Taxing Democracy: Local Taxation and the Social Contract in America 9781529215588

Table of contents :
Front Cover
Taxing Democracy: Local Taxation and the Social Contract in America
Copyright information
Table of contents
Acknowledgments
1 Taxes and the Social Contract
Introduction
Continuity in change: the roots and reach of tax bargains
How taxes reproduce a social contract
Plan of the book
2 States, Taxes, and the Polities They Create
Introduction
State and social contract
State formation as a tax contract
Expanding the contract: taxation and accountability
The racial contract and America’s tax state
Mechanisms of change: how tax policy reflects the social contract
Conclusion
3 The US Tax State and the Limited Social Contract
Introduction
The multilevel American tax state: a brief sketch
The tax state in the American South
Antebellum tax structure
Radical Reconstruction (1865–77)
Redeemer governments
From tax limitation to tax elimination: the convict lease system
New century, old patterns: the racialized social contract and the federal welfare state
Conclusion
4 Tax and Expenditure Limitations vs. an Expanding Social Contract
Introduction
Segregation as government policy
The tax bargain as conservative force
Tax and expenditure limitations in defense of an exclusionary social contract
Varieties of tax and expenditure limitations
Conclusion
5 Implications of the Reliance on Fines and Fees
Introduction
Revenue-driven policing
The scale of taxation by citation
Impacts of revenue-driven policing
How we got here
Conclusion
6 Taxing Democracy: Conclusions
References
Index

Citation preview

TAX ING DE MO CR ACY LO CAL TAX ATION A ND T H E SO CI AL CONTRACT IN AMERICA C AR RIE M ANNING

TAXING DEMOCRACY Local Taxation and the Social Contract in America Carrie Manning

First published in Great Britain in 2023 by Bristol University Press University of Bristol 1–​9 Old Park Hill Bristol BS2 8BB UK t: +​44 (0)117 374 6645 e: bup-​[email protected] Details of international sales and distribution partners are available at bristoluniversitypress.co.uk © Bristol University Press 2023 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978-​1-​5292-​1556-​4 hardcover ISBN 978-​1-​5292-​1557-​1 ePub ISBN 978-​1-​5292-​1558-​8 ePdf The right of Carrie Manning to be identified as author of this work has been asserted by her in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved: no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of Bristol University Press. Every reasonable effort has been made to obtain permission to reproduce copyrighted material. If, however, anyone knows of an oversight, please contact the publisher. The statements and opinions contained within this publication are solely those of the author and not of the University of Bristol or Bristol University Press. The University of Bristol and Bristol University Press disclaim responsibility for any injury to persons or property resulting from any material published in this publication. Bristol University Press works to counter discrimination on grounds of gender, race, disability, age and sexuality. Cover design: Hannah Gaskamp Front cover image: Unsplash/​Annie Sprat Bristol University Press use environmentally responsible print partners. Printed and bound in Great Britain by CPI Group (UK) Ltd, Croydon, CR0 4YY

Contents Acknowledgments

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1 16 39 65

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Taxes and the Social Contract States, Taxes, and the Polities They Create The US Tax State and the Limited Social Contract Tax and Expenditure Limitations vs. an Expanding Social Contract Implications of the Reliance on Fines and Fees Taxing Democracy: Conclusions

Notes References Index

91 108 122 124 136

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Acknowledgments This project was made possible by support in the form of the Fulbright Senior Research Fellowship, which allowed me to spend a semester at the University of Ottawa’s Centre on Governance in spring 2018, and by a Provost’s Faculty Fellowship for Study in a Second Discipline from Georgia State University, which allowed me to begin thinking about this project in fall 2017. My home department at Georgia State, Political Science, the Department of Economics, and the College of Arts and Sciences all provided invaluable support.I am indebted to the patience and support shown to me by so many smart people as I blundered around in their specialty areas in the course of writing this book. Errors, omissions, and other offenses that may have crept in are, of course, all my own. Finally, I would be nowhere with the support of my long-​suffering friends and family, especially John, Alex, Carson, Suzanne, and Karin, who have put up with endless discussions about this and so many other projects over the years and provided happy diversions on so many occasions. I am forever grateful.

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Taxes and the Social Contract Introduction On August 9 2014, police shot and killed Michael Brown, an 18-​year-​ old resident of Ferguson, Missouri. Officer Darren Wilson, the police officer who shot Mr. Brown, said he believed Brown was a suspect in the robbery of a nearby convenience store. The officer maintained that he had fired in self-​defense when Brown –​unarmed –​charged toward him as the officer sat in his police cruiser. Four months later, in November 2014, a federal grand jury declined to indict Officer Wilson, and a Department of Justice report later concluded that he had acted in self-​defense. The killing, and the grand jury’s decision not to indict, prompted days of protests and violent confrontations between protestors and police that attracted international media attention and helped propel the Black Lives Matter social movement to national prominence. Ten days after Brown was killed, US Attorney General Eric Holder visited Ferguson and announced that the Department of Justice was opening an investigation into the incident. The report of the Department of Justice investigation, released in March 2015, amounted to a scathing indictment of Ferguson’s police practices. The report found that: Ferguson’s law enforcement practices are shaped by the City’s focus on revenue rather than by public safety needs. This emphasis on revenue has compromised the institutional character of Ferguson’s police department, contributing to a pattern of unconstitutional policing, and has also shaped its municipal court, leading to procedures that raise due process concerns and inflict 1

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unnecessary harm on members of the Ferguson community. (US Department of Justice, 2015) In his remarks announcing the release of the report, Holder affirmed that ‘this emphasis on revenue generation through policing has fostered unconstitutional practices –​or practices that contribute to constitutional violations –​at nearly every level of Ferguson’s law enforcement system.’1 He highlighted police targeting of Black citizens, particularly for minor offenses that carried monetary penalties. In the city of Ferguson, the 53-​member police force employed just three African American officers. The town relied heavily on policing to raise revenue. As the Department of Justice report put it, ‘City, police, and court officials for years have worked in concert to maximize revenue at every stage of the enforcement process.’ In the five years between 2010 and 2015, Ferguson –​a town of around 20,000 people –​more than doubled its city revenues from citations, from $1.3 million to $3 million. As a share of revenue, fines and fees accounted for 23 per cent by 2015, up from 12 per cent in 2012. The city’s budget built in assumptions of growing revenue each year from police activity. Police officers reported being expressly pressured to generate revenue (US Department of Justice, 2015, p 4). The burden of these policies fell disproportionately on African Americans, who, despite making up only two thirds of the population of Ferguson, accounted for 85 per cent of traffic stops, 92 per cent of citations, 93 per cent of arrests, and 95 per cent of minor offenses requiring officer discretion, such as jaywalking. The report found that ‘these disparities occur, at least in part, because of unlawful bias against and stereotypes about African Americans,’ and cited ‘substantial evidence of racial bias among police and court staff in Ferguson’ (US Department of Justice, 2015). What was happening in Ferguson was not an isolated case. All over the country, cities and towns searching for revenues to supplement their shrinking budgets had begun to use policing and municipal courts as revenue sources. Their effects have been comparable to those in Ferguson. The practice and the problems of revenue-​driven policing have attracted considerable media and scholarly attention in recent years. Increasingly, local governments have begun to recognize the dangers of revenue-​driven policing. Think-​tanks like the Brennan Center for Justice and the Fines and Fees Justice Center have published detailed reports on such practices and their impacts on poverty, inequality, 2

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community trust in law enforcement, and so on (Menendez and Eisen, 2019; Subramanian et al, 2022). The killing of George Floyd by Officer Derek Chauvin in Minneapolis on May 25 2020 brought massive nationwide protests and prompted calls to ‘defund the police.’ At the time of his death, Floyd was being arrested under suspicion of petty theft from a convenience store. As fellow officers and a crowd of onlookers watched, Floyd died after Officer Chauvin knelt on Floyd’s neck until he stopped breathing. The demand to defund the police has been used to invoke a wide range of policy changes.2 But it is at its core a demand for accountability for police behavior and institutionalized practices. ‘Defund the police’ seeks accountability through control of revenue that funds the institution –​it targets the spending side of fiscal policy. What remains underexamined is the revenue generation dimension: the connections between revenue-​d riven policing practices and the tax models adopted by state and local governments over the last 50 years. Police officers are among the most visible and accessible representatives of the state at local level, putting police at the intersection of public safety and revenue collection puts decisions about who gets taxed, how often and how much, into the hands of police on patrol. It transforms decisions about how and where to focus policing efforts for public safety into de facto decisions about who will bear the burden of revenue collection. Moreover, these policies and practices are not simply reactions to contemporary problems. They are deeply embedded in tax policies and revenue models that reflect an implicit social contract between government and citizens. This book explores the relationship between taxes and democracy. Specifically, it shows how policies to limit taxation at state and local levels in the US have direct and lasting consequences for equity, equality, and fairness, and indeed for democratic citizenship. This occurs not simply through shrinking budgets for public goods and services. Decisions about how communities will tax themselves are more than decisions about effective and efficient revenue streams. Tax structures also embed and reproduce an implicit social contract between government and citizens, creating path-​dependent outcomes that reach into the future and create unintended consequences that are rarely traced back to revenue models. The social contract spells out the purpose and role of the state, the boundaries of the political community it governs, and the reciprocal obligations of the parties 3

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to the social contract. Public finances are perhaps the most visible practical manifestation of the social contract. The economist Joseph Schumpeter famously claimed that ‘public finances are one of the best starting points for an investigation of society, especially though not only its political life’ (Schumpeter, 1954, p 2). Taxes lay bare societal values; they constitute the collective revealed preferences of society; and they influence the patterns of inequality in any society. As the philosophers Murphy and Nagel note in their book, The Myth of Ownership, ‘in a capitalist economy, taxes are not just a method of payment for government and public services: they are the most important instrument by which the political system puts into practice a conception of economic or distributive justice’ (2002, p 3). To see how this plays out in practice, consider the US state of Alabama. Alabama’s tax structure is characterized by low taxes on property, with more regressive sales taxes paying a bigger share of the bill. Just 7 per cent of state and local government revenues were generated by property taxes. The property tax is generally viewed by economists as a ‘good tax’ in terms of the benefit principle –​the relationship between tax incidence (who pays the taxes) and benefits the tax pays for (infrastructure that increases property values) is clear. But it is also highly unpopular among taxpayers the world over. It is a fairly visible tax, and homeowners pay it on an asset that is not necessarily yielding income with which to pay. Property taxes, among others, are a favorite target of politicians, particularly in the context of the ‘permanent tax revolt’ celebrated by the Republican party in the late 20th century (Kaiser-​Schatzlein, 2022). Tax and expenditure limitations in many US states have restricted the ability of state governments to increase property tax collections. As a result, states have gotten creative with revenue sources. In Alabama, local jurisdictions are prohibited from raising taxes to address local issues without putting it to a statewide vote. These tight restrictions on generating tax revenue leave local governments with limited options. Some of the gap is filled with fines levied for often minor infractions, revenue-​driven policing, and municipal court practices that were uncovered and condemned in Ferguson. Alabama’s low property taxes are puzzling. The state is home to large landowners, including multinational paper companies and other international businesses, hedge funds, and families with ties to the land dating to before the American Civil War. More than 60 per cent of land in the Black 4

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Belt, the state’s most fertile agricultural region, is owned by absentee landowners (Kaiser-​Schatzlein, 2022). When Alabama lawmakers rewrote the state’s constitution in 1875, a decade after the Civil War and just a few years after Reconstruction sputtered out, they included provisions that would keep property tax rates low in perpetuity. The constitution also limited education funding, mandating that no more than one fifth of all state revenues would go to education, reducing education revenue in the state by one third within the year. Shortly thereafter, Alabama passed a law that overturned Reconstruction-​era mandates that public education be provided regardless of race, allowing local school boards to use their own discretion. These changes were consolidated with the passage of the new state constitution in 1901, which is still in place today. Newman and O’Brien summarize the political economy of this ‘tax bargain’: ‘Motivated partly by fear that black majorities would regain political power, overturn the Republican constitution of 1875, and reinstate high property taxes, urban industrialists and White small landholders from the Black Belt convened a convention to draft a new constitution that would disenfranchise blacks’ (Newman and O’Brien, 2011, p 37). Home rule on tax questions was eliminated in the 1901 constitution. Local governments could increase their taxes only by statewide referendum. The tax structure also preserved high inequality in the state, with one quarter of the state’s residents currently living below the poverty line (Kaiser-S​ chatzlein, 2022). Indeed, according to the historian Wayne Flint, ‘Virtually all Alabama’s twentieth-​century problems were somehow related to the state’s tax structure’ (quoted in Newman and O’Brien, 2011, p 37). Other states followed suit. In 1890 Georgia followed in the footsteps of Alabama, Texas, and Arkansas and adopted a constitutional amendment requiring a super-​majority for any change in tax policy. Thus, the American South anticipated by about 80 years the tax expenditure limitation movements like California’s Proposition 13 and laid the foundation for an enduring fiscal social contract. ‘Between supermajority rules and limits on taxation, the South locked in a low-​property-​tax environment that led eventually to reliance on other revenue devices, principally the sales tax’ (Newman and O’Brien, 2011, p 34). The pattern set in the South at the time states in the region came into being –​a tiny tax base and matching public sector –​proved 5

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extremely resilient. It weathered not only Radical Reconstruction but also the economic shocks of the boll weevil infestations that ravaged cotton crops and drove down land prices (1892–​1921) and the Great Depression. Georgia, like many southern states, rejected aid from the federal government under the New Deal if that aid required the states to contribute any fiscal resources or to expand the public sector through enhanced public services or entitlement programs. This brief discussion serves to highlight one of the central claims of this book: that current tax policies and practices are a reflection of long-​standing, structural inequities left over from the time of state formation. Today’s tax policies are shaped by previous tax policies, by the economic base and economic resources available to the governing jurisdiction, and by politics and political processes. The outcomes of these policies are mediated through political processes and institutions. In 2014 the editor of the Journal of Urban Affairs, Laura Reese, noted that ‘the interconnection between inequality, the appropriate roles of local governments, revenue raising, service provision, and coercion are tight and pervasive and are ripe for more careful analysis’ (Reese, 2014, p 549). Illuminating those connections is the goal of this book.

Continuity in change: the roots and reach of tax bargains To understand the roots and the equity implications of state and local revenue policies like the ones described earlier, this book offers a narrative about the emergence of the American tax state, using a conceptual framework that draws both on social contract theory and neo-​Weberian accounts of early modern state formation in Europe. To do so, we must first develop a common vocabulary. A tax state is a state that has the capacity to design and administer a tax code, to collect revenue from its citizens or subjects, and to punish violations of state tax laws. The survival of the tax state depends on the state’s ability to elicit consent from taxpayers. This consent is gained through a tax bargain, which embodies and reproduces the founding social contract. The term ‘state’ is awkward in the context of American politics. For scholars of comparative politics, a state is a sovereign entity, not a subnational unit of government. A state in that context is a national government. This book applies comparative politics theories of state formation to a different context, US states, which 6

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of course are embedded within the federal context at the level of the national territory. To avoid confusion, when referring to ‘the state’ at subnational level, this book will use the term ‘state government,’ even though ‘government’ and ‘state’ are not synonymous for scholars of comparative politics. The terms ‘social contract’ and ‘tax bargain’ are also tricky because they are used in so many different ways in different scholarly traditions. For neo-​Weberian state formation scholars, as discussed later, the tax bargain is the social contract. That’s because this body of scholarship is rooted in a search for explanations about the origins of authoritative organizations, like states. Who grants states authority? Why? What are its limits? State formation in this literature is often boiled down to the barest reciprocal exchange: revenue in exchange for the protection of the state. That’s the contract that matters, and it is variously referred to as a ‘social contract,’ ‘fiscal contract,’ and ‘tax bargain.’ Scholars of state formation moved on to study the ways in which this exchange led to the transformation of subjects into citizens, broadening into a more expansive social contract that could include individual and group rights, a private sphere free from government interference, and so on. The scope and content of the social contract, in this simple formulation, determined the scale and complexity of the tax bargain. For our purposes, the social contract is about more than just a simple exchange of services for revenue. In political theory, the social contract constitutes a shared understanding of the boundaries of political community (which deserves the protection of the state and pays for that protection), who has rights with respect to the state, and what the state has a right to demand from subjects or citizens in terms of payment and loyalty. But it is still the tax bargain that most starkly reveals the terms of that social contract. The tax bargain embodies the social contract in the material world by imposing costs and allocating benefits in accordance with the bounds of citizenship and political community defined in the process of state-​making. Government at every level is founded on an implicit social contract that bounds the public choice process on the most important decisions of governance. The tax bargain is one of the most important outward manifestations of this social contract. A narrow social contract –​one in which government is meant to benefit the few –​begets a narrow tax bargain, with low taxes and ‘small government.’ In the American system of fiscal federalism, different levels of government have developed distinctive social contracts. The 7

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United States’ subnational state governments were founded at different times, for different reasons, and with different political economies and economic structures. The North, South and West, as regions, have distinctive economic and political histories that shaped the formation of the states within these regions (Newman and O’Brien, 2011). Over time, the relationships between these regions, the states within them, and the federal government has changed, as has the scope and strength of the federal government. Politics, values, and understandings of citizenship and the proper scope of government that have shaped federal tax policy also filter down to the states and shape their tax policies. But states and localities are also shaped by their own distinctive contexts –​historical, social, economic, and political. Federal government, states, and local jurisdictions like cities, towns, and counties each have their own spheres of relative autonomy in which they can set the terms of their tax bargains, within parameters set by the authority of the other levels of government. We have been discussing state formation as a singular point in time, but of course in reality states are constantly being formed and reformed. As a result, the social contract can change. Laws change, rights are extended to new groups of people, ideas of what and who government is for evolve and change. Rights expand and contract over time, driven by the push and pull of competing groups. New rights can be granted or taken away by governments, for example through constitutional reform. The argument made in this book is that these efforts to expand the social contract can and have been constrained by the tax bargain. Although the tax bargain emerges initially as a tool in service of the social contract –​to make the social contract real in practical terms –​the tax policies it creates can in fact constrain change over time. The tax bargain, and the tax policies that support it, become part of an ideological narrative to reclaim a putative ‘original’ social contract. For example, in the US, the passage of the 13th, 14th, and 15th amendments expanded the social contract at the national level. At federal level, the tax bargain also had to change to accommodate this. As those who would benefit from an expanded federal social contract sought to exercise their newly granted legal rights, they were thwarted at state level –​especially but not only in the South –​ by a narrow tax bargain to which actors appealed as the true, legitimate basis of the state. And to combat pressures to expand 8

