I know it’s a small point, but I want to make it here before we move on to other things.
Do you remember when Teresa Heinz released her tax returns and it turned out she paid only 12 percent of her income? And do you remember how she did by investing in municipal bonds?
There’s a point I wanted to make here, although it was obviously too trivial for the election. But it shows how government works — and how Teresa and her millions are part of the whole problem.
A couple of years ago I worked for a publication called the Bond Buyer. (Joe Mysak, former saloon correspondent for the Spectator, was editor.) All my liberal friends said, “Hey, you’re finally down on Wall Street. You’re going to meet some conservatives for a change.” That’s what I thought, too.
Instead, the place was a liberal ghetto — an Irish liberal ghetto, to be exact. Everybody was down there because they had grown up in a family of Irish civil servants and everybody loved bonds. “Built by Bonds” said signs hanging all around the newsroom, next to pictures of bridges and tunnels and subways. By bonds, of course, we meant municipal bonds. The corporate bonds that Michael Milken was peddling — those called “high-risk” — weren’t on anybody’s radar.
Municipal bonds were another term for government spending. And everybody loved it. New York City itself was the crown jewel. In New York City, the government builds everything — hospitals, health clinics, day-care centers, apartment houses, you name it. New York City has more debt than any of the 50 states yet still Wall Street keeps lending it money.
New York State tries to keep up as well. Governor Nelson Rockefeller created a whole alphabet soup of bonding authorities — the State Dormitory Authority, the Urban Development Corporation — and they have so much debt nobody can really keep count. The state has the lowest bond rating in the nation, except for Louisiana, which is still recovering from Huey Long.
Anyway, the point is this. Why do people buy municipal bonds, giving governments more and more money to play with? Because they’re tax-free. It’s supposed to be some old interpretation of federalism that one level of government can’t tax another, but it’s really “I’ll scratch your back, you scratch mine.” This is the way governments work. They pal around and do favors for each other. And that way they both get to grow.
So here’s how it works. When the federal government raises taxes and tax rates, it makes municipal bonds more attractive. People try to “shelter” their money so they pull it out of the private sector and put it into government. New York has so many taxes that the bond sellers have invented something called “triple-tax-exempt,” which means income from the bond is exempt from federal, state, and local taxes — which can amount to 50 percent of the average income.
So this is the way government builds on itself. The idea when you’re in government is you want government to grow, because the more money there is to play around with, the more you’re likely to collect some yourself. Government raises taxes. That makes municipal bonds more attractive. People buy more municipal bonds, which makes it easier for governments to borrow. Governments borrow more, which allows them to hire more people, who become public employees, who become unionized public employees, who vote 90 percent Democratic, who elect Democrats, who raise taxes.
In New York City, public employees and their families come close to representing a majority of the electorate, which is why New York City residents pay the highest taxes in the country and almost never complain. (They do move to Jersey as soon as they can.)
So it isn’t just that Teresa Heinz only pays 12 percent of her income in taxes. (Newt Gingrich has suggested the “Teresa Heinz amendment” — nobody should have to pay more than 12 percent.) It’s the way she avoids taxes that also matters. And it’s why John Kerry’s huge constituencies in the public employee unions aren’t upset about high taxes, either.
Thank god we don’t have to worry about that anymore. Now back to that matter of a mandate …
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