Why Taxes Force Public Assets Into Private Hands

09.30.08 | Taxes | 0 Comments | by Fred Siegmund

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An article from the Wall Street Journal from August 26th, Leasing of Landmark Turnpike Puts State at Policy Crossroads, discusses a proposal to lease the Pennsylvania Turnpike to a group of private investors. The Pennsylvania Turnpike is the oldest superhighway in the nation, but it needs $12.8 billion in repairs and capital improvements.

The governor of Pennsylvania, who is proposing the deal, argues the state needs financial relief from a reduced tax base and tax revenues. The article describes Wall Street as eager to close the deal because many U.S. and foreign investors have investible funds looking for a return.

Savers may recognize that Pennsylvania, like all states, can sell tax free bonds directly to investors and then use the funds to make repairs and capital improvements for itself. If loanable funds are available, they are available to Pennsylvania as well as private investors.

The deal allows for the private investor group to raise tolls 25 percent in 2009 and then by inflation afterward, something the state can do as well.

Others worry about jobs and wages because the proposed deal allows union contracts to expire in 2011. We have to hope the governor does not intend to let others take the blame for lower wages and job cuts, but anything private investors can do to save money the state can do as well.

In effect, the governor is saying his state cannot raise taxes to make payments of interest and principal to service and retire bonds because high state taxes already bear so heavily on wages and working class citizens they cannot afford to pay more.

However, if business and individual interests have loanable funds while there are unfunded projects that need those funds, then extollers of free markets should have to explain why those funds don’t flow directly to where they are needed.

One explanation lies in America's unequal distribution of income and taxes. Lower tax rates on working class Americans and higher tax rates on business and upper income individuals will make it much easier for the states to pay for the investment funds they need.

Whether these tax changes are fair or unfair is irrelevant to the issue. What is relevant is that tax relief for working class Americans will reduce pressures to turn over public assets to private interests.

The article mentions opposition to the governor's proposal. One woman is quoted as saying, "Americans built this turnpike. … Why do we need someone else to operate it?"

People recognize that it is degrading for Americans to sell public assets to private and foreign interests. It is also unnecessary.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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