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the social contract, political actors in southern states used the long-​standing tax bargain at state level, which called for low taxes and limited public services, to build a political coalition to oppose such expansion. The theoretical understanding of the US tax state’s emergence that is offered in this book privileges notions of continuity in change. The point here is not to argue that particular policies have emerged whole cloth as direct legacies of a state’s past. Instead, notions about the proper role of the state, the scope and size of the public sector, and indeed what it means to be a citizen are constrained by that history. For example, tax policy in the South, as elsewhere, encodes deeply rooted notions about public service provision. Although the Civil War ended slavery, White political and economic elites entrenched a social contract in which the state was able formally to limit enjoyment of public services to Whites for nearly one hundred years thereafter. To give just one example, New Deal programs that required states to expand public services or welfare risked legitimizing the notion of a more robust public sector, and southern states sought to limit these and their impact in their states. These initiatives threatened to alter the incentive structure that sustained first the system of sharecropping essential to the cotton economy and later the low-​wage, non-​ unionized labor force (Katznelson, 2005). The social contract established in the antebellum era called for severely limited political rights and constraints on the fiscal (taxing and expenditure) power of the state. Even after passage of civil rights legislation, this model remained in place. Southern states responded to the needs of an already anemic public sector by imposing regressive taxes, constitutionally limiting the power of the legislature to raise taxes, and maintaining a public sector that provides basic public services only with the aid of the federal government. Politicians have retained the constraints on tax increases that have held for more than one hundred years. Thus, contemporary tax policies are not solely linked to new fiscal exigencies or present-​day partisan politics. Rather, they encode and sustain an understanding of the social contract between government and citizens that dates to the time of ‘state formation,’ or the origins of the political unit in question. Ultimately, the tax bargain comes to be understood as embodying the social contract. Taxes operationalize the social contract. Thus, a low-​tax, low-​public-​service tax bargain serves as a guarantor of a narrow social contract. 9

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How taxes reproduce a social contract Tax bargains established in accordance with a social contract during the early stages of the consolidation of a polity have proved remarkably durable. The moment of state formation is the time when the government begins to develop its capacity to exercise authority over revenue extraction with respect to those who live within its domain. As such, it lays down powerful precedents in terms of what citizens expect from government, as well as who is a full person or full citizen. While specific policies change, the principles on which the tax system rests endure, weathering structural economic change, demographic shifts, and changes in the distribution of political power. How does something as amorphous as a social contract continue to shape policies and practices long after the circumstances in which it emerged have changed? Answers to this question must theorize the relationship between actors –​for example, politicians, policy makers, activists, voters –​and institutions, or the ‘humanly devised rules of interaction,’ as Douglass North puts it (North, 1983). One answer puts institutions themselves at the heart of causality. Institutions set out rules and expectations, shaped by actors at a given point in time. The very existence of these institutions then shapes the behavior of actors going forward in ways that reinforce the initial rules, even when the balance of power changes, or when the actors, interests, or the values that produced the initial institution are no longer present. Institutions endure over time because the rules they create reward those who continue to follow them, creating path dependence. In path dependence, initial conditions generate ‘a sequence of self-​reinforcing effects that shape the trajectory of political development’ (Sheingate, 2014, p 466; Pierson, 2000). Consistent patterns of behavior can be sustained over time because they offer positive returns to those who practice them. For example, Dankwart Rustow (1970) makes a similar argument about the establishment of democratic politics –​those actors who invest more fully in learning how to compete under the new rules will perform better, and their advantage will increase over time. Tax policies are sticky precisely because they encode political and economic power, and the social and cultural legitimating narratives of that power, from earlier eras. The concept of a political order deepens a purely institutional perspective by emphasizing the role of ideology in sustaining institutions. For example, Lieberman defines a political order as ‘an 10

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interconnected pattern of institutional and ideological arrangements, one that is internally coherent and mutually reinforcing’ (cited in Sheingate, 2014, p 464). King and Smith build on the notion of political orders, seeing them more as shifting coalitions of actors using institutions and ideology to advance competing worldviews that they seek to enshrine in policy (2005). A political institutional order is comprised of ‘coalitions of state institutions and other political actors and organizations that seek to secure and exercise governing power in demographically, economically, and ideologically streamlined contexts that define the range of opportunities open to political actors’ (King and Smith, 2005, p 75). In racial institutional orders, actors have adopted or developed concepts, commitments, and goals around race that give cohesion to their coalition and to help structure institutions in ways that serve their interests. This definition encompasses ideas, institutions, actors, and structure. They deploy it to powerful effect to assess the meaning and impact of race in American politics, arguing that ideas and interests around race are enshrined within institutional orders of their own. Racial change, then, is conceived as ‘the product of the interaction of opposing racial orders, as well as other political orders, all of which include some state institutions and some non-​state political actors and organizations’ (King and Smith, 2005, p 76). At America’s founding, King and Smith argue, ‘a political coalition of Americans’ created a set of governing institutions, as well as social, educational, economic, and legal institutions. These arrangements and institutions ‘established a hierarchical order of white supremacy, though never without variations, inconsistencies, and resistance’ (King and Smith, 2005, p 77). Resistance, they argue, has come in the form of an opposing racial order, which they label ‘transformative egalitarianism’ (King and Smith, 2005, p 77). This formulation highlights the interdependence of actors, institutions, and ideology –​but there is also an element of contingency. While actors may support or participate in a given political (or racial) institutional order, they do so for a host of different reasons. In the coalitions that underlie King and Smith’s racial orders, actors ‘craft –​out of intertwined medleys of older political conceptions –​ reformulations of policy content and purposes that resonate with ingrained senses of identities and interests, while indicating how these can best be furthered by pursuing new policy directions’ (King and Smith, 2014, p 960). The conceptual frame of political institutional 11

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orders, and in particular King and Smith’s racial institutional order, suggests a way to visualize how something as abstract as a social contract can become enshrined in institutions and politics and endure over time.

Plan of the book The book’s opening claim is that a social contract formed at a state’s founding casts its shadow far into the future, shaping both tax policies and, through them, the quality of democratic citizenship. Chapter 2 examines the processes and mechanisms that produce these outcomes. It begins with a discussion of social contract theory, comparative state formation literature, and the place of taxes within the development of states. In these literatures, the concept of reciprocal exchange between rulers and ruled to support a tax bargain, and to define a social contract, is well developed. Here we repurpose that perspective to explain how these early tax bargains put shared understandings about the relationship between states and citizens into practice, with material consequences. The social contract spells out the reciprocal obligations of a state and its taxpayers. In addition to denoting obligations, it creates expectations, which over time come to be imbued with intrinsic value. The social contract is embodied in a tax bargain, which governs specific tax policies. Based on the social contract, taxpayers expect, and deserve, goods and services from the state in exchange for taxes. The set of goods and services that are included under this initial tax bargain come to be regarded as what it is right and proper for the state to provide in exchange for taxes paid. In turn, that tax bargain works to limit future changes to the social contract. When governments seek to expand the social contract, the tax bargain is used by those who oppose such an expansion to resist. This is one of the dynamic processes this book seeks to illuminate. Chapters 3, 4 and 5 trace, in chronological order, the key developments in the emergence of the American tax state. Chapter 3 shows how in the US, as citizenship was extended through constitutional and legal means to people who were not citizens at the time of state formation and the forging of its associated tax bargain, resistance to the inclusion of new groups in the body politic took the form of resistance to changes in the tax bargain. Expanding –​ in law and in practice –​the public sphere by including groups of people who were formerly excluded amounts to an expanded social 12

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contract. Resistance to the expansion of that social contract has taken the form of resistance to expanding the financial and administrative powers of the state. Today’s tax policies in much of the American South are informed by the process of nation-​state consolidation that followed the Civil War (1860–​6 5). Ideas about the state, citizenship, and intergovernmental relations that grew out of the antebellum, Civil War, and Reconstruction periods in the South have been carried forward to the present day. These ideas have proved resilient in the face of initiatives –​the New Deal, the War on Poverty –​that held a more expansive (or intrusive) view of the role of government, as well as a more robust social contract. Tax policy has been an important instrument for reproducing this limited social contract. From post-​Civil War Reconstruction through the conservative tax revolt that followed landmark civil rights legislation of the 1960s, state and local governments in much of the US South have framed political resistance in terms of a cherished and long-​held tradition of ‘small government.’ A limited role for the state in the provision of public goods, it is argued, harks back to a limited tax bargain. Changing the terms of that bargain, in this view, would imperil the very legitimacy of the state. A failure to revisit the tax bargain, however, would severely limit the ability of state and local governments to provide public goods at the level at which they had previously been provided to a more limited population. Essential to this narrative was the false suggestion that this newly included public did not pay taxes and therefore were in some sense free riding on the original tax bargain. Thus, maintaining the original tax bargain required either a reduction in service provision by the state or the development of new revenue streams. State and local governments in the South, especially, systematically reduced and resisted public goods provision, from public education to recreation facilities (Kruse, 2005; McGhee, 2021). When that strategy reached its limits, and as minorities began to gain more effective political power and representation in state and local politics, legislatures began to create fiscal scarcity through the imposition of tax and expenditure limiting laws and constitutional provisions. These would preserve the original tax bargain –​and its associated limited social contract –​even in the face of expanded political representation. This politically created fiscal scarcity in turn led state and local governments to seek increased sources of non-​tax revenues. Some of these strategies, notably the practice of 13

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revenue-​driven policing, have done serious damage to the legitimacy of government. They have also functioned to preserve the marginalization of communities that were excluded from the original tax bargain. Chapters 4 and 5 trace the connection between tax and expenditure limitation initiatives at state and local level, as embraced over the last 50 years, and policies that limit fiscal accountability of state to citizen and undermine equity, fairness, and equality among citizens. The conservative tax revolts of the 1970s led to legal limits on tax and expenditure powers of state and local governments. These modern tax and expenditure limitations, like their 19th-​century predecessors, have sought to limit the responsibilities of state governments in public goods provision. They create fiscal scarcity, and they have fueled the increasing use of new methods of revenue generation that weaken transparency and fiscal accountability, in turn undermining equity. These limits include constitutional and statutory limits on new taxes or on rate increases at state and local levels. They may also include the use of state powers of preemption to prevent local jurisdictions from increasing revenues using traditional taxes. For local governments in some states, this has led to a reliance on fines and fees to fund even the most essential public services. As discussed in Chapters 4 and 5, some local governments began to rely on municipal court fines and fees to supplement or even replace local taxes, transferring the burden of taxation to those found to have violated traffic laws and local ordinances. In some cities, the practice of ‘taxation by citation’ has been embraced as a politically acceptable substitute for raising taxes. This makes police officers and municipal courts into tax collectors and has pernicious consequences for democratic transparency and accountability. The move away from property tax, income tax, and sales taxes as the core or sole source of income gives local governments the power to selectively tax particular constituencies. Of course, competition between different societal interests for lower tax rates is nothing new –​it is at the heart of politics. But in new revenue models, the tax burden may fall disproportionately on particular groups of citizens, usually those least able to pay. For instance, numerous studies have found that fines are used more often as a revenue in communities with a higher share of Black residents. Sances and You (2009) find, for example, that ‘the use of fines as revenue is both commonplace and robustly connected to the proportion of residents who are black’ (p 1090). Moreover, the implications of this shift in revenue sources 14

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are not immediately obvious, and such decisions rarely happen in the context of a public, deliberative process that might illuminate them. The entangling of public safety provision and revenue collection provides a compelling example of the links –​sometimes unintended –​ between the decisions we make about how to tax ourselves and the outcomes for democratic governance and citizenship. Greater reliance on these less transparent ‘taxes’ undermines fiscal accountability, places unfair burdens on certain groups of citizens, and weakens transparency and accountability of government with respect to citizens. Chapter 6 pulls together the threads of the argument developed over the course of the first five chapters. Contemporary policies are not linked solely to new fiscal exigencies or present-​day partisan politics. Rather, they reflect the broad outlines of a social contract whose basic parameters have endured since the time of state formation. And these parameters endure because tax policy embeds and carries forward notions about who is a citizen, what citizens owe and can expect from the state, and what states can properly demand of citizens.

15

2

States, Taxes, and the Polities They Create Introduction This chapter examines the concepts of ‘social contract’ and ‘tax bargain’ as they have been used to explain state formation and the development of lasting patterns of political and economic development. It sets out the processes and mechanisms through which a historical social contract can be reproduced and carried forward over time. It draws on theories and concepts from public economics, comparative politics, political theory, and fiscal sociology to show a surprisingly broad shared understanding in these different scholarly traditions about how taxation is tied to state formation and governance across regime types and throughout history. Moreover, there is substantial support across disciplinary boundaries –​ especially history, sociology, and political science –​for the idea that tax policy reflects relationships of political, social, and economic power at the time of the consolidation of states’ authority over their territory and those that live there. Political scientists, historians, and sociologists have shown how the design of political institutions can perpetuate inequities (intentionally or not) by generating positive returns to political strategies that maintain existing power structures long after the original conditions that produced them have disappeared. The same is true of tax bargains, and tax bargains and the policies they engender have much to do with persistent disparities in wealth along racial lines. Tax bargains set during a time when full political and economic rights were denied to Black Americans have much to do with these gaps (Moran and Whitford, 2009; Strand and Mirkay, 2019; Hannah-​ Jones, 2020; McGhee, 2021; Brown, 2021). The tax bargains forged 16

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when the federal government and state governments were consolidated predated full democracy in America and were designed to serve the interests of a much more narrowly defined political community than the one it must serve today. The social contract can be, and has been, expanded through a combination of political mobilization, social action, and electoral politics. Chapter 3 discusses these ‘critical junctures,’1 when the social contract expands but then is straitjacketed by the existing tax bargain that is too restrictive to fund it. The tax bargain is then used by political actors to construct a legitimizing narrative in which it is held up as embodying the ‘true’ values of the polity. The connection between how we currently view the state and its role at various levels of government, and the tax bargain that was necessary to consolidate government at that level, can be hard to see. Most Americans are unaware of the extent of the yawning racial wealth gap, as well as the extent to which government policies have facilitated that gap. Instead, economic outcomes that vary by race are frequently understood as explained by individual attributes or other idiosyncratic differences that are not systematically related to race. Study after study shows, for example, that White Americans believe overwhelmingly that economic opportunities are broadly equal and that government treats its citizens equally, regardless of race. A Pew survey found that a majority of White Americans estimated that Black families on average held 90 per cent of the wealth that the average White family had, though the actual figure is 10 per cent, according to a Yale study conducted in 2019 (cited in Hannah-​Jones, 2020, p 51). These attitudes are not simply the result of a poor knowledge of American history. Rather, they are shaped by a political narrative from both major political parties that legitimizes the tax bargain that was locked in at the time of state formation to fund a racially restrictive social contract, or what Charles W. Mills calls the racial contract (Mills, 1997). The concepts of tax bargain and social contract are used implicitly or explicitly across a very wide range of scholarship on governance and politics. Each of these existing perspectives provides an important piece of the story. But they are rarely considered together with the aim of understanding the social contract and the tax bargain not only as part of state formation, but as a foundation of politics and policy that reaches far into the future. The first part of this chapter explores the different conceptual definitions and theoretical uses that have been 17

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applied to these terms. The goal is to situate these concepts in a broader scholarly context, and to explain how they will be used in this book to trace the development of the American tax state and how taxes help to reproduce long-​standing social contracts. The second section of the chapter then lays out in greater detail the theoretical argument to be supported in the remaining chapters with empirical evidence.

State and social contract We begin with an exploration of social contract theory as the basis of state formation. In a sense, social contract theories are the foundation of later, Weberian or neo-​Weberian theories of state formation. For both, the individual is the unit of analysis, the bearer of analytical value. And the question is why individuals would come together when that means they’ll have to compromise, to give up some of the freedom which is their natural right. What do they demand in exchange? In social contract theory, individuals who are naturally free agree to common constraints in order to pursue their individual interests more effectively. In Thomas Hobbes’ formulation, the state exists to avoid a ‘war of each against all.’ Conventional, liberal social contract theory contends that all members of this ‘civil society’ formed when individuals leave a hypothetical ‘state of nature’ where life is ‘nasty, brutish, and short,’ are equal. The state’s (or the sovereign’s) powers are limited to keeping the peace –​essentially to keeping people in civil society safe from one another by enforcing the rules, using violence if necessary. Thus, people voluntarily give up a share of their naturally occurring freedom, but only to allow them to pursue that freedom more effectively. As Charles W. Mills puts it, for Hobbes, ‘morality is just a set of rules for expediting the rational pursuit and coordination of our own interest without conflict with those other people who are doing the same thing.’ The social contract, in this sense, ‘creates morality as a conventionalist set of rules’ (Mills, 1997, p 14). Later iterations of social contract theory, such as John Locke’s, for example, also privilege the preservation of private property alongside law and order as priorities for the sovereign, later the state. The social contract is of course a heuristic device, not a historical fact. These theories seek to explain why, hypothetically, otherwise free individuals would agree to constraints on their behavior. These theories were meant to support the claim, counter to prevailing practice at the time, that authority is created by, and therefore subject 18

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to change by, people as opposed to by divine right. In liberal social contract theory, the social contract sets the rules of behavior for sovereigns and their subjects. It defines the political community –​those who live under the authority of a sovereign and are subject to their protection –​as well as what is owed to the sovereign in exchange. And it offers a rationale for why these subjects should choose to put in place an overarching authority that governs their own behavior as well as that of others. The social contract that underlies the relationship between a state and society is thus a matter of convention. It captures the norms and values that its ‘signatories’ hold, and it reflects the reasons for which they would agree to give up some of their freedom to an overarching authority. This concept of the social contract is an enduring one, and it has been reimagined and repurposed numerous times since the heyday of liberal contract theory in the 17th and 18th centuries. In the late 20th century, the political and ethical philosopher John Rawls revived interest in contractarianism and its utility as a conceptual frame with his book, A Theory of Justice (Rawls, 1971). More recently, political philosophers have employed contract theory to highlight the enduring, structural nature of social and racial inequality. Carole Pateman (1988) coined the term ‘sexual contract’ to argue that any social contract that might underpin Western society would be one based not on individual equality and freedom, but on domination and exclusion on the basis of gender. A decade later, Charles W. Mills (1997) highlighted the ‘racial contract,’ which enshrines White supremacy, not human freedom. This racial contract, says Mills, is our American social contract, and it both describes reality and prescribes the rules that ought to govern society. At the founding of the United States, the social contract sought to preserve and advance White supremacy. Mills cites US Supreme Court Chief Justice Roger Taney’s opinion in Dred Scott v. Sanford (1857), which justified the return of escaped enslaved people by stating that Black people had for more than a century before been regarded as beings of an inferior order, and altogether unfit to associate with the white race, either in social or political relations, and so inferior, that they had no rights which the white man was bound to respect, and that the negro might justly and lawfully be reduced to slavery for his benefit. … This opinion was regarded as an axiom in 19

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morals as well as in politics, which no one thought of disputing or supposed to be open to dispute. (Dred Scott v. Sanford, cited in Mills, 1997, p 25) The social contract that underpinned American society in 1857 incorporated this norm. For Mills, in contrast to liberal contract theorists, a social contract is not morally neutral. It is based on, and helps to perpetuate, prejudices and power differentials between categories of individuals, whether defined by race, gender, or ethnicity. A racial contract, he argues, should be seen as ‘not merely creating racial exploitation but race itself as a group identity’ (Mills, 1997, p 63, emphasis in original). While the forms that racial exploitation and White supremacy might take can change over time, the underlying core of the social contract, Mills argues, remains racial exclusion. Thus slavery, Jim Crow policies, and the modern carceral state all fit within and are consistent with the racial social contract. The forms change, but the underlying social contract endures.

