Do Hurricane Harvey Victims Deserve Less Federal Aid Because Texas is a Low-Tax State?
September 7, 2017
There are two kinds of thought-provoking op-eds: those that force readers to confront new ideas, and those that simply provoke the thought, “I wonder how that wound up in print?” Yesterday, tax attorneys and tax law professors Peter Barnes and H. David Rosenbloom served up the latter in a piece that is either an extremely contrarian take on disaster relief or a strained parable against means testing, welfare reform, and the “up-by-the-bootstraps” mentality.
After conceding that victims of Hurricane Harvey should receive federal aid as soon as possible, the professors contend that it should be structured primarily as federal loans, not aid – because Texas’s taxes are too low. Here’s their argument for structuring the bulk of federal aid as a loan, such as it is:
Here is why: Texas is avowedly a low-tax state. There is no personal income tax. There is no corporate income tax (although there is a surrogate tax on corporate receipts). There is no state-level tax on estates or inheritances. Texas ranks No. 46 out of the 50 states in state and local tax burden per capita, according to recent data from the Tax Foundation. It ranks 43rd in state tax revenue per capita.
Texas wants and needs federal help to rebuild from Harvey, and the federal government should provide significant financial aid. But it is grossly unfair for Texas to accept funds from all of America’s taxpayers to allow it to continue its exceptionally low-taxed ways. Unless Texas is willing to bear a reasonable share of the Harvey costs through increased state and local taxes, then the rest of the United States would just be giving Texas a handout. Better for the federal government to offer Texas a “hand-up” in the form of immediate cash support with the requirement that Texas generate tax revenue to repay that help.
Other states, like those impacted by Hurricane Sandy, are given a pass, because their residents already pay high taxes (“Compare that situation with New York and New Jersey’s in the wake of Hurricane Sandy: Those states (plus Connecticut) already pushed a significant state and local tax burden onto their residents.”). The piece then goes on to discuss how international aid is structured, referencing the debate, more commonly associated with IMF assistance, for whether a beneficiary jurisdiction should be required “to enact ‘good government’ policies, including changed tax laws” as a condition of aid.
The authors’ conclusion, buttressed by ability-to-pay arguments: “Although proud Texans often assert the state’s sovereignty, the truth is that Texas has no moral entitlement to federal aid to rebuild itself unless Texas is willing to shoulder a fair share of the cost. And that means increasing taxes on its residents to a level more commensurate with the burdens of residents in other states.”
Where to begin? A few thoughts, far from exhaustive, on this peculiar narrative:
- Texas is not a free rider, and Texans pay the same federal taxes as everyone else does. Even if Texans have greater fiscal capacity at the state level, they paid taxes to the entity that disburses federal disaster aid under the same rates and structures as the rest of the country. In fact, because there’s a deduction for state and local taxes on the federal income tax, residents of states with lower tax burdens actually pay more federal taxes than they would otherwise.
- Tax rates and burdens are not an appropriate measure of disaster preparedness. One could argue—the authors hint at it—that perhaps Texas was less prepared because elected officials were unwilling to raise the revenue necessary to prepare for a storm of this magnitude. This is not, however, obviously true, and the authors don’t really make the case. Besides, high tax states are often woefully unprepared for hurricanes, too. Louisiana, which is said to be deserving of federal aid, clearly wasn’t ready for Hurricane Katrina. The states hit by Hurricane Sandy have decidedly high taxes, but didn’t allocate enough of that revenue to disaster preparedness either.
- Having lower state taxes isn’t an invitation to federal governmental discrimination. The crux of the authors’ argument seems to be that it’s somehow unfair that Texans pay less in state taxes than others do, and therefore if the federal government incurs an expense in Texas, it should treat it differently than it would an expense in any other state. This is not only punitive, but punitive on policy grounds utterly unrelated to the issue at hand.
- The federal government has no right to coerce states to have higher (or lower) tax burdens. Some people favor low-tax, low-service states; others gravitate toward high-tax, high-service states. It’s perfectly reasonable for someone to think that all states would be better off if they coalesced at a particular point on the spectrum, but it would be remarkable for the federal government to treat low-tax states as the functional equivalent of failed states at the international level, and to coerce policy changes by withholding federal aid. The federal government does have some authority under the Spending Clause to induce, but not coerce, state policy decisions that pertain to the aid in question, but the courts have never permitted such sweeping authority as recommended here.
- The “hand-up” vs. “handout” language of the op-ed makes little sense in this context. The argument appears designed to tweak certain views on welfare reform. Presumably, however, whether work requirements or other welfare reforms are or were a good idea, those favoring the “hand-up” approach believe that it is possible to induce lifestyle changes or facilitate opportunities that would reduce reliance on aid by enabling greater self-sufficiency. Is that the argument here? It could be, if the issue is how much states spend on disaster preparedness, but the authors only seem concerned with tax burdens, not how the revenue is spent. Even if Texas devoted a greater share of its existing budget to disaster preparedness and response, its low taxes overall would still mark it for disparate treatment under the authors’ approach.
- Without a clear linkage to state responsibilities on disaster preparedness and response, the federal government treating people differently based on divergent state political preferences is odious. The federal government has some authority to withhold funds from states that don’t comply with program mandates, or to incentivize behavior through certain aid programs. But conditioning hurricane relief not even on what Texas spends on disaster preparedness, but just on what its tax rates are is legally suspect, unseemly, and an unfortunate case of political point scoring in the wake of a terrible natural disaster.