Editor’s Note: Edward J. McCaffery is Robert C. Packard Trustee Chair in Law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler” and founder of the People’s Tax Page. The opinions expressed in this commentary are his own. View more opinion at CNN.
In this spring season, we should all take time to remember that sometimes, good things do indeed happen after great hardships.
As America emerges from the deepest depths of our pandemic crisis, state governments find themselves with a happy problem: too much cash on hand. Aided by federal Covid-relief dollars and now facing surging revenues due both to a fast-growing economy and inflation, states have more money than they presently can spend. Mirabile dictu.
So, next comes the question of what politicians do when they have too much money, a rare fortuity indeed.
Some states are now simply giving the money back to taxpayers – simply, if loudly. Georgia’s Gov. Brian Kemp, facing a tough election year, this week very publicly signed a bill authorizing hundreds of dollars to be sent as income tax refunds to state residents who filed returns in 2020 and 2021, right around the time that they will be filing their federal taxes.
Let’s set aside for a moment 2018 Democratic nominee Stacey Abrams’ response, Abrams being Kemp’s likely opponent in the upcoming elections: “I want us to remember it’s not who put their name on the cards but who bought the gift. And while there might be a K name on the card, it’s Biden and Warnock who got the money here.” That’s logical, but what’s logic got to do with it?
There is, after all, something a little goofy – in a technical economic sense – about raising money by taxes and then just giving some of the money back to the same people who paid it.
The taxes remain in place, as a deterrent to people to work in the first place. There’s no redistribution here; the point isn’t to give money back to different, lower income, people. People are likely to view a one-time, $300 check like a gift card, as Abrams suggested. This will likely lead to modest consumer splurges – a bad thing to encourage at a time when we are facing inflation.
What could we do instead? We could give the money back, but in a more targeted way. Targeted to what? How about to the way the war in Ukraine has affected consumer prices, now meaning gasoline and maybe soon meaning bread prices?
Why might we do this? Because the war and its sanctions have led to particular price hikes, especially for gas. Gas taxes, at both the state and federal levels, add to the price. Not only are rising gas prices causing immediate, short-term harm to consumers, they could also undermine support for aiding Ukraine in the war if they persist. Rather than simply give money back to taxpayers, why not lower the prices they face at the pump? California, with a Democratic governor, is attempting to do this.
Why wouldn’t Gov. Kemp and all other governors follow suit, to help Americans and Ukraine? Perhaps because they get to sign the checks now, and they may not care so much about higher gasoline prices later, when voters are in the booth.
Once again, the fundamental things apply: Good politics makes for bad policy. And we all suffer from our divisions.