State formation as a tax contract There is another school of thought on state formation that is easily conflated with social contract theory, but that needs to be understood separately. The contractarian theories we have been discussing are driven by the logic of individuals, who want a state because it will provide physical security and, in later iterations, legal and physical infrastructure and other collective goods. According to neo-​Weberian theorists of state formation, like Margaret Levi, Charles Tilly, and Michael Mann, among others, rulers are the driving force, and domination the goal. Those with the power to enforce their will over others do so in order to realize their own ends. Might makes right, and rulers limit their power only to protect themselves from other rulers or to prevail in competition with other rulers. Modern states emerge from a search by rulers to secure sources of revenue necessary to continue to rule (Levi, 1988; Tilly, 1992). The transition from absolutist rule, characterized by a ruler and his or her subjects, to a modern state relies on the establishment of a system of taxation. In this perspective, it is not ordinary people who are in a war of each against all, but rulers who live in an autarkic system and seek to prevail over their rivals. To do so, they need a steady resource 20

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stream, which they extract from the people under their power in the form of tribute and, later, taxes. The reciprocal obligations between ruler and ruled, between the government and those who pay taxes, is the tax bargain, which is also often termed the social contract to mean essentially the same thing. In a variation on this theme, Mancur Olson offers the story of the rational, predatory roving bandit who discovers that he can extract resources more efficiently by offering security in exchange for resources instead of preying on communities, exhausting their resources, and moving on in an endless cycle. Roving, predatory bandits become stationary bandits when they reach a tax bargain with their subjects (Olson, 1993). Indeed, as Margaret Levi notes, ‘The history of state revenue production is the history of the evolution of the state’ (Levi, 1988, p 1). External military threats induced absolutist rulers to seek stable revenue streams from the populations and territory under their control. Subjects in a position to provide these resources eventually came to demand benefits in return –​security, access to means of gaining material benefits, and ultimately political rights. Finally, in this telling, taxes create citizens, because it is through this reciprocal relationship that individuals go from being the objects of the ruler’s action to being actors capable of agency, negotiating for something rulers want. The creation of a ‘tax state’ required the development of coercive and administrative capacity, some degree of autonomy (or at least the avoidance of total capture of the state) by strong societal groups, and a process for eliciting and maintaining consent or willing compliance with state authority, especially in the matter of taxes. These three elements –​capacity, autonomy, and consent –​were not achieved simultaneously or easily. Although the language of a tax ‘bargain’ connotes a settled arrangement freely negotiated by roughly equal parties, in fact the reciprocal rights of rulers and subjects, and later states and citizens, were forged over centuries and involved considerable coercion and violence. Indeed, as Charles Tilly reminds us, Over the long run [taxation] constitutes the largest intervention of governments in their subjects’ private life, so much so that the history of state expansion becomes a history of violent struggles over taxes, and the history of state consolidation becomes a 21

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history of tax evasion by those who have the guile and power to frustrate the fisc. (Tilly, 2009, p xiii) State formation involved force and violence. In the comparative politics literature on states, scholars from a variety of perspectives agree on this point. Tilly, for example, is unsparing in his description of the upheaval caused by state formation. He notes that ‘what we in blithe retrospect call “state formation” included the setting of ruthless tax farmers against poor peasants and artisans, the forced sale for taxes of animals that would have paid for dowries, the imprisoning of local leaders as hostages to the local community’s payment of overdue taxes,’ and so on, going on to include a list of additional horrors (Tilly, 1992, p 99). Over time, in Tilly’s account, states shifted from systems of indirect rule, in which they ruled through pre-​existing sources of social authority, to systems of direct rule. States reinforced their authority by imposing common languages, currencies, weights and measures, and religions, as well as by providing economic infrastructure. As part of this process, the practices and identities of ‘subordinate populations’ were threatened. Their resistance was met with a mix of coercion, co-​optation, and processes designed to elicit the consent of citizens and gain legitimacy for the state. Although there are many variations of social contract theory, their common underpinning lies in the notion that states govern with the consent of their citizens. Consent is made manifest in the payment of taxes, the transfer of wealth from citizens to the state. The tax bargain puts the social contract into action. This transfer is the result of a bargaining process in which both citizens and state have some leverage. Levi notes that ‘rulers maximize revenue to the state, but not as they please. They maximize subject to the constraints of their relative bargaining power vis-​à-​vis agents and constituents, their transaction costs, and their discount rates. These constraints determine the choice of revenue system’ (Levi, 1988, p 10). Levi further notes that ‘policies are the outcome of an exchange between the ruler and the various groups who compose the polity,’ with each group seeking to attain the best possible deal. She reminds us that different groups benefit to different degrees from the existence of a state. And she notes that, due to the uneven distribution of resources (and therefore of bargaining power) within society, rulers do not form a single contract, but many, as they negotiate with each relevant group. ‘To achieve their ends, they [rulers] must coerce and bargain, develop their resources, and, 22

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often, alter their constraints’ (Levi, 1988, p 11). In other words, states end up creating citizens in order to get reliable taxpayers. These ideas are critical to the argument this book seeks to make. Government is a negotiated relationship between state and citizens. The relative bargaining power of citizens determines the price they must pay for their rights. Resources bring bargaining power, and well-​resourced citizens will seek to maximize their own benefits from government while minimizing the price they themselves must pay. As part of this process, political institutions emerge to allow states and citizens to monitor one another’s compliance and maintain mutual trust. Again, in the literature on European state formation, representative political institutions emerge in order to reduce monitoring costs for both sides and create mechanisms to establish agreement about the penalties for non-​compliance. These institutions help form a basis for the ‘quasi-​voluntary compliance’ necessary to sustain the tax state, both by forging collective agreement among the powerful and by legitimating those agreements with ideology. Examining the rise of public finance systems in Europe from 1650 to 1913, Dincecco (2011) finds that accountability –​in the form of institutionalized constraints on central government power –​was essential to the development of modern public finance. Public finance systems demanded both more centralized fiscal administration and political restraint of the executive. Early modern European state-​ making processes were marked by the weakening of older, more local forms of social control and economic production in favor of administrative and fiscal centralization. These strong local power structures tended to ‘oppose fiscal control by national governments, leading weak states to underinvest in public services that increase productivity’ (Dincecco, 2011, p 2). Fiscal centralization was necessary for the design and functioning of workable and efficient tax systems. Ultimately, Dincecco argues, states achieve ‘fiscal strength’ only by undergoing ‘a deep process of political transformation’ that included eliciting consent from private economic agents, the suppliers of state revenue. The end result was ‘a set of political institutions that link powerful centralized tax structures with parliaments that limit executive control over public finances. They are thus able to gather large tax revenues and can channel funds toward public services with positive economic benefits’ (Dincecco, 2011, p 3). 23

Taxing Democracy

Thus, the creation of tax states –​states that could systematically extract revenue from subjects or citizens –​depended both on the construction of administrative capacity and the ability to elicit consent. The need for revenue forced states to develop into the form in which we recognize them today. Consent, in turn, required the creation of credible commitments that rulers would use tax revenues for public purposes. Europe’s strong tax states thus emerged out of long processes of political reform and reciprocal economic gains, as states lent their military strength to protect expanded trade routes, shield merchants from foreign competition, and create the stability necessary for economic prosperity. Over time, the story goes, private economic actors and rulers carved out mutually beneficial arrangements that detailed their reciprocal rights and obligations. These arrangements were eventually enshrined in representative political institutions that were key to the construction of fiscal states. As states acquired obligations to their subjects in exchange for revenue, absolutist rule was gradually transformed into constitutional monarchy. The state –​its institutions, its powers, its citizens –​emerged from a process of bargaining with different groups of powerholders –​ guilds, religious authorities, capitalists, landholders, and, eventually, wage earners. As Tilly reminds us, ‘the core of what we now call “citizenship”, indeed, consists of multiple bargains hammered out by rulers and ruled in the course of their struggles over the means of state action, especially the making of war’ (Tilly, 1992, p 102). Scholars of state formation in contemporary emerging economies see a similar process. For example, discussing developing countries in Africa and elsewhere, Mick Moore (2004) finds that state–​society exchanges, including those in the fiscal realm, have shaped effective state creation in newly independent states after decolonization in the mid-​20th century. In the modern era, the mechanisms through which society holds states accountable (restraining the power of states in exchange for resources and compliance) have changed. Electoral democracy and international capital mobility have been thoroughly explored in the state formation literature of comparative politics. But as Moore points out, taxpayers and their relationship with the state are largely ignored in that literature. Advocating for the importance of a ‘fiscal (social) contract,’ he argues that further attention is due to taxpayers as political actors and to ‘the taxpaying relationship … as a potential constraint on state power or [as] the focus of state–​society exchange’ (Moore, 2004, p 313). 24

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States need taxpayers, and this gives taxpayers power. But to exercise that power, they need institutional mechanisms with which to achieve fiscal accountability. For starters, that requires some degree of transparency on the part of the state. In her study of the imposition of the income tax in 18th-​century Britain, Margaret Levi highlights the importance of transparency, information, and fulfillment of taxpayer expectations in generating compliance with the new tax. Britain’s advanced commercialized economy and fiscal bureaucracy set the stage for the income tax. But to generate the necessary ‘quasi-​voluntary compliance’ from taxpayers, the rise of parliamentary institutions allowing public debate and means of restraining the ruler (in this case the prime minister) were necessary. She notes that ‘the evolution of representative institutions was essential to the passage of the income tax’ (Levi, 1988, p 144). Levi thus shows how the fiscal needs of the state ultimately led to the transfer of a measure of power to those with the economic power to fill state coffers. Britain’s income tax spread the burden of taxpaying to ordinary people, but not without also expanding political accountability to taxpayers. Thus, being a taxpayer gives a citizen power, the power to rein in the state.

Expanding the contract: taxation and accountability In scholarship on the political economy of democracy, the importance of taxation to the emergence of mechanisms to hold the state accountable is a common theme. Rentier state theory, developed to explain the weaknesses of resource-​r ich states in emerging economies, also highlights the importance of taxation for generating the sort of reciprocal relationships needed to constrain state power. According to the theory, when less developed states benefit from revenue windfalls from extractive resources like oil or diamonds, they do not need to tax their citizens in order to fund the state. Because there is no need to develop a reciprocal exchange agreement, such states lack incentives to be accountable to their citizens and are less likely to develop durable political institutions, which might in turn lead to effective demands for economic development or a more equitable distribution of wealth (Dunning, 2009). Similarly, Mick Moore (2004) describes ‘a democracy-​accountability-​ state effectiveness dividend’ that arises when states in less developed countries must depend on tax revenues rather than aid, windfalls, or ‘rents.’ Only states that need citizens –​for taxes or for votes –​are 25

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expected to be accountable. Carlos Gervasoni (2010) extends rentier state theory to subnational states in federalist systems like Argentina’s, arguing that states that are more dependent on central government transfers are likely to be less democratic. The more mutually dependent are state and citizen, the stronger the bonds of mutual accountability, and the more durable the foundation for democratic governance. Taxing for service provision builds reciprocal relationships and shared understandings about these between citizens and the state. The more mutually accountable are state and citizen, the stronger the bonds of mutual accountability and the more durable the foundation for democratic governance. What happens to the social contract when municipalities begin to rely heavily on non-​tax revenue that targets and differentiates ‘users’ of services –​even essential ones –​ or ‘lawbreakers’ –​even those whose violation is over a municipal ordinance about the length of the grass in one’s front lawn? These kinds of revenue measures break down the connection between taxes and accountability, between taxes and citizens. If the relationship between states and citizens depends on the degree to which states must rely on their citizens for revenue (since rulers accept constraints on their power over citizens or subjects in exchange for revenue), then it follows that states will be most attentive to the interests of those citizens who are most important for revenue generation and who can easily discern this, and who have the capacity to act collectively to advance their interests. Nevertheless, this economistic social contract creates the idea of obligations of states toward those they rule, and this provides a toehold, however tenuous, for the expansion of rights-​based claims by a broader segment of the population. Guarantees of rights for the few often lead to movements to extend those rights to the many. Democracy creates formal channels to facilitate the advancement of such demands, and a state’s refusal to entertain these demands creates contradictions for states whose legitimacy is based on claims of universal citizenship and certain ‘inalienable rights.’ To avoid resistance from powerful economic actors, politicians in democracies can segment populations and distribute the tax burden according to political, rather than economic, logic. As we shall see in Chapter 3, in the South, large landowners captured the state and used it to impose a social contract in which the state provided little and shifted the tax burden away from them, first to other economic producers and then to consumers. 26

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At first glance, this is a starkly different take on taxes than the one found in most public economics textbooks. Economists concern themselves primarily with the economic efficiency and effectiveness of taxes –​do they generate sufficient revenue? Does the revenue generated justify the costs of administration and compliance? To what extent do they distort market forces or affect the behavior of economic actors? On closer examination, economists’ concerns are also relevant for fiscal accountability. Economists like taxes whose effects are transparent and predictable. They argue that the burden of taxes should be borne primarily by those who benefit from the services provided. Economists also concern themselves with fairness or ‘vertical equity’ (those who are similarly situated in economic terms should bear a similar share of the tax burden). These principles also facilitate accountability. When it is easy to see how the tax burden is distributed and when this distribution is guided by a clear rationale, voters can assess tax policies in terms of the social contract. Some taxes are both more equitable and more transparent to taxpayers than others. For example, the property tax is a transparent tax, which is probably why it is also very unpopular. On the other hand, when municipalities use fees generated by municipal courts as part of the revenue basket, citizens are paying what is in effect a tax, but one that is obscured. State and local tax policy can make certain categories of citizens more likely to feel the burden of the state as opposed to its benefits. As noted earlier, this can be seen most clearly in the increasing use of municipal courts to raise municipal revenues. Using municipal courts as profit centers is essentially taxing illegal activity. It incentivizes cities to raise arrest rates for traffic and other minor offenses. It increases tensions between citizens and police, particularly when certain groups feel they are unfairly targeted by the police (racial profiling in the US for minor traffic offenses, for example). This in turn creates a downward spiral that undermines the legitimacy of the state in the eyes of those citizens who are disproportionately affected –​those who cannot pay are often detained or placed on probation until they can pay, and fines multiply over time. Substituting municipal court fees for tax revenue is an extreme example of shifting the tax burden to targeted sub-​g roups within a community. But there are many ways that tax burdens can affect equity and citizenship rights. Choices between sales taxes, which are often regressive, and income or property taxes –​which can be progressive but 27

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are not always –​are also choices about how to distribute the burden of paying for public services. These choices also affect the transparency of the tax burden and how easy it is for taxpayers to hold the government accountable in how it raises revenue. And these choices have long historical roots as well as important and durable implications. Here it is worth noting that in the scholarship on early modern state formation, it is the ability to pay taxes that unlocks rights of citizenship. Citizenship is not in the gift of the ruler. It comes from having something to offer. Among the early rights rulers granted to the first taxpayers in early modern Europe were the rights to pursue economic interests in domains that previously were controlled by the ruler. Alternatively, rulers expanded the economic sphere of their taxpaying citizens by using the power of the state to open up trade routes and protect economic activity. Ultimately, states come to be seen as essential for the development of early capitalism. Through mercantilist trade policies, and eventually through the provision of physical and legal infrastructure, states help to forge and protect the markets that generate private wealth, which in turn feeds the state. It creates order and rules that make private property possible, and it protects private property by limiting the possibilities for redistribution of resources, whether by force, by law, or by reducing inequality to discourage demands for radical change in the distribution of wealth. The 18th-​century economist and philosopher Adam Smith, usually cited as a champion of the free market above all, saw this clearly. As Moran puts it, ‘According to Smith, government protects rich people’s wealth in a variety of ways including by creating social welfare programs so that the poor do not turn against the rich’ (Moran, 2009, p 205). It is interesting to note that for Smith the role of government includes provision of a minimum standard of living for the poor to avoid redistributive pressures. The discussion thus far has suggested a game with only one currency –​economic power. In this game, taxpayers are empowered to negotiate with the ruler by virtue of their possession of resources the state requires. In exchange, the state protects the interests of these taxpayers. But democracy creates the option for citizens –​even those without financial means –​to achieve political influence, thus setting the stage for class conflict and redistributive demands. Carles Boix captures this idea with a formal model. In his book, Democracy and Redistribution (2003), Boix sets out to explain the circumstances under which democratic regimes are possible. They 28

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include, most importantly, not allowing the extension of democratic rights of the many to interfere with the enjoyment of economic privilege by elites. Whether or not a country becomes, or sustains, democratic rule depends on the ability of the state to protect the ‘haves’ from the ‘have-​nots.’ Boix argues that ‘democracy prevails when either economic equality or capital mobility are high in a given country’ (Boix, 2003, p 3). In his model, democracy –​rule by the masses –​is always accompanied by the threat of economic redistribution by the poor, who could gain the power to redistribute wealth from the rich to the poor through the ballot box. For this reason, politically powerful holders of capital will resist democratic rule if they can. In political contexts where the have-​nots have high mobilizational capacity, Boix argues, capital holders must calculate the relative cost of tolerating civil and political rights (democracy) vs. repression (autocracy). ‘Unable to shift assets abroad to escape the threat of high taxes, capital owners grow more resolute in their efforts to block democracy’ (Boix, 2003, p 3). In this view, authoritarian governments are the protectors of wealth. Democratic regimes threaten wealth. As capital becomes more mobile, the costs of tolerating democratic rule decline. Capital holders have an escape route, and would-​be democrats, even in a context of high political mobilization, will likely curb their redistributive impulses to prevent capital flight and the economic destruction it would bring. Democracy, then, does not only create the ability for those citizens who are party to a given tax bargain to hold the state accountable for the services promised in exchange for taxes –​as foreseen by comparative scholars of state formation. Democratic rights may also generate demands by voters for equity and a different distribution of wealth –​for a different tax bargain altogether, just as Adam Smith had suspected. Boix raises an intriguing point. Democratic elections offer a mechanism to hold governments accountable that falls outside of the exchange of taxes for protection, outside the narrow social contract struck by absolutist rulers and their subjects. Theorists of state formation also foresaw this, of course –​but from their perspective, democratic accountability mechanisms come about as a result of economic power, not as something separate from it. Just as the right to vote in most democracies was extended first to wealthy men, then to men with the requisite amount of property, and only after centuries was extended to anyone else, so economic power has long been a prerequisite to full political rights. 29

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Political means of accountability, like the right to vote, are not the only mechanisms for influencing government behavior. The economist Charles Tiebout argued in his ‘Pure theory of local expenditures’ (1956) that under certain conditions the self-​regulating market could produce optimal outcomes for citizens. At the level of local government, individual citizens’ self-​interested choices would hold governments accountable. Tiebout argued that, in a world where households and individuals were perfectly mobile, people would choose to live in local jurisdictions that offered their preferred mix of public goods and services. Local tax levels, then, would be a function of economic actors’ revealed preferences. In this perspective, capital mobility creates competition between local jurisdictions to keep taxes and services low. For Boix, capital mobility expands opportunities for democratic politics and its potential for the redistribution of resources from rich to poor. Tiebout posits local competition between already democratic jurisdictions, arguing that these jurisdictions tend not toward greater use of government funds to reduce inequality and provide more collective goods, but the opposite. Capital mobility for Tiebout creates a race to the bottom. The opportunity for local governments to set the mix of service provision –​through a political process that Tiebout glosses over, but that is picked up by Wallace Oates and others –​actually leads to convergence among jurisdictions on a low-​tax, low-​expenditure model. ‘Tiebout sorting’ uses the logic of the competitive marketplace to achieve efficient outcomes. But it potentially beggars us all. Oates’ Decentralization Theorem posits that competition between local jurisdictions need not be a race to a low-​tax, low-​expenditure equilibrium. Instead of moving and voting with their feet, residents and economic actors in local jurisdictions can influence local government policies through participatory political processes –​like voting in elections. Even here, however, the assumption is that governments respond readily to the preferences of majorities, without accounting for the many ways in which economic and social inequalities bleed into politics and make such outcomes unlikely (Oates, 2006). Outside the world of formal models, things are rarely so straightforward. In Boix’s and Tiebout’s models, outcomes shift smoothly and quickly in response to changes in the preferences and resources of the different actors in the model. In the real world, policy decisions have lasting and often unanticipated consequences. Tax rates, revenue models, and menus of local government service 30

