s pick up the story from there.
In Galena, the Mayor likes to go to the grocery store to buy for his family as well as to see all of the town’s citizens and do some good old fashioned politicking. He can go to the grocery store to buy food (no sales tax) and perhaps buy some sugar for baking (no sales tax), some syrup for pancakes (no sales tax), and some soda for the family (no sales tax). He also likes to chat with everyone and remind them that he’s up for re-election at the end of the year.
The town of Galena is made up of many hard working people and small business owners. There’s the Candy Store owner, the Butcher, the Hardware Store owner, the Rancher, and the Saw Mill owner, among many others. The Mayor is especially good friends with the Candy Store owner, since he has quite the sweet tooth, and the town’s Candy Store owner makes some very good products that the town enjoys.
One day, our intrepid columnist Mr. Quillen rolls into the town of Galena and decries the fact that this Candy Store owner is not paying his fair share of taxes. Corporate greed has robbed the townspeople of basic decency and fairness! The candy maker must pay his fair share. Sugar must be taxed!
The Mayor listens carefully to Mr. Quillen and agrees that the town’s Candy Store owner is indeed getting a great deal at the expense of the other townspeople and that he must pay his fair share. In fact, at Mr. Quillen’s urging, the Mayor also notices that 1) the farmers in their town also receive an unfair advantage because there is no sales tax on agricultural sales, 2) the software manufacturers in their town also receive an unfair advantage because there is no sales tax on standardized software, and 3) the owner of the sawmill in their town also receives an unfair advantage because there is no sales tax on the utilities and fuel oil he buys for creating his wood products.
Equality must be restored! So the Mayor works hard to pass a law to add a sales tax to sugar, a sales tax to agricultural products, a sales tax to software, and a sales tax to the utilities and fuel utilized by the saw mill. It’s simply not fair to the other people in the town that these companies are exempt from this sales tax – what possible benefit does the rest of the town get out of this unfair treatment? The laws pass, and everyone pats themselves on the back for a job well done and they all go home. The Mayor is especially pleased and expects to be rewarded for such wise legislation come election time.
Several weeks later the Mayor goes to the store and finds that he has to pay a new sales tax of 2.9% on his sugar, his syrup and his soda. “Hmmm”, he thinks to himself, “I thought that the Candy Maker was the one who was supposed to pay his fair share, not me. Oh well… 2.9%… not a big deal,” he thinks, and he heads down the road, stopping at the butcher’s to buy some meat for dinner. But the steak he used to buy for $4.99 a pound now costs $5.99. “What happened here?” asks the Mayor. The Butcher replies that the cost is up because the Rancher, the Meat Processor and he himself, the Butcher, have all had their operating costs go up because they now have to pay 2.9% new sales tax on their agricultural products, their utilities and fuel, and their various software packages that they use to do their accounting, payroll, inventory, advertising and business management. They’ve all had to raise the prices that they charge in order to pay for these increased costs, and those increased costs get passed along the line of production all the way to the final product – in this case, the Mayor’s steak.
Well, this is not a very happy trip, thinks the Mayor. Leaving the Butcher, he stops at the Hardware Store to get some materials for a project that he’s doing at home. He notices that the cost of lumber has gone up quite a bit. “This is outrageous!” exclaims the Mayor to the Hardware Store owner. “Last week this plywood cost $22, and now it costs $25! And this hammer I wanted to buy is more expensive than last week too! What gives?” The Hardware Store owner simply shakes his head, replying, “There’s nothing that I can do about it Mr. Mayor. The wood from the sawmill costs a lot more these days, and my own expenses have gone up too. I had to replace my antiquated inventory and sales systems and my accounting software, and it was more expensive than I had thought it would be. Plus, my utility bills and fuel costs are higher these days. I’ve already reduced my profit margins, but I can’t GIVE it away – I’ve got to make enough to meet payroll, which in this economy is looking tough right now. “
By now the Mayor is quite agitated. Driving by the sawmill he sees that a crowd has gathered. Stopping by to see what’s going on, he finds the Sawmill owner. “What’s going on here?” the Mayor asks the Sawmill owner. “Well Mr. Mayor, it seems that I have to lay off my second shift for now. I just can’t afford to keep the mill open as much because the costs of my materials, my utilities, my fuel, and my software systems have all gone up. In this economy, I can’t raise the prices enough to keep my margins where they need to be in order to employ everyone. I have to raise them what I can, and then lay off some folks as well. I’ve never had to do this before and it hurts, but losing money is no way to stay in business.”
The Mayor slips away unnoticed from the sorry scene as quickly as he can. Driving home, he goes past the Candy Store. He screeches to a halt when he sees the sign in the window that says “CLOSED.” Seeing the Candy Store owner walking to his car, the Mayor asks him why he was closing early. The owner replies that he’s not closing early for the day – he’s closing for good. “The dominoes that fell when we made the taxes fair for me as a candy maker ended up putting me out of business. The costs of my raw materials (sugars, etc.) went up more than just the 2.9% of sales tax. They also went up due to …”
“I know, I know,” said the Mayor, “Because the costs of fuels, utilities, software, and other things went up for many other people in addition to you, and all of those costs were added together throughout the entire process of production, right?”
“That’s right, Mr. Mayor. With the costs of my raw materials going up, my manufacturing and operating costs going up, and then having to add on another 2.9% to the sales price of my products to people, I just couldn’t raise the price enough in this tough economy to stay afloat. I guess raising taxes 2.9% on a particular item doesn’t sound like much in theory, but when you add in all of the layers and businesses that are affected just by these four taxes that we raised, it’s not just 2.9%. It’s much bigger than that. And in this economy, people just can’t afford it. They’re cutting back on candy. I’ll have to go somewhere else to start over. The 5 people that I laid off will get unemployment benefits for a while, until they can hopefully find another job. But it’s a similar story pretty much everywhere. I heard that the Sawmill laid off people today as well. I sure hope those extra taxes that you raised will be able to pay for all of the help that that those unemployed people are going to need.”
The Mayor went home. Due to decreasing tax revenues from lost jobs and people getting by with less, further driving down the sales tax revenue, he had to furlough some of Galena’s employees. The combination of less jobs and lower production put Galena into a real fiscal mess. The Mayor reflected upon his decision to make these four taxes equitable because the rest of the town did not seem to get any benefit from such unfair tax treatment. The Mayor could not win re-election when the people realized the impact that his decisions had created, so after he finished his term, he moved away.
Mr. Quillen, meanwhile, continued to work in his ivory tower in Denver (also known as the Denver Post), where he blithely went on his merry way of ensuring equity and social justice for all. That is until he showed up for work one day and found that there was no heat, no lights, and no people. “Odd,” he thought to himself. “I seem to remember something like this happening to me at the Rocky Mountain News…”
If he wanted to make this a real-life fable, he goof right out of the chute: in modern America, of 1000 households, maybe 500 pay taxes, not 980.
Excellent point! I only started with 980 out of 1,000 because that was the original fable as created by Ed “Nitwit” Quillen of the Denver Com-Post. In reality, according to the Tax Foundation, in 2006, 41% of all people paid absolutely zero tax, so you were “close enough for government work” as they say!