The Problem With Taxing Someone Else for Our Benefit
U.S. Senator Russell B. Long once said, “Don’t tax you, don’t tax me, tax the fellow behind the tree.” The saying has become a way to describe many states’ tax policies when they are looking for new revenue but don’t want to ask their own residents to pay for the additional services the government wants to provide.
It is a practice employed by many governments in the U.S. to raise revenue for projects that may be politically difficult to fund. For example, when the NFL’s Las Vegas Raiders moved to Nevada, the team’s owners sought public funding for their new stadium. To accomplish this, lawmakers increased the tax on hotel stays near the famous Las Vegas Strip and in surrounding areas—forcing “out-of-staters” to pay for the new stadium rather than placing the burden on their own residents.
I get it. It makes it easy for an elected official to say, “Look at the incredible thing we accomplished, and it didn’t cost my voters a dime.” It can look like a win-win scenario for government officials. But the policy isn’t ideal. In fact, it is fraught with violations of sound tax policy and is an approach elected officials should avoid rather than embrace.
In the case of the Raiders football stadium, there are a number of tax policy issues. First, the tax scheme forces those who will not directly benefit from the stadium to pay for it. Yes, the owners of the team should pay solely for their stadium and not ask taxpayers for money to assist them—but if you are going to raise tax dollars for such a project, then those who use the stadium should pay for it, not simply anyone who chooses to spend a night in Las Vegas. This could be done through ticket fees, which would require patrons of the stadium to pay for its construction, or by charging those who rent the stadium—such as conventions and concerts—a fee dedicated to paying for the facility.
Another violation of sound tax policy in these plans is the dependence on a narrow tax base to fund an ongoing need. When you target a narrow base to fund significant projects, that base may look elsewhere to spend its dollars. If we go to a store and realize we can get the same or a similar item cheaper somewhere else, it’s natural to assume we’ll go where it’s cheaper. The same applies here: if the cost of hotel rooms in Las Vegas rises too dramatically, there are plenty of other cities—such as San Diego, Nashville or Miami—where individuals can have a similar experience.
Making taxes more complex is another violation we see in these types of plans. While a hotel guest may simply see an additional tax on their bill, the hotel itself must spend additional money on staff to ensure compliance—properly collecting and remitting the tax. This is a cost that is rarely considered in the fiscal note of legislation creating a new tax. The administrative burden on businesses is real and should be avoided. Taxes should be easy to understand and easy to pay.
Another violation of sound tax policy in these plans is that they hide the true cost of government. Instead of cutting spending and being transparent with taxpayers about government needs, this approach allows governments to grow while obscuring the costs associated with that growth.
One of the key reasons many people dislike the property tax is because it’s the one tax we still receive a bill for each year, showing exactly how much we pay. For income and sales taxes, mechanisms have been developed to lessen the pain of paying them: a percentage is automatically withheld from paychecks for income taxes, and sales taxes are quietly added at the register. If we received an annual invoice for both of those taxes, we’d likely dislike them just as much as the property tax—and that would be a good thing. Seeing the true cost of government is healthy for taxpayers and for governments alike.
Finally, taxing the man behind the tree doesn’t really work the way everyone wishes it did. I often remind policymakers that taxing businesses—often the supposed “man behind the tree”—doesn’t actually solve anything. When a business is taxed, it generally does one of three things:
- Makes less money, leading to lower profits for owners or shareholders.
- Pays less in wages to employees.
- Raises prices for goods or services.
All of these outcomes ultimately harm taxpayers and consumers—not the business itself.
Rather than looking for more “men behind trees” to tax, Utah’s elected officials should examine their own policies and ask themselves: Are they doing enough to slow the growth of government? Are they cutting budgets—or at least holding them flat—instead of allowing them to grow unchecked? Are they putting taxpayers first, rather than the ambitions of those with the latest and greatest ideas or proposals?
Let’s keep taxes fair, transparent, and direct for Utahns, and avoid hiding the true costs of running government.