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provision do not adjust instantly in responses to consumers’ revealed preferences. Democracy has broadened and deepened in the US; as capital mobility has increased, asset specificity has declined, and the mobilizing power of the poor has increased. This discussion has shown that taxes can impose fiscal accountability on governments, as described by Boix, Tiebout, and Oates. And taxes have built representative institutions and other mechanisms of political accountability, as Tilly and Levi remind us. However, the mechanisms of political and fiscal accountability in a tax state are not uniform for all citizens. For example, not all citizens are able to impose fiscal accountability by voting with their feet. Although Tiebout’s argument is a thought experiment rather than a proposal for concrete action, the accountability mechanism it proposes can only be exercised by citizens with the resources to relocate. Moreover, as Jimenez (2014) notes, not all citizens’ voices carry equal weight, leading to sub-​optimal public service provision in poorer jurisdictions compared to wealthier ones. What happens when taxes are no longer the tie that binds citizen to state and state to citizen? Tillotson writes about how the income tax shaped national identity in Canada (Tillotson, 2017). Yearley’s history of taxation in the US documents the enduring popular strength of the idea that taxpayers as such had earned the right to a say in governance, and that universal suffrage rights notwithstanding, taxpayers should have a greater say than those who pay less (Yearley, 1970) Yet other scholarly accounts of efforts to increase tax revenues to fund an expanded social contract –​as in the era of Reconstruction after the Civil War, during the New Deal, and during World War II with the expansion of the income tax –​find that taxes have sometimes been cast not as a demand by the state from all citizens as citizens, not as a badge of full citizenship, but rather as a morally bankrupt claim by some group for benefits without payment. Where taxation is less clearly visible, as when citations and fines are substituted for more traditional means of taxation, accountability suffers because transparency is reduced. A tax revolt requires a clear tax policy to rail against. ‘Taxation by citation’ does not look like taxation. Furthermore, tax incidence tends to fall on already marginalized populations who are purported to be breaking the law to boot. The fact that many of the laws supposedly broken have in fact been invented to generate revenue is often overlooked. The explicit design of tax policies so that they burdened one racial group more 31

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than others would be rightly dismissed as morally reprehensible and politically intolerable. Yet the imposition of tax limiting measures, and the resulting shift to the use of law enforcement and municipal court fines and fees in particular, has this effect.

The racial contract and America’s tax state There are many different kinds of tax states. Tax states, as we have discussed, need analytical and administrative capacity as well as mechanisms for eliciting compliance with tax codes. Today, as Martin et al argue, ‘taxpayer consent is best explained not as coercion, predation, or illusion, but as a collective bargain in which taxpayers give up resources in exchange for collective goods that amplify the society’s productive capacities’ (Martin et al, 2009, p 13). Reaching this collective bargain depends on citizens viewing the state as exerting a legitimate claim for tax revenues. Citizens who do not view the government as legitimate will be less inclined to shoulder the burden of paying for state-​provided goods. The narratives that legitimize the state and taxes are based on the social contract on which the state was formed. In the US, this social contract has been memorably described by Mills as a racial contract. The American social contract –​and indeed the social contract for the Western world –​defines the relationships between citizens and between them and the state, but it is understood that non-​Whites are not considered full citizens or indeed even full persons. Mills notes that modern state formation occurred in an era in which, in the US and globally, ‘non-​white racial exclusion from personhood was the actual norm’ (Mills, 1997, p 122). Between 1690 and 1800, the era of the European enlightenment, the enslavement of non-​Whites and colonization, and the era that gave rise to classical social contract theory, people who were defined as uncivilized could be and were freely mistreated. Indeed, says Mills, Hobbes, Locke, Rousseau, and Kant all noted that ‘uncivilized peoples’ could be written out of the social contract. Thus, the founding of the polity becomes the founding of a ‘racial polity,’ in which people are divided into parties to the social contract (Whites) and objects of it (non-​Whites). In Mills’ telling, the state thus reproduces this social order by design. The social contract is a contract of racial exclusion. This racial contract ‘underwrites the modern social contract and is continually being rewritten,’ so that the racialized 32

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hierarchy it creates in the political, social, and economic spheres can be preserved in the face of changing circumstances (Mills, 1997, p 62). A tax bargain established in a setting where certain groups of people were not considered full citizens, such as the United States in the mid-​ 19th century, would logically exclude those people and their interests from consideration. Neither economic actors nor fully citizens, former slaves would not be considered among those to whom the state must be accountable. The subsequent expansion of political rights, as for example with the passage of the 13th, 14th, and 15th amendments to the US Constitution after the Civil War, or the legislative mandates to end Jim Crow laws and segregation one hundred years later, creates a contradiction with respect to the original tax bargain. Nevertheless, tax models put in place before these changes have continued to shape both politics and the economic chances of many citizens. Tax bargains outlive the circumstances of their founding and reproduce economic and political power imbalances in the process. They constrain concerted efforts at change. An expanding civic sphere –​an expanding social contract –​is likely to encounter resistance from those whom the tax bargain initially empowered. In America, those inequalities were grotesque. The institution of slavery shaped the regional and federal tax bargains secured at the founding of state and federal governments, and these patterns continue to shape our economy and politics. As fiscal sociologists have long noted, and Strand and Mirkay (2019) have detailed recently, not only did federal tax policies create the middle class, but state-​sanctioned slave labor ‘was the foundational economic institution on which American capitalism was built’ (Strand and Mirkay, 2019, p 272). After the end of slavery, Jim Crow institutions were created to resist the expanded social contract implied by the 13th–​15th amendments to the US Constitution, and to retain a regional tax bargain in the South premised on repressive labor, low taxes, and low public service provision. Tax codes, in other words, have helped impose and reinforce an exclusive social contract. Policies like redlining or exclusionary zoning institutionalize this restricted, exclusive social contract in part by preserving a restricted tax bargain. If the social contract is exclusionary and based on the systematic maintenance of inequality, then so is the tax bargain created to operationalize that contract. The process of preserving an original exclusionary social contract can be observed empirically through the use of shifting revenue strategies over time. In the US such efforts have combined statutory limits on 33

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state and local governments’ ability to raise taxes with the increased use of citations and municipal ordinances to generate government revenue. This combination creates the appearance of accountability by government to taxpayers by limiting the state’s power to increase tax rates or levy new taxes. But at the same time, it shifts the burden of revenue generation to those who violate traffic laws or municipal ordinances. As tax-​limiting legislation has proliferated, so have municipal ordinances and citations, creating a situation that has been called ‘taxation by citation’ or ‘policing for profit.’ The burdens of these practices fall disproportionately on economically marginalized communities and people of color.

Mechanisms of change: how tax policy reflects the social contract Tax policies are but one way that the social contract is reinforced over time. Legal measures enshrining political and economic exclusion and discrimination abound. But the role of tax models is especially pernicious because to the casual observer these policies often do not appear to be racially motivated or exclusionary by design. Yet Pierson (1993), Mettler and Soss (2004), and others show how policies, including tax policies, can shape social identities, reinforce underlying societal biases, and shape decision-​making about how best to gain advantages. They affect not only incentives and behavior but also citizens’ understanding of the state, society, and their roles with respect to both. The study of persistent racial, gender, and other forms of systemic inequality in the US has led scholars to refine some of the basic tools of political and policy analysis to trace a number of possible causal mechanisms through which these inequalities are carried forward over time, and through which they create broad and enduring effects on politics and on specific policies. For example, Mettler and Soss argue that tax policies, over time, have defined membership in the political community, contributed to the formation of group identity, and framed political agendas (Mettler and Soss, 2004). Indeed, Mettler (2002) argues that through features of their design, policies may shape beneficiaries’ subjective experience of what it means to be a citizen, giving them a sense of their role, place, and value within the polity; they may affect the formation of political identity among individuals 34

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and groups; and they may unify or stratify society and the political community in new and different ways. (Mettler, 2002, p 352) Scholars of American public policy since Theodore Lowi (1964) and E.E. Schattschneider (1935) have made a substantially similar argument, though it has not been applied to racial inequity and tax policy. Scholars studying the impact of different government service programs on participants’ sense of their place in the political system have found that government policies generate feedback effects that affect how citizens both perceive themselves and how they act as citizens of the polity (Soss, 1999; Campbell, 2000; Epp et al 2014). For example, Mettler and Soss (2004) describe how policies affect citizenship, showing how policies also define status or ‘standing’ in the community: By granting full rights –​unequivocal and ‘earned’ –​to some individuals and treating them with dignity and respect, policies incorporate them into the esteemed ranks of first-​class citizens. Other policies, ones that subject recipients to a heavy regime of direction, surveillance, and threats of disciplinary action, stamp recipients as inferior. (Mettler and Soss, 2004, p 61) This analytical perspective can help illuminate how tax policies might reinforce an exclusionary social contract. Over time, policies embed notions of who is a full citizen and who is not, what citizens can expect from the government, and what they owe to the government and to one another. If tax policies ‘create’ citizens, they also define insiders and outsiders, first-​class and second-​class citizens. Social contract theorists like Mills and Pateman conceive the social contract as having both cognitive and material elements. It is a shared understanding of how society is and ought to be structured, and it sets out those terms and makes them real by influencing what policy makers believe they can and should do. This shared understanding constrains the options around tax policies going forward. As Mills points out, the racial contract has similar effects. White supremacy, he argues, is the basis of America’s founding social contract. The racial contract captures a taken-​for-​granted set of understandings about White supremacy, essentially constructing race as a group identity. This understanding then gets baked into state institutions and policy practices, acting, as 35

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Mills puts it, as ‘a visible or hidden operator that restricts and modifies the scope of [a social contract’s] prescriptions’ (Mills, 1997, p 72). These restrictions take different legal and policy forms over time as the political context changes, but the racial contract continues to ‘underwrite’ the social contract that feeds into public policy decisions, including tax policies. This racial social contract becomes so embedded in the structure of state, society, and public policy that it becomes all but invisible as a plausible causal mechanism that might structure policy debates and decision-​making. This, Mills argues, explains how, 50 years after the legal gains of the civil rights movement in the 1960s, the very existence of race-​based social, economic, and legal inequities can still be up for debate. Whereas before it was denied that nonwhites were equal persons, it is now pretended that nonwhites are equal abstract persons who can be fully included in the polity merely by extending the scope of the moral operator, without any fundamental change in the arrangements that have resulted from the previous system of explicit de jure racial privilege. (Mills, 1997, p 75) Mills’ argument about the racial contract and its enduring legacies can also be explained in terms of the concepts of institutional ‘lock-​ in’ and Pierson’s path dependency. In conditions of ‘complex social interdependence,’ we often find arrangements that persist over time, even when they no longer serve the interests of any rational actors (Pierson, 1993). According to rational choice theories of politics, these institutions should cease to exist under such conditions. But change is costly, and where it is compounded by positive returns to those who are heavily invested in the current rules, we find path-​dependent outcomes (North, 1982; Pierson, 1993). A few examples can help make the argument concrete. In her study of the impact of the GI Bill on civic and political participation, Suzanne Mettler (2002) highlights the concept of ‘incorporation,’ defined as ‘the extent to which citizens, through the bestowal of rights, are included, consolidated, and organized as members of a community … the extension of social rights may assure citizens of some modicum of well-​ being, but also of a measure of dignity and value as members of the community’ (Mettler, 2002, p 362). The GI Bill both gave beneficiaries important resources and opportunities –​to get an education, build a career and a basis for economic independence –​and ‘interpretive’ 36

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or cognitive benefits. Receiving these benefits, she argues, ‘altered beneficiaries’ sense of obligation to the polity … it incorporated them more fully as citizens’ (Mettler, 2002, p 362). Policies and practices of racially discriminatory policing have the opposite effect. Epp et al argue that ‘racially defined investigatory stops … strike at the heart of democratic citizenship and racial equality’ (Epp et al, 2014, p 17). In a large-​scale study of discretionary traffic stops by police in St. Louis, Missouri, Epp and his collaborators find that being stopped by the police has differential effects on White and Black residents. While White residents reported that being pulled over tended to ‘reaffirm the driver’s place as a full citizen in a rule-​regulated society’ (Epp et al, 2014, p 150), the experience for African American motorists was the opposite: ‘African Americans’ common experience of investigatory stops contributes to their perception that they are not regarded as full and equal members of society’ (Epp et al, 2014, p 16). The practice of racially biased traffic stops, Epp et al argue, is ‘not simply a legacy of the past but an ongoing re-​creation of deliberate, if often hidden and unrecognized, practice’ (Epp et al, 2014, p 160).

Conclusion This chapter has examined the notion that tax bargains underlie the formation of states, finding support in the comparative politics literature on state formation. Tax policy is not just the result of the interplay of a set of actors at a given point in time. Rather, who these actors are, what resources, beliefs, and values they bring to the table, and how they interact with one another is the result of earlier policies. The social contract at the time of state formation is the starting point, and the mechanism for reinforcing this social contract is the tax bargain. The tax bargain then constrains the kinds of tax policies that are possible. The distribution of political power at the time of state formation forges a social contract that sets the terms of the tax bargain and locks in the preferences that privileged groups are able to secure. Over time these may come to be justified with different ideologies and language, but they remain in place. New institutions come to be based on this tax bargain and to be seen as natural, proper, and right. To understand how this happens, we have drawn on contributions from social contract theory, comparative historical institutionalist accounts of state formation, and policy feedback analysis. While these bodies of scholarship are markedly different in important 37

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ways, together they allow us to forge an analytical framework for understanding how the circumstances of a state’s founding can cast a long shadow into the future. But this influence is not static or linear. The social contract, and the tax bargain that funds it, shapes both the political arena and the ways that politics unfolds within it. Policies affect politics, just as politics affects policy. Politics is often cast as a game of rational actors whose behavior is more or less constrained by institutions that are designed to structure that behavior. The final section of this chapter showed how policy feedback mechanisms can be adapted from other policy settings to illustrate the enduring impact of tax bargains as reproducers of an exclusionary social contract. The broader aim is to establish a basis for the argument that the more we segment the tax base and titrate tax levels according to the political power of a given taxpaying segment, the more difficult it becomes to speak of state legitimacy in a way that is not also segmented. If paying taxes was once a mark of citizenship and belonging, resisting taxation has more recently come to be seen as a way of reasserting an earlier and more restrictive social contract. The next chapter develops the empirical narrative that will serve to illustrate these processes in action.

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3

The US Tax State and the Limited Social Contract Introduction This chapter examines the construction of the US tax state. As argued in Chapter 2, state formation and consolidation rest on a tax bargain. In this model, there is a moment of state founding, when a tax bargain emerges that allows the state to extract revenue with some regularity and predictability. This tax bargain is based on and limited by a social contract –​a set of shared understandings about the reciprocal obligations that governments have with their citizens. It encompasses an understanding about the purpose of government, its limits, and the boundaries of the political community. If a social contract is a conceptual device that captures consensus on what states and societies owe one another, then the tax bargain is the clearest outward manifestation of that contract. The tax bargain determines who pays taxes, who derives the benefits that taxes pay for, and what is the acceptable scope and scale of the state. Because taxes pay for public goods like schools, essential services for the poor, and public safety, the tax bargain also prescribes the level of equity in societies. Major tax reform threatens to change the balance. It amounts to a potential change in the social contract. This is why taxation is contentious and politically fraught. Tax policy can be an instrument of change or a force for entrenching the status quo. As discussed in the preceding chapter, tax historians, fiscal sociologists, and comparative political scientists have written extensively about the theoretical and historical development of the tax state. Several common threads run through this scholarship. First, the modern state is a tax state –​a state that can rely on a steady stream of 39

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revenue extracted from people and resources within the territory it controls. Taxes are the essential foundation of the modern state, which can provide security, stability, and the underpinnings of a market economy (including the protection of private property). Second, through taxation, subjects become citizens. Third, economic factors play an influential role in forming the tax state. But so do political institutions. Where the political system provides for broad citizen participation in decision-​making regardless of economic status (as in an electoral democracy), political action can offer a counterweight to economic power. Finally, exogenous shocks, such as wars and economic depressions, influence tax bargains and can contribute to a renegotiation of the tax bargain and the social contract it generates. Building on these insights, this chapter examines the formation of the American tax state at national, state, and local levels, focusing on such moments. It will be useful first to set out some basic elements that frame this narrative. First, the United States is a system of multilevel government often referred to as ‘fiscal federalism.’ In other words, the US is made up of a series of governing jurisdictions with different political, administrative, and fiscal powers. Federal, state, and local governments have distinct and sometimes overlapping responsibilities. At each level of government, it is possible to identify an initial tax bargain struck at the government’s founding, one that laid down the initial contours of the social contract defining the rights and obligations of citizens and of the state. The next section of this chapter summarizes this initial tax bargain and social contract at federal, state, and local levels, focusing on the main points of contention and agreement between these different levels of government and highlighting intergovernmental relations, both political and economic. Next, we trace the history of the US tax state’s development over time. Historians have identified key moments in the process of US state formation at the national (federal) level. The post-​Civil War Reconstruction period was one of these. It was followed by the ‘Redemption’ period, when the old order pushed back against the changes Reconstruction had wrought. The development of the welfare state through the New Deal legislation and the conservative tax revolt that accompanied the federal civil rights legislation in the 1960s were two more key moments. We explore the impact of these events on the development of the federal tax state, beginning here and continuing in Chapter 4. 40

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Historians have also made clear that subnational states’ reactions to these key moments in the development of the US federal tax state reverberated differently in different regions of the country and in different states within these regions. The reasons for this are both political and economic. Differences in the tax bargains that were struck at the founding moments of those states as political jurisdictions or units of government within the federal system form part of the explanation. I also show that the broad outlines of these tax bargains are surprisingly robust to demographic, political, and economic change, and to exogenous shocks (such as war, or economic depression and recession). For example, Garcia-​Mílà et al (2018) highlight the striking diversity of the 50 states, noting ‘the large variety in fiscal structures across the fifty states and the resilience over time in these differences,’ even in the face of ‘potentially disruptive forces’ (p 1072). This resilience in diversity across states highlights several key points. First, each level of government has a social contract and tax bargain of its own. Thus, states differ from one another, and from the federal level, in the terms of their tax bargains. Second, the durability of the tax bargain lies in the fact that it embeds both beliefs and values, and power and interests. In the state formation literature, the tax bargain is defined by revenue imperatives (it must raise sufficient revenue to fund the state). But the definition of the revenue imperative does not arise out of a vacuum. It is shaped by the beliefs, norms, and values that form the implicit social contract of that particular political community, and by the distribution of political and economic power within that community. Writing on tax policy debates carried out among ordinary people in Canada over the course of the 20th century, Tillotson reminds us that Culture is found in the practices of tax paying and revenue raising. Culture lies in ways of doing things, formed by interactions among human beings who themselves live within certain kinds of institutions –​parliaments and courts, shopping malls and rooming houses, reserves, and suburbs –​that school the imagination, making some kinds of taxation normal and others unthinkable. (Tillotson, 2017, p 13) Tillotson argues that ‘views on rum running or land taxes or the proper level of personal exemptions in the income tax were not positions on ‘the role of the state’ or ‘the division of powers’ in the abstract. 41

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People who talked about such tax questions were talking about the standing of one political community’s norms, their own, in relation to those of another’ (Tillotson, 2017, p 15). In tax debates, people reveal their preferences and values. Who deserves to receive public goods? How much are we willing to pay for what public goods, and who should pay for them? Who merits the protection of the state? Which economic behaviors should be incentivized by tax laws, and which should be discouraged? As Tillotson puts it, ‘the tax system helped to define the kind of person you needed to appear to be in order to be a respectable citizen’ (Tillotson, 2017, p 17). The idea that tax policy captures culture and engrained social norms chimes with Mills’ and Pateman’s use, and radical reimagining, of social contract theory. Racial injustice and discrimination are not incidental but are baked into the social contract (Pateman, 1988; Mills, 1997). Tax bargains also endure because they entrench differences in political and economic power. At the time of state formation, the tax bargain serves and embeds the interests of powerful economic actors on whom the state depends –​those actors who are ‘in on the bargain.’ They can craft tax policy that shifts the burden to those without economic power or political voice. In other words, the social contract, and the tax bargain that pays for it, are preserved over time by self-​interested actors using institutions to make policies that preserve their power. These actors use ideology and appeals to shared values and identities to advance their goals. And over time, the gap between them and less powerful actors widens, creating equity gaps that become self-​reinforcing in the absence of deliberate efforts to address them. The terms of the original social contract do change over time, of course. New political actors are empowered –​through the extension of the franchise, for example. Legal boundaries determining who is and is not a citizen can also change. States expand their scope of activity and impose new revenue demands on the population. The critical junctures discussed in this chapter are moments when the existing social contract comes under pressure –​from economic shocks, war, or popular political mobilization. At these times, those empowered by the original tax bargain, the original terms of state formation, seek to resist change, often invoking the idea that change to the tax bargain imperils the underlying legitimacy of the government’s authority. And those are the moments when that original bargain, and its resilience, are most clearly visible. 42

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The multilevel American tax state: a brief sketch The term tax state suggests a unified, national tax system, underpinned by a single tax bargain. But the United States is a tax state comprised of multiple, partially overlapping tax bargains, each informed by its own social contract. A national tax bargain was struck at the country’s founding with the 1789 Constitution, and then revised in what historian Eric Foner calls the ‘second founding,’ with the passage of the 13th, 14th, and 15th amendments after the Civil War (Foner, 2019). The initial tax bargain was fragile, built on a compromise to preserve slavery. As Einhorn puts it, ‘freedom and slavery produced different societies, governments, and tax systems. They also produced different relationships to democracy’ (Einhorn, 2006, p 9). The Civil War and the changes to the Constitution put an end to this détente between these two sets of systems. In King and Smith’s terms, the White supremacist racial order was briefly overshadowed by a coalition supporting a ‘transformative egalitarian’ racial order during Reconstruction. But within a decade of the Civil War’s end, the White supremacist racial order was resurgent in the South, as southern states took back the reins of state power as the region’s self-​styled ‘Redeemers’ and resisted the authority of the federal government.1 The political institutions and the shifting relationships of political and economic power across different societal groups that shaped the tax state at national level had different implications for different regions of the country, whose own tax bargains date to the formation of state governments in those regions, and in some cases predate the founding of the national state. Region-​wide economic drivers and trajectories of political development are critical factors in the evolution of regionally recognizable ‘tax states.’ The tax state model that emerged in slave states in the South was distinctive from that of the Northeast, and developments at federal level landed differently in these regions. The tax bargain at the level of state government, in turn, has important implications for municipalities and county governments, since local government is the creature of state government. For example, states may place statutory limitations on taxing authority for local governments, formalize ‘preemption’ powers, which can be used to block local government action across a range of issues, and so on, and this often varies regionally. Differences between 43

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state–​local relationships are also part of the distinctive regional models of governance. The tax state envisioned in the US Constitution initially provided for strong revenue authority at state and local levels, with limited power for the federal government. The Constitution ‘preserved an unprecedented degree of power at the local level’ (Pollack, 2009, p 17). Until the constitutional amendment that created the federal income tax in 1913, the power to tax people’s income or property directly belonged to states, who could in turn extend that power to localities. Early on, most federal taxes were import tariffs. These ‘met most of their needs for tax revenues while minimizing political discord’ between regions with different economic drivers (Brownlee, 2016, p 31). Import duties, at relatively low levels, allowed the federal government to carry national debt and to fund national projects. This distribution of fiscal power between state and federal level is in part an artifact of the sequencing of the development of the United States out of colonies that would later become states, each with their own historical roots, origin story, and political economy. Some colonies had well-​developed systems of revenue extraction, while others had little or no fiscal infrastructure. But the subnational units of government present at the founding entered the national political space as polities and units of government, as ‘states,’ which had perforce developed their own tax bargains based on their own social contracts. The founding tax bargain at federal level cemented states’ status as polities with considerable fiscal autonomy. Brownlee notes that ‘as early as the 1840s and 1850s, the fiscal footprints of local governments may well have been larger than even that of the federal government’ (Brownlee, 2016, p 32). As late as 1932, state and local governments, collectively, raised as much as four times more tax revenue than the federal government did (Slemrod and Bakija, 2017). Weak federal tax authority reflects not only the sequencing of American political development, with proto-​states (colonies) predating the formation of the republic. It was also a function of two distinct regional political economies. Ultimately, national taxes were minimal, with states and local governments given greater taxing authority, in order to avoid a national reckoning with slavery. Regionally distinct political economies in the North and South drove different tax bargains. In the North, cotton fed industrialization early in the 19th century. But by 1830, the North was manufacturing 44

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for export, and northern industry grew increasingly less dependent on the South both for food supplies and cotton. As the North diversified its manufacturing from a narrow base in textiles, the North and West became one another’s most important domestic trading partners (Moore, 1966, p 124). Northern state governments wanted tariff protection from manufactured imports, and protection and legitimation for private property. The South preferred low tariffs to avoid weakening southern growers in competition with international producers. These sectional differences helped keep federal taxes from becoming more intrusive earlier on in the history of the republic. Finally, protecting slavery meant avoiding a federally mandated tax on the most important forms of wealth in 18th-​century America –​ land and slaves. Southern slaveholders sought to limit the national government’s taxing power out of fear that northerners –​whose economy was not built on slavery –​would attempt to tax slavery out of existence. Slaveholding elites were particularly anxious to protect property rights from the federal government because their most valuable property was slaves. Indeed, Beverly Moran notes that a policy that taxed land and slaves would have significantly changed the American tax code and the distribution of the tax burden ‘away from the highly populated small states of the Northeast and toward the slaveholding South with its low white male population’ (Moran, 2009, p 214). State-​level politics in the South also shifted the burden of taxes away from slaveholders and large landholders and onto artisans and merchants. State governments in the South kept property taxes low at the insistence of plantation owners, who also held the balance of political power (Einhorn, 2006; Pollack, 2009). Little effort was made to collect even the small amounts of taxes imposed on landholders. Many southern states were in the habit of allowing property owners to assess the value of their own property, and taxes were often set at low, flat rates on land and slaves (Einhorn, 2009, p 166–​7). Given the structure of cotton state economies, this meant that very little tax revenue was coming into state coffers. Southern states’ social contracts were limited to what this narrow tax bargain could accommodate: a low-​wage, low-​tax, and low-​public service economy for a narrow sliver of the population. Reconstruction and, a century later, the Civil Rights Acts brought federal government mandates for an expanded public sphere. In both periods, dominant political and economic actors mobilized to preserve the original tax bargain, and 45

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indeed used it to resist an expanded social contract. In the South, taxes were paid by those with the least power to resist. In the Northeast, the story played out differently. Much lip service was paid to the principle of fair taxes laid evenly upon the backs of the ‘respectable’ classes, though the reality did not usually live up to the principle. Nevertheless, there developed a public ideology of taxpaying as a badge of citizenship –​those who paid taxes had a stake in the system and a right to an opinion and a voice in government. In the mid-​19th century, property tax on the middle classes paid the bulk of the cost of government at state and local levels in the region. It was thought economically ill-​advised to tax capital, and politically dangerous to tax labor. States and local governments in the Northeast had also developed higher administrative capacity to tax than southern states, which had long left the largest holders of wealth out of it altogether or allowed them to self-​assess for tax purposes (Yearley, 1970; Einhorn, 2006). The contrast in approaches to taxation between an agrarian, labor-​ repressive South and an industrializing Northeast highlights how economic structure can put practical limits on a limited tax bargain. In the cotton belt of the American South, economic interdependency was low, and there was little need for state intervention in this economic structure. Industrialization called for a greater role for the state in supporting infrastructure, regulating relations between capital and labor, and raising revenue to provide for the needs of industry and its workforce. Urbanization also created growing demand for public services. Thus, higher taxes were needed, and were accepted by voters, to help meet the growing needs of the population and of economic agents propelling the region’s growth. But there is also a political element in play. Contrary to the expectations of the much of the literature on the formation of absolutist states discussed in Chapter 2, in democratic state building through a comparative lens, growth in political representation and participation arose not only as a gift of the state in exchange for greater tax revenue. Rather, the need for tax revenue also grew as a function of demand for a more robust public sphere from citizens empowered to make such demands because of the extension of the franchise to all White males and later to women, by immigration, and by the growth of party politics, especially machine politics. Northern states developed more effective tax states, having both administrative capacity and political processes for adjudicating conflicts. Where partisan 46

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politics was competitive, these party machines themselves had highly developed systems of internal ‘taxation,’ providing jobs and a social safety net to their members as part of the strategy for mobilizing loyal support (Yearley, 1970). In the South, partisan political competition was limited. The ‘solid South’ featured decades of dominance of state and local politics by the Democratic party. In the absence of partisan political competition, there was no real pressure for change to the racially exclusive social contract.

The tax state in the American South This section traces in more detail the emergence of tax bargains at state level in the American South. Today’s tax policies are the accretion of more than a century of political, economic, and sometimes violent conflicts over the proper role of government, over what government owes its citizens, and indeed over who is a citizen. They tend to carry past inequalities forward, unless political and social actors embark deliberately to address them. Today’s revenue models in the US South bear legacies of the slaveholding economy and the political power structure that maintained it in place at the time that the states first began collecting taxes. Indeed, today’s tax policies in much of the American South are informed by the process of nation-​state consolidation that followed the Civil War (1860–​65). Ideas about the state, citizenship, and intergovernmental relations that grew out of the antebellum, Civil War, and Reconstruction periods in the South have been carried forward to the present day. These ideas have proved resilient in the face of initiatives –​the New Deal, the War on Poverty –​that held a more expansive (or intrusive) view of role of government, as well as a more robust social contract. Tax policy has been an important instrument for reproducing this limited social contract. Radical Reconstruction (1865–​77) in the South after the Civil War did not only threaten the region’s dominant economic model (labor-​ and land-​intensive agriculture that relied on slave labor). It also made former slaves into citizens who were now formally entitled to public services. For former slaveholders, among others, this made the idea of a public sector itself anathema. When Radical Reconstruction ended, and with it the intensive intervention of the federal government in southern social and political affairs, local White political interests quickly regained power and set in place policies that ensured a cheap 47

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and ready supply of farm labor, a minimal public sector, and a political ethos that asserted ‘state’s rights’ over federal interference. Yet the ability of citizens in the South to enjoy the rights of citizenship has relied in important ways on federal intervention. Antebellum tax structure Prior to the American Civil War, and then again from 1877, when Radical Reconstruction ended, to roughly 1965, when the Civil Rights Act (1964) and Voting Rights Act (1965) were passed, the American South fits Boix’s model, in which powerful holders of capital repress mobilization for democratic inclusion, resulting in a ‘durable authoritarian regime’ (see Chapter 2 for a more detailed discussion of Boix’s model of democracy and redistribution through taxes). Einhorn (2006) makes clear that the southern political and economic elites’ dependency on the institution of slavery defined the tax bargain and followed the logic of Boix’s model: ‘Slaveholders would not permit majorities, even of southern white men, to make decisions affecting their “property”. Most of the southern state constitutions prohibited legislatures from emancipating slaves’ (p 25). They also contained ‘uniformity clauses’ requiring uniform tax rates for all property –​this was aimed at preventing the taxing of slaves and lands at higher rates than other forms of property. These constitutional straitjackets also limited the setting of state and local taxes more broadly. As Einhorn notes, and consistent with Boix, these clauses were intended to tie the hands of legislatures. ‘They were intended to lock the design of tax structures against the potentially dangerous preferences of majorities’ (Einhorn, 2006, p 202). In 1860, in southern states in the ‘cotton kingdom’ –​Georgia, Alabama, Mississippi, South Carolina, Louisiana, Florida, and Arkansas –​slave ownership meant wealth. Einhorn cites Gavin Wright, saying ‘a man who owned two slaves and nothing else … was as rich as the average man in the North’ (Einhorn, 2006, p 213). ‘More wealth was owned in the form of enslaved African Americans in 1860 ($3 billion) than in railroad and manufacturing assets combined ($2.2 billion) … slaves comprised 20 percent of all American wealth’ (Einhorn 2006, p 214). This wealth was not reflected in the tax bill of slaveholders, however. Politically powerful planters prevailed over an institutionalized, coercive, and extreme system of inequality during the time of slavery. 48

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Property tax was virtually non-​existent in the South before 1830, although northern states had property tax systems dating to at least the Revolutionary war period, some hundred years earlier (Einhorn 2006). The economies of southern states were diversified, including plantation agriculture, yeoman or middle-​sized farms, and subsistence agriculture. But cash crops –​especially cotton, but also rice, sugar, and tobacco –​generated most of the region’s income and relied on large landholdings and large numbers of slaves. Planters’ interests dominated politics, though not without opposition (Hyman, 1989; Foner, 1990). As mentioned earlier, property tax systems in the South were nearly non-​existent prior to the Civil War. Einhorn notes that ‘before the [American] Revolution, no southern colony except South Carolina levied an ad valorem property tax of any kind’ (Einhorn, 2006, p 107). The first property taxes came about in the region when small farmers in upland areas outside of the plantation belt began to outnumber large landholders and slaveholders in some southern states. ‘As these small farmers called for legislative reapportionment so that their majority number could be translated to majority power, they had to persuade slaveholding minorities that they would not impose heavy or prohibitive slave taxes’ (Newman and O’Brien, 2011). In the accounts of state building by Tilly, Levi, and Dincecco, as discussed in Chapter 2, the state is granted revenue in exchange for constraints on its power. Here, an extension of political power –​in the form of electoral redistricting to expand political representation beyond large landowners –​was granted in exchange for a promise that the newly empowered ‘democrats’ would not raise taxes on the wealthiest. Constitutional limits on state and local taxation thus ‘originated in efforts to limit the power of the newly democratized majorities rather than as a triumph of the majorities themselves’ (Einhorn, 2006, p 202). Boix’s class-​based reimagining of the classical reciprocal bargain of taxes in exchange for political standing makes the notion more pliable. Newly empowered legislators kept their promise to slaveholding elites to keep taxes low. As early as 1845, some southern states had imposed a requirement of a legislative super-​majority to limit the ability of state legislatures to raise tax rates or impose new taxes (Foner, 1990; Newman and O’Brien, 2011). Legislatures soon passed uniformity clauses that bound the hands of the legislature and 49

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prohibited taxing slaves at higher rates than other ‘assets’ were taxed. Because most assets were held by slave owners, these clauses meant low tax revenue and correspondingly low levels of public service provision. Clauses limiting the tax liability of slaveholders shifted the tax burden to other, less politically powerful groups. Ironically, to compensate for the negative revenue effects of uniformity clauses, states not only imposed new license fees and business and professional taxes –​they also established a system of split property rates, in which different kinds of property were taxed at different rates, with large landowners enjoying the lowest rates. Between 1820 and 1845, six slave states had established uniformity clauses.2 By 1860, a total of 20 states had such clauses in their constitutions. After 1875, when ‘Redeemers’ came to power in southern states, tax-​limiting legislative and constitutional measures would echo these earlier efforts. Enshrining uniformity clauses in state constitutions removed debate about taxes from the political arena and from democratic deliberation for the future. This helped ensure that the tax bargain, and the social contract it funded, would remain limited even in the wake of expanded political rights. Radical Reconstruction (1865–​77) After the war, during the period of Radical Reconstruction (1865–​77), northern norms of taxation were briefly imposed in some southern states. State legislatures, which now included freedmen, imposed property taxes that amounted to between a four-​fold and eighteen-​ fold increase. The population of citizens in the South who could now expect to receive support from the public sector doubled. Even so, revenue per capita nearly doubled in southern states during this period. In Georgia, for example, state revenue per capita doubled in just the ten years between 1860 and 1870 (Newman and O’Brien, 2011). Results varied by state and locality, but the scope of the public sector dramatically expanded during this period. For example, the state of South Carolina for the first time offered medical care for the poor, and public schools, hospitals, and prisons were established. Segregation prevailed in these new public institutions, despite the ideals of some Republican officials. Laws against discrimination were gradually passed by state and local governments in the Deep South. Labor laws were changed, and the Black Codes, which limited the economic opportunities and mobility of freedmen, were eliminated. 50

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‘For the first time in Southern history, planters were unable to use public authority to control the black labor force’ (Foner, 1990, p 160). Whites in the upcountry (outside the cotton or plantation belt) also saw beneficial changes in the tax code, which protected certain amounts of land, property, and agricultural implements and trade tools from seizure for debt. Republicans consciously sought to cultivate support among voters outside of the planter class. For a relatively brief period, land reform was also part of Reconstruction, with abandoned and confiscated properties in some states divided and allocated to freedmen and put up for sale to all. Tax systems were consciously used by Republican state governments to weaken the planter class (Foner, 1990). For years prior to the Civil War, states in the Deep South had allowed planters to assess their own property for tax purposes. Republican state governments eliminated this practice, with the result that planters and White farmers in some states for the first time ever paid a substantial chunk of their income in taxes, and large holdings of land fell into state hands. In some cases this was sold in relatively small parcels; in other cases northern investors profited. In the US, as in Europe, the modern national state was forged in war, which created new, centralized revenue systems and forged new economic actors. The demands of the Civil War saw the growth of a federal government ‘with a greatly expanded income, bureaucracy, and set of responsibilities’ (Foner, 1990, p 10). The social contract at federal level expanded to include a role for the state in the provision of physical and financial infrastructure for economic development (including a banking system), as well as for the development of human capital and technological development (in the form of land grants for agricultural and technical colleges). Expanded taxation, and government incentives to private economic actors for infrastructure investment and technological innovation, constituted ‘an expansion of federal power’ and an ‘effort to organize a decentralized economy and fragmented polity.’ In Foner’s terms, ‘these measures reflected the birth of the modern American state’ (Foner, 1990, p 10). On the citizen side of the contract, there was an increased tax burden, as well as (after emancipation), the promise of fuller political participation and citizenship. Women’s suffrage would wait another 50 years, and effective suffrage for Blacks another 100 years. And many difficult questions remained around what, exactly, constituted free labor and what were the rights of the working classes. But, as 51

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Foner notes, because of the Reconstruction Act of 1867, ‘in America, the ballot not only identified who could vote, it defined a collective national identity’ (Foner, 1990, p 122). At the subnational state level, these lofty ideas were slower to materialize. State governments were the ones that would put them into practice in daily life. In the South, the economic and political upheaval of the war, and the social and political organizing that occurred in its aftermath, brought considerable change. But beneath the surface, the social contract continued to enshrine a limited role for state and local government in the provision of the kinds of infrastructure and legal protections that marked the consolidation of the federal government. The tax bargain and the social contract that expanded in the wake of the Civil War at federal level confronted in southern states tax systems that were not equipped to serve a broader population, and states that were not inclined to do so. At federal level, as discussed earlier, the state was able to consolidate its taxing powers and its ability to intervene in the economy in ways that promoted economic development. Southern states, even when guided by a similar idea of the role of the state, were unable to put these ideals into practice. The prewar political, economic, and social structures, while disrupted by war, carried over and were not completely broken by the war or Reconstruction. Southern Republican governments had been given an expanded social contract undergirded by a narrow tax bargain. And the economic structure and interests that had prevailed in the prewar period continued to exert considerable influence to sustain that narrow bargain. National politics also came into play. The Republican party’s need to sustain a national coalition of political support, against the opposition of a Democratic party that invoked limited government and White racial supremacy as rallying cries, ultimately constrained the reach of Reconstruction. Foner notes that at both state and federal levels, Radical Reconstruction found its limits in the question of state-​guided, explicit redistribution of assets, especially as wartime exigencies faded. The Republican party was not willing to bear the political costs of enforcing an expanded social contract. As he points out, ‘Most white Republicans, and many freeborn blacks, moreover, while perfectly willing to guarantee the freedmen their rights as free laborers and equal citizens, opposed using the power of the state to redistribute power’ (Foner, 1990, p 162). Ultimately, insufficient federal aid for Reconstruction, the demands of a vastly 52

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increased public sector, and the legacies of minimal investments and infrastructure by an antebellum state, along with ill-​advised partnerships with the railroads, produced a fiscal crisis. High taxes and public debt undermined Reconstruction and its project of political, economic, and social transformation. The Depression of 1873 also hastened changes in attitudes toward extensive federal responsibilities for remaking the South. Labor relations worsened throughout the country as industrialists sought to minimize costs and increase productivity. The debate about the meaning of ‘free labor’ and the rights due to workers shifted in favor of producers. And the fervor for improving the rights of labor in the South, particularly for Blacks, began to wane. In the South itself, the Depression was even more consequential, for large and small farmers alike, as well as for the commercial sector. Even as Black political representation had reached new heights in some southern state governments as a result of Reconstruction reforms, their administrations prevailed over the Depression and felt the backlash against corruption from earlier policies. ‘The issues of white supremacy, low taxes, and control of the black labor force dominated the Democratic campaigns of the mid-​1870s’ (Foner, 1990, p 232). In the elections of 1874, Republicans dramatically pared back their reformist ambitions in hopes of hanging on to power. By 1875, Democrats were in control at the federal level and in many southern states. By the end of the 1870s, state politics were again dominated by the same political interests that had prevailed before the war. Preoccupied with labor unrest in the North, the Republican party had moved away from any willingness to protect the rights of Black citizens in the South. Federal courts ‘used the greatly expanded jurisdiction born of Reconstruction primarily to protect corporations from local regulation’ (Foner, 1990, p 247). In Washington, Radical Republicans had passed the Civil Rights Act of 1875 at the end of their final term in Congress, in hopes of preserving some of the gains of Reconstruction. That law was swiftly overturned. John Marshall Harlan, the only Supreme Court justice who dissented from the 1883 Supreme Court decision declaring the Civil Rights Act of 1875 unconstitutional, said that the decision marked a new ‘era of constitutional law, when the rights of freedom and American citizenship cannot receive from the nation that efficient protection which heretofore was unhesitatingly accorded 53

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to slavery’ (cited in Foner, 1990, p 247). This bleak characterization proved prescient. Redeemer governments The 1876 election of Rutherford Hayes marked the end of Reconstruction and the return of ‘home rule’ to the South. This was the period of ‘Redemption,’ in which southern resurgence was the order of the day. Redeemers, whose ranks included secessionists, advocates of small government, traditional planters, those who sought a new ‘modernized’ South, and veterans of the Confederacy shared, in Foner’s words, ‘a commitment to dismantling the Reconstruction state, reducing the political power of blacks, and reshaping the South’s legal system in the interests of labor control and racial subordination’ (Foner, 1990, p 248). State politicians set about shrinking the public sector and denying citizenship rights to non-​Whites through legislation and the revision of state constitutions to restrict the expansion of taxes and services. The Redeemer governments cut state and local property taxes and reduced the size of state government and the scope of its authority. To offset lower property taxes for large landholders, yeoman farmers, tenants, and laborers were taxed on all property except specifically exempted items. Ironically, these tax measures were imposed in the guise of so-​called uniformity clauses, which were then made permanent through constitutional and statutory changes. Jim Crow laws, in force from roughly 1880 to 1965, essentially enforced sharecropping or tenant farming as a stand-​in for slave labor on large plantations. Black citizens were systematically deprived of their rights through the passage and enforcement of laws that violated the US Constitution and the social contract it enshrined. The Jim Crow laws deprived Black citizens of political and economic rights and set out to ensure the survival of a system of economic, political, social, and cultural privilege of Whites. In this era of low-​mobility capital, highly unequal distribution of wealth, and lower classes subject to extreme repression, the social contract strongly resembled the one that had obtained under the rule of slaveholding landed elites. In this social contract, those who held political and economic power presided over an extremely limited public sector, one which not only devoted limited funds to basic public services but also denied those services to Black 54

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citizens. To secure this contract against future majorities, statutory and constitutional limitations were established, requiring legislative super-​majorities for the passage of tax increases. In Alabama, the 1875 state constitution banned any attempt to raise property taxes by state or local government. The constitution also limited education funding, mandating that no more than one fifth of all state revenues would go to education, reducing education revenue in the state by one third within the year. Shortly thereafter, Alabama passed a law that overturned Reconstruction-​era mandates that public education be provided regardless of race, allowing local school boards to use their own discretion. These changes were consolidated with the passage of Alabama’s new state constitution in 1901, which remained unchanged until 2022. Other southern states quickly followed suit. In 1890, Georgia, Texas, and Arkansas joined Alabama in adopting constitutional amendments requiring a super-​majority for any change in tax policy. From tax limitation to tax elimination: the convict lease system These measures produced a narrow, underfunded public sector, compounded by the effects of the Depression of 1873. As numerous scholars have noted, taxes and expenditures were slashed dramatically as Reconstruction receded. Mississippi cut its state budget in half over a ten-​year period. Alabama abolished public hospitals, and Florida eliminated its state prison system. To fill in the gaps in tax revenue, state governments instituted the leasing of convict labor to state industries and private businesses. Individuals convicted of any one of a growing list of minor transgressions could be sentenced to forced labor. As Vanessa Williamson notes, under this system, ‘black servitude (now in the guise of criminal justice) became a revenue source for southern state and local governments, and thereby underwrote a fiscal system that kept taxes exceptionally low on the white and wealthy’ (Williamson, 2020, p 6). In addition to a burgeoning criminal code of offenses designed to ensnare poor and non-​White residents, southern states also implemented tax codes that levied heavy taxes on Black businesses. As state government collapsed under the weight of deliberate restrictions on revenue raising, mismanagement of government funds, and the Depression of 1873, many states turned to private contractors to perform state functions even before the Redeemer governments 55

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came to power. Contractors would house, clothe, and feed convicts and lease them to the railroads or other industries and businesses. Later, state governments leased their prisoners directly to employers. Convicts would be obliged not only to serve out sentences of time incarcerated but also to pay exorbitant fines that legislatures attached to minor offenses. These were sometimes accompanied by fees that were even larger than the fines themselves. Williamson (2020) notes that 13 states established convict leasing systems (all of the Confederate states except Virginia) and the numbers of incarcerated people expanded dramatically. Black people were incarcerated at rates from 12 to 20 times higher than those for White people. The state governments that used convict leasing quickly institutionalized the use of the revenues it generated for tax revenue. State legislators made adjustments to convict leasing laws in terms of the impact on the state’s treasury. As Florida’s government put it in 1881, ‘selling the labor of convicts, rather than paying for their upkeep in prison, was “much better for the tax-​payers of the State”.’ By the time Alabama gave up convict leasing in 1927, the last state to do so, revenues from the practice comprised one sixth of state government income. A prison inspector in 1922 called the state’s jails its ‘money-​making machines’ (cited in Williamson, 2020, p 9). The end of convict leasing was quickly followed with prison chain gangs that forced prisoners to work on public roads. Once again forced labor helped fill in the gaps in tax revenue enforced by the South’s limited tax bargain, returning hundreds of thousands of dollars to state coffers well into the 20th century (Blackmon, 2008). The reassertion of the pre-​Reconstruction state tax bargain in most southern states was the means by which changes to the social contract were kept contained. Despite the formal bestowal of political and civil rights to all people regardless of race, Black people were excluded from tax relief, access to credit, and access to basic public services. They were tied to a repressive labor system enabled by a tax system designed in part for this purpose. Throughout the Jim Crow era, involuntary labor –​some of it prison labor expanded by the enactment of laws that imprisoned Black citizens for petty crimes –​ continued to feed plantations, railroads, mining, and lumber enterprises, both private and public. States used all of their coercive power to repress labor organization, including the use of state militias where necessary (Oshinsky, 1997; Blackmon, 2008; Williamson, 2020). 56

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New century, old patterns: the racialized social contract and the federal welfare state In this section, we examine the establishment of the American welfare state in the early 20th century with the passage of the New Deal, which significantly expanded the role of the federal government in social service provision. Indeed, this marked the first time that the federal government engaged in direct service provision to citizens. An examination of this period highlights the concept of separate but overlapping social contracts that exist in the American system of fiscal federalism, with their associated tax bargains. Both at federal and state level, expansion of taxation to fund new social service provision met strong resistance. At federal level, two camps formed, which encapsulated two visions of the social contract. President Roosevelt, Treasury Secretary Hans Morgenthau, and other fiscal conservatives feared expanding and making permanent ‘the dole,’ for both its moral and its fiscal implications. On the left, a coalition of radicals, progressives, and liberals viewed the new social security legislation as a chance to tax the savings of the very rich and to draw the financial surplus of well-​endowed corporations into the public purse and into the consumption stream, there to jump-​start income redistribution and improve equity. Mark H. Leff (1983) argues that those on the conservative side had little concern with tax incidence or its social consequences. He describes the Roosevelt administration’s approach to funding New Deal programs as ‘seeking revenue wherever it would encounter the least resistance,’ noting that ‘taxation has always lacked a certain legitimacy in this country; the government could not impel direct sacrifices without challenge’ (p 379). Michelmore (2012) points out that the political left was committed to low taxes for ordinary citizens –​they were just more willing than conservatives to tax the rich. Ultimately, the implications of this expansion for the long-​standing tax bargain were finessed with the use of the payroll tax. Some of these efforts were successfully recast at the time of the New Deal as benefits that did not have to be financed with new taxation. Instead, workers essentially provided for themselves, investing in workplace social insurance (along with employers) to support old age insurance and unemployment insurance. Proponents of the payroll tax glossed over its regressive nature by arguing that individuals essentially had a contractual right to old age payments because they had been paying 57

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into the system. Some scholars argue that insisting on funding social security as a social insurance scheme, rather than using general fund revenues to pay it, would ensure that future Congresses could not strip away this benefit, since the payroll tax gave workers a strong investment in the idea that it was ‘their’ money they received when they retired. Yet the payroll tax was just that –​a tax, a regressive one at that, and one that provided a significant but small percentage of federal tax revenue. By the end of the 1930s, the old age insurance tax accounted for 10 per cent of federal tax collections. Ultimately, and especially with the impact of World War II, the federal government succeeded in expanding the federal income tax to include middle-​class taxpayers for the first time. But it succeeded primarily by linking the need for this expansion of the income tax to the middle class by arguing that this was brought on by the extraordinary circumstance of World War II. And as Michelmore points out, ‘the emphasis on the relationship between World War II and the federal income tax further divorced federal taxes and the burdens they placed on ordinary workers from other public priorities’ (2012, p 12). While our focus is on state-​level social contracts and their associated tax bargains, these are embedded in the context of the federal tax bargain, where anti-​tax sentiment runs deep (Leff, 1983). Thus, the imposition of a new benefit, and a new way of paying for it, was by no means simple at the federal level. The upshot of the battle at federal level between competing institutional orders was that the federal government cast new social welfare provision as workplace-​based social insurance and suggested that welfare provision, like unemployment and old age insurance, could be provided without taxation. Instead, workers were investing in social insurance –​putting a small portion of their pay into a system that would then provide security for them when they were no longer able to work. Policy makers ‘deliberately obscured the relationship between the obligations and rights of citizenship and never asked ordinary taxpayers to pay for the economic security many soon came to expect as a matter of right’ (Michelmore, 2012, p 11). Nevertheless, the expansion of the federal tax bargain to include taxes on middle-​class citizens was not far behind. On the eve of the New Deal, the federal income tax still fell mostly on the wealthiest Americans. The federal tax model in 1939 was comprised of consumption taxes and payroll taxes, plus very high-​income taxes on the wealthiest. Low tax rates on most Americans were an article of 58

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faith and part of the social contract. Even left-​of-​center politicians ‘made low individual income tax rates on ordinary citizens central to their promise of economic and social security’ (Michelmore, 2012, p 11). It bears emphasizing here that the ‘ordinary citizens’ to whom these promises extended meant White male workers. In 1942, the federal income tax was expanded into a mass-​based tax, turning the majority of Americans into taxpayers. This was achieved in wartime, with taxes pitched as a sacrifice to pay for the war effort, not as a part of a social contract for normal times. The rhetoric around the Revenue Act of 1942 furthered the idea that any increase in the tax burden of ordinary Americans was a temporary evil, not the price of service or welfare provision. Michelmore argues that by the 1960s, social security had become an entitlement seen as part of the social contract, while seeking state support for the poor was equated to asking taxpayers to sacrifice some of their income to support the poor and undeserving. She points out that the expansion of the federal welfare state was accompanied by a narrative that made the state accountable to wage-​earners and property owners. This narrative about the social contract ‘depended on and reinforced fictive and politically motivated distinctions between the dependent poor minority and the independent taxpaying majority’ (Michelmore, 2012, p 80). In this perspective, it is not citizenship or residency that gives one the right to make claims on the state, but rather working and paying taxes. This brief foray into social security financing shows that tax bargains, and the narratives that legitimize them, serve to constrain changes in the underlying social contract not just in the South, but at every level of government. As Michelmore (2012) notes, during the New Deal, which she cites as an important moment of state building in the US, ‘liberal antitax logic … at first reflected state builders’ assessment of the challenges posed by popular resistance to new taxes, but soon became an essential element of the liberal social compact itself ’ (p 4). The same held true for the South. A tax bargain intended to fund the racial social contract forged at the time of state formation, when slavery was well entrenched, was repeatedly held up as the embodiment of state government legitimacy and used to justify the failure to expand the public sphere. Southern governments accepted federal funds but distributed them subject to the terms of their own limited social contracts. And where this was not possible, southern states refused federal funds, as many have done with Medicaid expansion. 59

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Thus, during the New Deal, the second great expansion of federal government authority, the South’s limited tax bargain helped limit the contours of this federal expansion in that region, preserving its social contract. Moreover, federal programs were implemented in the South in ways that did not threaten the region’s narrow tax bargain or disrupt the social contract that rested on it. Tax policy in the South encodes deeply rooted notions about public service provision, especially education. Although the Civil War ended slavery, White political and economic elites in the South had entrenched a social contract in which the state was able formally to limit the enjoyment of public services to Whites for nearly 100 years thereafter. Southern states did so by consistently articulating the tenets of the underlying regional social (racial) contract whenever an opportunity arose to expand the role of the state and the scope of citizenship. Resistance to such expansion was enshrined in law. For example, New Deal programs that required states to expand public services or welfare risked legitimating the notion of a more robust public sector (Newman and O’Brien, 2011), and that would have altered the incentive structure for workers that sustained first the system of sharecropping essential to the cotton economy, and later the low-​wage, non-​unionized labor force. Tax and fiscal policies not only affirmed the limited, racial social contract via state law. The values underlying the social contract in the South were also enshrined in important federal legislation –​and notably in the New Deal –​thanks to the political weight of southern politicians in Congress. Katznelson argues that the shape of the New Deal had much to do with the one-​party South. Because the Republican party had had no foothold in southern politics since the end of Reconstruction in the late 1870s, southerners made up a disproportionate share of Democratic legislators in both houses of Congress, and no social policy could be passed without their cooperation. Moreover, although Blacks could not vote but still counted for legislative apportionment, Whites in southern states enjoyed disproportionate representation in Congress. ‘The Senate, with its distribution of two seats for each state, conferred on its seventeen racially segregated states a veto on all legislative enactments they did not like’ (Katznelson, 2005, p 51). On issues affecting the southern ‘way of life’ –​repressive labor policies and racial equality –​ the segregationist bloc stood firmly together. Katznelson argues that these political circumstances made the New Deal and much of social 60

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policy legislation in the postwar period ‘a program of affirmative action granting white Americans privileged access to state-​sponsored economic mobility,’ rather than providing a social safety net for all Americans’ (Katznelson, 2005, p 20). For example, southern legislators saw to it that there would be no relief aid at harvest time, and that domestic workers and farm laborers were excluded from social security. This meant that the bulk of the African American labor force was excluded from work-​based social insurance programs. These exclusions were sustained until 1954, when the Republican party gained majorities in the House and Senate, ousting powerful southern Democrats from key committee positions. Moreover, as will be discussed in more detail later, New Deal policies sent federal funds to southern states on very loose terms, allowing state and local government to administer them as they saw fit. Within the context of the American system of fiscal federalism, the federal government yielded to state and local authority for the implementation of these programs. The price of the New Deal was ‘accommodation with racial oppression’ (Katznelson, 2005, p 41). This accommodation continued with each additional federal social program. Thus, federal dollars are allocated in accordance with the underlying social contract at federal level, but states receiving those funds made sure to distribute them in ways consistent with a more limited social contract and the tax bargain that preserved it. At the same time, southern states depended heavily on the federal government to support even the limited public sector. Federal government transfers were a much higher percentage of New Deal relief in the South than elsewhere –​95 per cent in Alabama and Georgia and 100 per cent in Florida, compared to 53 per cent in Connecticut and 55 per cent in New York. Nevertheless, New Deal policies gave southern states authority over how to implement New Deal–​funded programs, as federal officials left the implementation of federal relief programs largely in the hands of state and local officials. The goal for state officials in the South ‘was to maximize the flow of federal funds while maintaining local responsibility to ensure the continuing viability of the southern racial order’ (Katznelson, 2005, p 41). Southern states needed funds but rejected ‘interference.’ Federal funding made it possible to distance the state’s revenue stream from locally generated tax dollars. Federal dollars sometimes went unspent rather than being made available to those viewed as being outside of the social contract. And federal government legislation and the 61

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implementation of that legislation made allowances for southern states’ use of federal tax dollars to reinforce a local social contract that was much more restricted. For example, the federal GI Bill, created to assist World War II veterans in accessing education and home ownership, ‘linked tight congressional oversight to locally compliant administrative decentralization … the GI Bill’s remarkable bounty could thus be directed to the country’s poorest region while keeping its system of racial power intact’ (Katznelson, 2005, p 125). This legislation was perhaps one of the most important federal boosts to the middle class, but it did not have equal effects for Blacks and Whites. Instead, Katznelson and other scholars argue, the GI Bill significantly widened the racial wealth gap (Hannah-​Jones, 2020). Mortgage redlining, segregated public and private universities in the South, and pervasive racial discrimination throughout the country meant Black veterans could not make use of their benefits as readily as Whites. Southern state administrators were able to make the GI Bill conform to the existing racist system, preserving the region’s long-​standing social contract. Even where federal programs did not discriminate directly or indirectly on the basis of race, southern states implemented these programs in ways that enforced racial exclusion. At the insistence of members of Congress representing the South, the federal school lunch program passed Congress only after the final bill added language that did not disqualify segregated schools from receiving these funds (Katznelson, 2005).

Conclusion Our tax systems place constraints on what can be done by government. They define the fiscal base and the level of public service provision that will be possible. In turn, they affect economic growth and development and the types, quality, and coverage of the public services the state delivers. But tax policy also has important implications for equity, inclusion, and full citizenship, affecting who gets access to essential services, how citizens are treated, and to what extent they can access or find protection from the state’s coercive power. In our tax systems are embedded core values about what we think government ought to do and what it is for (public goods, safety net, growth promotion), which levels of government ought to be doing what, and who should pay for it. This chapter has considered the long 62

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historical tail of this economic, political, and fiscal context, advancing an argument that current policies are rooted in an implicit social contract dating from before the Civil War. This social contract has proven resilient and has been institutionalized over time, reproducing itself even in the wake of external economic and political challenges. A tax bargain, once struck, constrains future changes to the social contract. The tax bargain is no longer seen as negotiable; it has created vested interests –​its winners and losers –​whose behaviors and fortunes are shaped by this tax bargain. The tax bargain that initially emerged to fund the government in one set of circumstances takes on a life and a value of its own. Politicians well-​served by the status quo craft narratives tied to regional culture and values as against those of other regions and/​or of the federal government. As Chapter 4 discusses, the conservative tax revolt of the 1970s and 1980s can be read as an attempt to reassert a restrictive tax bargain to resist an expanded social contract. Events in the last five years, since police killings of African American citizens have drawn increasing attention to equity and social justice, help to highlight the long shadow cast by the context of state formation. The US tax state was based on the exclusion of African Americans as citizens. The ‘second founding’ –​the passage of the 13th, 14th, and 15th amendments and subsequent political struggles to realize their potential in terms of expanding the social contract at national level –​ contributed to an unprecedented intrusion by federal government into state-​level governing norms and practice. As Foner notes, the period of Reconstruction, from 1865 to 1877, marked the establishment for the first time of a direct relationship between the federal government and citizens, and formally defined national citizenship for the first time. Yet in southern states, the old ways persisted. As federal Reconstruction efforts diminished, the established social contracts of the Deep South states of the former Confederacy remained. Southern state governments pushed back strongly against what they cast as interference in state’s rights and the ‘southern way of life.’ Neither the Civil War, Radical Reconstruction, nor the formal establishment of voting rights and citizenship for Black Americans in the 13th, 14th, and 15th amendments amounted to or triggered a reformulation of the tax bargain within southern states. The economic power distribution underlying that bargain did not change. Instead, legislative and judicial power was used to maintain that tax bargain, based on low taxes, low wages, and the exclusion of non-​Whites from public sector benefits and the exercise of citizenship rights. 63

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State and local tax policies reasserted the long-​standing tax bargain again and again. They also reproduced the attending implications for the social contract and democratic rule in the South. Specifically, southern states held onto what, for Whites, functioned as limited democracy that was racially exclusive and that catered to the interests and values of White voters. As Chapter 4 shows, the assertion of this tax bargain and its limited social contract would return to fuel the conservative tax revolt led by southern Republican politicians in response to the civil rights movement and its pressures to expand the social contract.

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4

Tax and Expenditure Limitations vs. an Expanding Social Contract Introduction The last half-​century in the United States has been marked by two highly consequential and starkly contrasting social movements: the civil rights movement and the conservative tax revolt. Together, they help illustrate the two principal claims of this book. First, tax bargains set at the time of state consolidation tend to become ‘taken for granted’ arrangements that inscribe the scope and roles of the state and the boundaries of the political community entitled to protection and services from the state. The tax bargain entrenches the political and economic power of dominant actors at the time the bargain is set, and those advantages gain momentum and widen the gap between them and others not privileged by the tax bargain and the social contract it supported. Second, when those understandings are challenged at ‘critical junctures’ by social or political mobilization that seeks to expand the role of the state and the political community, the tax bargain serves as a rally point and a concrete policy tool to support an agenda of resistance to change. Using the language of taxes has sometimes helped deflect charges of racial bias and discrimination. The conservative tax revolt, for example, is couched in a language of individual responsibility and merit, but it was born at least in part in reaction to the expansion of the social contract brought on by the civil rights movement. As a June 2020 essay in The New York Times on the racial wealth gap put it, ‘white Americans have long known that in a country where black people have been kept disproportionately poor and prevented from building wealth, rules and policies involving money can be nearly as 65

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effective for maintaining the color line as legal segregation’ (Hannah-​ Jones, 2020, p 35). Half a century after the start of the modern conservative tax revolt, we can trace its imprint in regressive state and local tax models that rely more than ever before on sales taxes, less on property taxes, and more on fines and fees. According to Strand and Mirkay (2019), most states have doubled their sales tax rates since 1970, with no corresponding change in the top income tax rate. State sales and excise taxes fall most heavily on the poor: the effective tax rate for the poorest third of taxpayers is 7.1 per cent, for the middle third it is 4.8 per cent, and for the highest third 0.9 per cent. Reliance on fines and fees is up, and these also hit the poorest taxpayers the hardest. This shift in the structure of the tax burden is the result of concerted efforts to limit taxing and spending at state and local levels. It is also the result of economic and political structures established long before the 1970s, and it embeds inequality that will continue to affect the character and quality of governance going forward. Chapter 5 takes up this thread of the argument, focusing on links between contemporary local revenue models and trends in policing that have become the focus of an intensive mobilization around issues of racial inequity. The civil rights movement of the 1950s and 1960s can be understood as a moment when the social contract expanded to try, once more, to fulfill the promise of the 13th–​15th constitutional amendments passed a century earlier. The passage of these amendments between 1865 and 1870, which Eric Foner (2019) calls the ‘second founding,’ constitutes a key moment in the consolidation of the American state, when the political community was at last expanded to include all men regardless of race (and with the 19th amendment, women as well). The rights of citizens were formally, legally extended to males regardless of race. But in the South, Jim Crow laws quickly restored the status quo ante. As argued in Chapter 3, the tax bargain that gave rise to southern state governments, and the local governments under their tutelage, was extremely narrow. Southern states, as we have seen, used their coercive power from the beginning to protect slave-​based commercial agriculture, taxing other economic producers while preventing the taxation of slaves as property and setting taxes on land at very low levels. Additionally, southern politicians at state and federal levels worked to ensure that federal taxing powers remained limited, in part to ensure that slavery could not be taxed to the point of becoming economically unsustainable. 66

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This narrow tax bargain –​limited taxes, limited services, and the use of public revenues to reinforce coercive power necessary to maintain slavery as a pillar of the economy –​could support only a similarly narrow social contract. Public services were extremely limited, and Reconstruction, with its demands for an expanded public sector that delivered government-​funded services to all citizens, including freed slaves and other persons of color, was met with stiff resistance. Thus, Jim Crow can be understood as a largely successful effort to maintain the narrow tax bargain that had been established under slavery, when the southern states were founded. Although the 13th amendment to the US Constitution outlawed slavery and the 14th and 15th amendments enshrined voting rights and other civil liberties for Americans regardless of race, in practice African Americans were very far from being treated as full participants in the social contract. Full inclusion required not only the cessation of discriminatory practices and the reform of institutions and policies that undergirded them; it also meant government taking an active part to expand the public sector and to extend public goods and services to include communities and individuals long excluded. And this required an expansion of the tax base. Discrimination was everywhere, but in the South it was baked into the social contract from the beginning. Civil rights, by contrast, meant equal rights for citizens of all races. In the segregated South, of course, this meant the expansion of the boundaries of political community. The state would now be held responsible for the provision of public services hitherto enjoyed exclusively by Whites to all citizens. As Kevin M. Kruse (2005), Heather McGhee (2021), and others have convincingly argued, an important part of the segregationist response to this challenge –​by White citizens and by state and local governments –​ was to shrink the public sector. If all public services and institutions had to be available on equal terms to all citizens, then the solution was to replace public services and institutions with private ones. Over time, as White citizens stopped using shared public amenities, like pools, parks, public transit, and ultimately public schools, electoral support for public spending dried up as well. This sequence of events was not limited to the South, of course. But it found perhaps its most open expression there. As Whites fled from urban areas to suburbs and ultimately to exurbs, conservative politicians wrapped segregationist values in the flag of limited government and individual freedoms. Thus, demands for greater inclusion in a political community were met by ‘movement 67

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away from community and consideration of common interests and instead toward individuality, privatization, and the concern for self-​ interest above all else’ (Kruse, 2005, p 165). In these claims are visible the contours of the low-​tax, low-​service tax bargain and narrow social contract that supported the earliest state governments in the South. The tax revolts that presaged the rise of modern conservatism in America took aim at the notion of a reciprocal relationship between the state and citizens. Anti-​ government, anti-​tax, suburban conservative agendas informed the conservative revolution represented by House Speaker Newt Gingrich and the ‘contract with America’ in 1994 (Kruse, 2005, p 266). Gingrich, of course, represented a suburban Atlanta district and was a leading proponent of White flight. ‘In the end, court-​ ordered desegregation of public space brought about not actual racial integration, but instead a new division in which the public world was increasingly abandoned to blacks and a new private one was created for whites’ (Kruse, 2005, p 106). That public sphere left to Blacks was then systematically starved of resources in the name of a long-​standing ideal of ‘small government.’ The remainder of this chapter explores the conservative tax revolt, especially the spread of tax and expenditure limitations, as part of the reaction against federally mandated desegregation. First, however, it is important to acknowledge the long-​standing patterns of racial segregation in American cities and the role of the state in creating those policies. Enduring patterns of residential segregation not only played an important part in White flight to the suburbs in the 1950s and 1960s. They continue to distort the effects of superficially race-​ neutral tax policies, such as property tax limitations (Martin and Beck, 2017; Rothstein, 2017).

Segregation as government policy The study of segregation in American cities shows how policies in one period can cast a long shadow, both by conferring early social, economic, or political advantages that are then compounded over time, and by contributing to identity formation. Desegregation in the 1950s and 1960s played out as a federal vs. states drama. But cities had been working out their own tax bargains and social contracts that produced enduring geographic segregation. This is a familiar story, with many important dimensions. 68

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Almost from the earliest periods of urbanization in America, local government officials actively contributed to segregation through the use of zoning laws that separated affluent citizens from less affluent ones. Between 1900 and 1940, cities had become important public service providers, paving roads, providing potable water, constructing sewerage systems, and running public safety services. Local governments promoted, created, and reinforced racial segregation by, for instance, adopting zoning policies to govern service provision that favored business elites and wealthy property owners seeking a more robust city government (Trounstine, 2018). As the Great Migration of Blacks out of the South began, cities imposed policies that concentrated Black residents into ‘ghettoes,’ with many cities officially designating White and Black areas, until this was ruled unconstitutional by the Supreme Court in 1916 (Massey, 2001). In turn, neighborhoods with large minority populations received less in the way of both public and private investment. In effect, city governments provided services to those who would pay for them. Trounstine (2018) notes, ‘zoning was enacted by political elites seeking to manage the distribution of public goods to their core supporters’ (p 75). Since economic wealth was already distributed in racially inequitable ways, cities’ responsiveness to taxpayers followed the same lines, creating deeply entrenched patterns of geographic segregation. Differences in public service provision exacerbated and reinforced inequality in enduring ways. Cities that were early proponents of zoning, for example, remained significantly more segregated decades later than cities that were not. Political elites used zoning regulations to direct public goods to their own constituents and to preserve property values in wealthier areas, which would in turn protect city revenue streams. Rising property values meant rising revenues even without tax rate hikes. Over time, prosperous White neighborhoods and decaying minority neighborhoods were viewed by White residents and their elected representatives not as the result of public policies, but of differences in the values, work ethics, and merits of these different communities. Cities or neighborhoods with higher property taxes and more public amenities sought to wall themselves off through exclusionary zoning and, later, ‘comprehensive urban planning.’ And, as Kruse (2005) documented in Atlanta, throughout the country segregation came to be justified in terms of individual responsibility and individual rights. This pattern of public goods provision ‘contributed to a 69

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growing collective sense of whiteness and homeowner identity on the one hand … and on the other hand, the hardening of stereotypes about the sustainability of poor and nonwhite residents as neighbors’ (Trounstine, 2018, p 116–​17). The use of zoning laws by the city to regulate the geographic distribution of public goods itself contributed to attitudes that made future segregation more likely. Importantly, Trounstine finds that 50 years later, cities that were ‘early adopters’ of such zoning practices over time were 10 per cent more racially and class segregated than other similarly situated cities. Through zoning, in short, a city ‘physically imposed inequality on its citizens’ in immediate terms, and then perpetuated that inequality because poverty came to be associated with the people who lived in poor neighborhoods, rather than with the failure of government to provide adequate public services in those areas. A wealth of scholarship dating to the 1940s finds that ‘states and localities with higher Black populations tend to have lower expenditures on welfare and public goods’ (Hero and Tolbert, 1996; Hero and Levy, 2017; An et al, 2018, p 836). As Trounstine argues, ‘zoning was a mechanism used to reinforce existing racial hierarchies’ (Trounstine, 2018, p 91). In the South, where segregation was enshrined in Jim Crow laws, zoning was a way to ‘legitimize’ the racial hierarchy. The focus on public goods provision and its role in sustaining residential segregation patterns is particularly relevant for the purposes of this book. For one, it clearly reveals the racial social contract. Public services were for wealthy residents, and in particular for White residents, and cities sought to formalize this contract through zoning laws. Of course, the behavior of realtors, landlords, individual White households, and White collectives seeking to block residential desegregation all played an important part in reinforcing segregation (Sugrue, 1996; Boustan, 2013; Hannah-​Jones, 2020).1 Zoning was by no means a singular force in preserving residential segregation. But Trounstine’s focus on public goods provision, and its impact on physical segregation as well as identity formation, is directly relevant for understanding how taxes uphold and reproduce a social contract. Besides its deleterious effects on equity in public service provision, residential segregation also foreclosed the creation of common cause and common interests among Whites and non-​Whites, and instead pitted neighborhoods against one another in competition for scarce resources. A considerable scholarly literature exists on the positive 70

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relationship between diversity and political polarization, and between diversity and low levels of public service provision (Alesina et al, 1999). Betts and Fairlie (2003) find that in diverse communities, ‘a greater share of communities’ security and educational needs is met through private provision’ (cited in Trounstine, 2018, p 211). To explain this, some scholars have pointed to mechanisms like preference heterogeneity across different income, racial, and ethnic groups (Alesina et al, 1999), as well as efficiency and coordination issues that arise in coordinating preferences in heterogenous settings (Miguel and Gugerty, 2005; Habyarimana et al, 2007). Others cite lower levels of interpersonal trust across ethnic or racial groups, especially among those with high ‘racial animus’ (Lind, 2007; Hajnal and Rivera, 2014). Evidence of a positive association between racial stereotypes and public opposition to welfare provision abounds (Kuklinski et al, 1997). Gilens (1995, p 994) finds that ‘racial attitudes are in fact the most important source of opposition to welfare among whites,’ outweighing self-​interest, individualism, and concern for egalitarianism. Means-​tested programs targeted exclusively at the poor are particularly unpopular with those who hold ‘racial animus.’ An et al (2018) argue that scholars find inconsistent associations between public spending and racial inequality because it is ‘the racial “structure of inequality”, rather than aggregate inequality or social heterogeneity in and of themselves,’ that drives investment decisions around public goods provision (p 857). To understand urban politics, Trounstine argues, ‘we must contend with the politically institutionalized power of the white property-​owning community,’ which continues to support largely segregated communities with high levels of public services and amenities ‘while shifting the burdens of urban life to the poor and communities of color’ (Trounstine, 2018, p 210). Property tax limitations highlight how this institutionalized power of White property owners becomes embedded in tax policies. Inequality in the distribution of benefits from property tax cuts is driven by underlying structural inequities, notably residential segregation. For example, homeowners in areas where property values are rising benefit more from these cuts, and because of long-​standing patterns of residential segregation, these tend to be areas where homeowners are more likely to be White. The same is true where homeowners have been in their homes longer –​they are both more likely to benefit from property tax limitations and more likely to be White. Finally, government jurisdictions where property values are high can generate 71

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the same revenue with lower rates than governments in jurisdictions where property is not as valuable. Thus, although property tax limitations are not directly targeting White homeowners or aiming to create benefits that bypass Black or Hispanic or other minority homeowners, long-​standing patterns of residential segregation mean these differences between homeowners tend to follow racial lines. Because most racial inequality in property tax rates arises from interjurisdictional segregation rather than from discrimination in property assessment, property tax limitations do not fix the problem. Instead, they tend to entrench, and even to exacerbate, structural features of local property taxation that favor white property owners, most especially the bias in favor of long-​term owners of high-​value homes. (Martin and Beck, 2017, p 223)

The tax bargain as conservative force While segregation within urban areas is as old as city government itself, White flight in the wake of desegregation in the civil rights era explicitly used the rhetoric of taxes and implicitly invoked a narrow social contract as its legitimizing ideology. The so-​called conservative tax revolt is one more example of how a long-​standing tax bargain can carry forward notions of a limited social contract even in the face of powerful social and political mobilization. The enduring power of a tax bargain comes from the economic advantages it confers, from the tendency for these advantages to become entrenched in political institutions and processes and translated into public policies that continue to preserve them and to widen the gap between these ‘insiders’ and those excluded from the beginning. As desegregation advanced, Whites in the South, and later in the North, resisted an expanded social contract, asserting their ideological support for small government and low taxes. Many southern Whites believed they paid most of the taxes and that they were being asked to give a ‘free ride’ to Blacks. Segregationists complained, for example, that Whites paid taxes to support the ‘socialistic burden of feeding and clothing’ Blacks (Kruse, 2005, p 126). Cloaking opposition to integration in terms of taxes stressed the rights and identities of Whites as property owners and taxpayers. And here conservative activists and politicians struck a rich vein of electoral support. Middle-​class segregationists saw the integration of public schools as violations 72

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of their rights as ‘parents, citizens, and taxpayers.’ ‘In truth, white southerners of all classes hoped for a privatized, racially selective world’ (Kruse, 2005, p 134). The ideology espoused by proponents of the conservative tax revolt, of course, tends to ignore the pivotal role that government, taxpayer-​funded programs have played in building the White middle class and the economic and legal infrastructure that benefits primarily the upper and upper middle classes, and that until very recently were reserved for Whites. When political reform (this time in the form of civil rights legislation) threatened those advantages, conservative ideology furnished a rhetorical tool to evade change by reasserting the core tenets of the tax bargain and the social contract that underlay the formation of the state. This included a minimal role for the state beyond public safety and protection of private property. Kruse and others have pointed out that Whites who fled Atlanta for the suburbs became anti-​government and anti-​public service only after desegregation. If having public amenities meant desegregating them –​ sharing public amenities with Blacks –​ working-​class Whites in particular decided they’d rather go without. As a result, the South, especially its suburbs, became a bastion of conservatism and a Republican party stronghold. The enemies were big government, the progressive income tax, and high property taxes. Republicans who made up this base believed the narrative spun by Ronald Reagan, Newt Gingrich, and others, that tax dollars were going to the so-​called ‘welfare queens’ of the cities (Martin, 2008; Perlstein, 2009). Kruse argues that today’s ‘modern suburban conservative agenda –​ the secessionist stance toward the cities, the individualistic outlook, the fervent faith in free enterprise, and the hostility to the federal government –​was in fact first articulated and advanced in the resistance of Southern Whites to desegregation’ (Kruse, 2005, p 266). The civil rights movement made it necessary for southern White conservatives to find new, more subtle language to rally support. They settled on the language of ‘rights, freedoms, and individualism.’ The core belief system goes like this –​market above all, individual responsibility over community, privatization over public welfare. White flight to suburbs, and the founding of a legitimizing ideology that did not explicitly mention race but instead focused on individual freedom and the free market, was perhaps the most successful White reaction in the fight against civil rights. 73

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Segregationists cast themselves as positively affirming the values of individual freedom and responsibility. They should have the ‘right to choose’ who their neighbors and employees can be. This was cast as ‘freedom of association.’ A federal government that insisted on imposing equality was intruding on their economic, social, and political prerogatives, not to mention on regional culture and values. Modern conservatism, says Kruse, is at its core a reaction to desegregation, to the broadening of the political community and the social contract. And conservatives understood that taxes were fundamental to defining the social contract and the political community. While Kruse draws a straight line between desegregation, White flight, and the conservative tax revolt, other scholars source the growth of the conservative movement elsewhere. Block (2009) links a conservative anti-​tax coalition to developments like the civil rights movement, the Vietnam war, and the counter-​protests it sparked. Even though large corporations were reliant on ‘big government’ (including subsidies for the defense industry, for example), conservatives saw the clamor by social and religious conservatives for less entitlement and more ‘individual responsibility’ as a way to short-​circuit a reciprocal exchange (federal subsidies in exchange for corporate taxes) and to argue that all taxation was bad. Thus, Block argues, ‘market fundamentalism was both the glue that held this conservative coalition together and the justification for the tax cuts and rollback of government that the coalition embraced’ (2009, p 75). The federal government, and federal taxes, were associated with federal government attempts to enforce desegregation and full civil and political rights for African Americans. ‘The permanent tax revolt communicates an unwillingness to cooperate with these resented groups’ (Block, 2009, p 83). Thus, a resistance to desegregation is cast as a resistance to government overreach, rather than to integration per se. Certainly, the South was not the only region to provide fertile ground for the rise of a conservative movement asserting a narrow tax bargain. Lisa McGirr (2001) and Matthew Lassiter (2006), among others, have pointed to the crucial role of local movements in the Midwest, Sunbelt, and West Coast as well as in the South. Different issues were front and center in different parts of the country and at different times. Or rather, issues that were primary in one region might be seen through a different lens in another. What bound the conservative movement in its early stages, however, was ‘a discourse blending together individualism, property rights, opposition to an 74

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activist state and claims of the existence of a market-​based meritocracy that allocates rewards correctly if allowed to operate without government interference’ (Janiewski, 2008, p 60). Throughout the US, regional variations on resurgent conservative politics drove processes of suburbanization that were justified in the language of freedom from government regulation and excessive taxation. Theories of urban development had long focused on cities as poles of growth and centers of political contestation. Paul Peterson (1981), echoing Tiebout and Oates, argued that competition for the resources necessary for growth drives the policy decisions of urban governments. Since cities compete for investment and economic development, they will set aside social policies that might endanger those goals, regardless of political pressure to do so. As Mossberger (2009, p 41) puts it, ‘generous social policies would attract poor people and strain local resources and repel business and affluent residents fleeing high taxes.’ In this view, urban economic development needs are primary and shape both economic policies and politics. Urban regime analysis added complexity to the picture, drawing together political and economic analysis to understand how private market actors and public and political officials together influence policy decisions, with competing interests forming shifting alliances. Urban business elites are a powerful force, but public administration and political officials are too, and these two broad groups are internally varied, with different interests and strategic resources. Moreover, they share overlapping goals, and they engage in both formal and informal strategic collaboration in order to achieve these (Elkin, 1985; Stone, 1989). Modernization theory, a dominant theory of political change in comparative as well as American politics in the mid-​20th century, presumed that economic growth and development in cities would bring with it the modernization and liberalization of politics as well. As political and economic elites found ways to achieve their overlapping goals, cities would remain fertile ground for economic growth and innovation, as well as for political moderation. Instead, cities were seen to be mired in intractable politics and deeply entrenched economic and social problems. For conservative activists and political leaders, these social and economic ills were a function of excessive government intervention. The answer was to create communities where individual rights and responsibility were championed over solving social ills. This was not limited to the South, of course. Studies of suburbanization as a national phenomenon, as 75

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well as comparative regional studies of suburban history, have painted a complex and nuanced picture of the changes that led to suburbs becoming centers of political and economic change (Jackson, 1987; Lassiter and Kruse, 2009). A common thread that crosscuts these accounts is a drive to leapfrog out of the messy, heterogeneous realm of cities and to assert a more limited social contract. Underpinned by this (re)assertion of the racial social contract, taxes are seen as burdensome and illegitimate because they are miscast as benefiting groups perceived as unwilling to follow the rules of meritocracy and individual responsibility. Taxes are a Trojan horse meant to take from the worthy and give to those unwilling to do their part. Property rights, the provision and guarantee of which are a primary function of the state, are now recast as the product of market forces and those with the right work ethic. Property rights are not guaranteed by the state –​they must be protected from it. The adoption of ‘color-​blind’ rhetoric on the right is one way the focus on individuals gets operationalized in practice. King and Smith (2014) have written convincingly about how conservative activists and politicians championed ‘color-​blind’ policies as an antidote to a more expansive social contract. Advocates of color-​blind policies assert that everyone, regardless of race, is already part of the social contract. To argue for explicit inclusion for any one group is to ask for special privileges. Hannah-​Jones (2020, p 35) reminds us that, ‘as soon as laws began to ban racial discrimination against black Americans, white Americans created so-​called race-​neutral means of maintaining political and economic power.’ Jim Crow laws, including the requirement that Blacks living in the South have an annual labor contract with a White employer, convict leasing programs, mortgage redlining, exclusion of Black Americans from social insurance programs, federally insured mortgage programs, taxpayer-​funded higher education, and so on are just some of the examples one could point to. The obfuscation of racial discrimination behind the veil of economic interest has not only made for successful conservative politics. It has led Americans in general to believe that the current distribution of wealth is a ‘neutral baseline’ rather than the product of centuries of discrimination underwritten by a long-​standing social contract. The conservative tax revolt embodies what Murphy and Nagel (2002) describe as, ‘a vision of government as a provider of services whose demands for payment intrude on a laissez-​faire capitalist market economy that produces a presumptively legitimate distribution of property rights’ (p 15). But 76

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it is government, and taxation, that makes property rights possible. The tax system, they write, ‘is among the conditions that create a set of property holdings, whose legitimacy can be assessed only by evaluating the justice of the whole system, taxes included’ (Murphy and Nagel, 2002, p 37). They argue that ‘societal fairness, rather than tax fairness, should be the value that guides tax policy’ (Murphy and Nagel, 2002, p 173). We must consider, they argue, the goals of the system itself –​the social contract –​in order to determine whether our system of taxation achieves those goals. In the ideology of the movements underlying the conservative tax revolt, the goal of the system (which should guide tax policy) is to uphold the rights of current property owners, without acknowledging the role that government intervention in markets has played in creating those property rights. Thus, in championing property tax limitations, conservatives are invoking a tax expenditure that primarily benefits White homeowners. Providing government subsidies via tax expenditures is often understood by taxpayers not as government subsidies but as simply being allowed to ‘keep their own money.’ ‘In effect, local property taxation, and property tax limitation in particular, disguises a racially biased public subsidy as a private property right’ (Martin and Beck, 2017, p 222). Such policies are wholly in line with the limited social contract articulated in the rhetoric of the conservative tax revolt.

Tax and expenditure limitations in defense of an exclusionary social contract Building on this base of systemic racial inequality, tax and expenditure limitations have exacerbated inequities and affected the delivery of public services and access to even the most essential services by racial minorities. As White flight preserved segregated communities and schools, it also preserved and widened the racial wealth gap. Later, changes in tax models consistent with a small government, business-​ first ideology helped widen the gap. Proponents of White flight spoke of the right of local residents to create their own communities. In practice, these were racially segregated communities that concentrated people who had for decades benefited from federal tax expenditures to support White home ownership. In 1994 Newt Gingrich, then a member of the US House of Representatives for a suburban Atlanta district that includes Cobb 77

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County, and soon to be speaker of the House, explained the ‘middle class values’ that drove White flight. People in Cobb [County] don’t object to upper-​middle-​class neighbors who keep their lawn cut and move to the area to avoid crime. What people worry about is the bus line gradually destroying one apartment complex after another, bringing people out for public housing who have no middle-​class values and whose kids as they become teenagers are often centers of robbery and where the schools collapse because the parents that live in the apartment complexes don’t care that the kids don’t do well in school and the whole school collapses. (Quoted in Kruse, 2007, p 261) This assertion of a narrow tax bargain and correspondingly narrow social contract, Kruse argues, was used first in the South to justify White flight in the wake of civil rights legislation that expanded the social contract. But it also became a pillar of a national conservative movement, fueled by the tax revolt that gained national attention –​ and widespread imitation –​with California’s Proposition 13 in 1978. Other tax-​limiting initiatives soon followed in other states, fed by a legitimizing ideology linking the virtues of ‘individual responsibility’ to a low-​tax, low-​services economy. Proposition 13 was at the leading edge of what would soon become a national movement to reformulate state and local tax bargains (Danziger and Ring, 1982; Martin, 2009). The rest of this section provides an overview of tax and expenditure limitations in the US. It first discusses the concept in general terms, and then describes the varieties and proliferation of tax and expenditure limitations (TELs) over the last five decades. A TEL is a self-​imposed restriction (constitutional or statutory) on a government’s tax or spending authority, and TELs were an effective mechanism to institutionalize revenue scarcity and to safeguard it against future policy changes by political opponents. Thus, TELs are a way of blocking future changes to the social contract. Tax and expenditure limitations may be imposed to limit state government expenditure, local taxing and spending authority, or both. By removing decisions about the tax bargain from the political arena, they freeze in place the policy preferences of the group that is currently in power so that if they lose political dominance, these policies survive. As Terry Moe reminds us, ‘in a democratic system fraught with uncertainty, enemy designers, and contending 78

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institutional authorities, severe constraints tend to be placed on bureaucratic discretion for political reasons, and these constraints directly undermine the technical capacity so necessary for effective performance’ (Moe, 1989, p 327). Proponents of such restrictions argue that these measures reinforce government accountability. And tying the hands of politicians with respect to taxing and expenditure decisions is politically attractive. Even politicians who are disposed to raise taxes are thus relieved of the responsibility to do so. At the same time, by divorcing these decisions from a contemporary political process, stakeholders –​voters, citizens –​ cannot participate in a political process to adjudicate between the trade-​offs that must be made during economic downturns. Instead, they are driven by rules made in a prior period, when different political actors may have been in power. Proposition 13 was not the first tax-​limiting legislation. As early as 1845, southern states imposed legislative super-​majority requirements to raise tax rates or to impose new taxes. More restrictions were passed after Reconstruction. The explicit intent was to restrain the reach of state and local government (Newman and O’Brien, 2011). Uniformity clauses, discussed in Chapter 3, were another early form of tax restraint. With strong support from slaveholding elites, these laws prohibited state governments from taxing slaves at higher rates than the rate at which other property was taxed. At the time, the economic value of all enslaved people exceeded that of railroads and manufacturing combined. While western and northern states later championed their own adoption of similar clauses as a victory for equity in taxation, in southern states uniformity clauses simply locked in the low tax bill of planters. As Einhorn points out, these early constitutional limits on state and local taxation ‘originated in efforts to limit the power of the newly democratized majorities rather than as a triumph of the majorities themselves’ (Einhorn, 2006, p 202). The same can be said of modern tax and expenditure limitations. As already mentioned, the language of the conservative tax revolt in the 1970s (and the legitimating ideology of White flight) is the language of individual rights and responsibility and of minimal collective responsibility, with a minimal role for the state in order to protect the free market and private property. This language invokes cherished American values –​individual freedom, individual initiative, the law of supply and demand, and the sanctity of private property. In the South especially, the state and local low-​tax, low-​services tax 79

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bargain entrenched the most powerful interests. At national level, the federal government had subsidized the construction of a White middle class since the New Deal, when the modern, racially exclusive American welfare state was established. The federal tax code built a powerful White middle class ready to defend its government-​ subsidized gains through the language of free market capitalism and small government. Starting in the 1950s, civil rights legislation sought to expand the public sphere by extending full rights of citizenship to people long excluded from public goods. Economic policies were used to combat these political gains. Once open rebellion against desegregation was no longer politically acceptable, mobilizing appeals were framed in terms of protecting private property from the grasping hands of the poor and a potentially redistributive state. State and local tax and expenditure limitations thus served to check an expanding social contract and preserve the economic and political power of dominant social groups. The modern era of tax and expenditure limitations dates from the passage of Proposition 13 in California in 1978. Proposition 13 reset property values to their 1975–​76 values and limited property taxes to no more than 1 per cent of the purchase price for residential, commercial, and industrial properties, annually adjusted for inflation but never increasing by more than 2 per cent per year. This annual adjustment is not intended to keep up with increases in the market value of property. When a home is sold, it is reassessed at market value based on the new purchase price. This transfers the tax burden to newer residents (Martin, 2009). Proposition 13 came on the heels of rapid and dramatic increases in property values. Since property taxes are one of the most visible taxes, they often arouse opposition, and so property tax limitations are popular with taxpayers and with politicians seeking election. Haveman and Sexton find that rising local spending, increasing reliance by local governments on property taxes due to reductions in intergovernmental transfers, and slow growth in personal incomes have all likely contributed to property tax rates that have often risen faster than personal income (Haveman and Sexton, 2008, p 6). At the time of Proposition 13’s passage, California had also begun to experience considerable in-​migration from surrounding states, and one purpose of the bill was to protect existing homeowners from the responsibility of paying the price of public services for newcomers, who might include less affluent and racially diverse populations. As 80

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Strand and Mirkay point out, ‘Prop. 13’s stance was partially informed by an economy that was faltering, but it was also a White reaction against the demographic and political changes that were unfamiliar and unsettling’ (Strand and Mirkay, 2019). The strongest supporters of Proposition 13 also expressed racial resentment against African Americans (Sears and Citrin, 1982). Later amendments in the decade after its passage included a measure to exempt family transfers of property (under $1 million in value) from reassessment that would normally be triggered on the sale. A ballot measure brought in 2020 to allow property tax rates on commercial and industrial zoned property to be set at market value failed to pass. Opponents argued that the estimated $12.5 billion in annual state revenue the bill would have generated would be used to fund already inflated pensions for state workers and other social welfare measures that would make California unattractive to business. Meanwhile, Proposition 13 undermined state support for education, which had created the strong public schools and top-​tier public university system that had benefited earlier generations of White immigrants (Ballotpedia, 1978).

Varieties of tax and expenditure limitations Proposition 13 soon became a popular model for other states to emulate. Its passage mobilized local and state governments to follow suit, energized conservative movements in other states, and increased the rate of passage of tax limitations (Martin, 2009). Mullins and Wallin (2004) point out that, ‘within two years of the passage of Proposition 13, 43 states had implemented some form of property tax limitation or relief, 15 lowered their income tax rates, and 10 indexed their income taxes for inflation’ (p 2). Between 1970 and 1976, 17 states imposed fiscal restrictions on their local governments, and almost half of the 46 states with such restrictions passed them after Proposition 13 passed in 1978 (Mullins and Wallin, 2004). The use and significance of TELs has grown since then, with national lobbies allying with anti-​tax organizers at state level. In 2020, 33 states had a TEL of one sort or another. In 2018, 44 states and the District of Columbia had at least one type of limit on property taxes (Lav and Leachman, 2018; Leachman et al, 2018). These include state laws that apply limits on some or all local governments as well as on state level. According to the Urban-​Brookings Tax Policy Center, as of 81

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Table 4.1: Types of TELs states impose on local governments Property tax rate limit (for specific types of government)

Property tax rate limit (overall)

Property Assessment General General tax increase revenue expenditure revenue limit limit limit limit

Full disclosure (truth in taxation)

Source: (Mullins and Wallin, 2004)

2020, 21 states had caps on state revenue, and in 19 of these states, a legislative super-​majority was required to override those caps (Tax Policy Center, 2020). State TELs may also limit taxing and spending by local governments (including counties, municipalities, and school districts). Local government fiscal restrictions may include limits on property tax rates, limits on property tax revenue, limits on increases in general revenue, limits on assessments, limits on expenditure increases, and full disclosure laws (also known as ‘truth in taxation’ laws). Mullins and Wallin (2004) found that 46 states limited the fiscal authority of local governments in one of these ways. Almost half of these were adopted after Proposition 13 passed in 1978. The most common type of restriction is the limit on property tax rates for specific types of local governments, requiring a popular vote to change the rate ceiling (see Table 4.1). Such TELs could be undermined if not coupled with restrictions on changes to assessment practices. Thus, some states have TELs that limit the total amount of revenue that can be collected from property taxes. In 37 states (as of 2004), two or more of these limitations were in effect for local governments. Most of the local TELs originated in ballot initiatives, (Mullins and Wallin, 2004; New, 2010), while most state-​level TELs were initiated and passed by state legislators (Tax Policy Center, 2020). Local government TELs are most common in western states, where they also tend to be more restrictive than in other regions. Midwestern and southern states make liberal use of them as well. The stringency and effectiveness of TELs also vary. One study found that states with revenue limits that could only be overridden by legislative super-​majorities reduced general fund spending by 2 per cent on average (Reuben, 1997). But TELs have also been found to increase borrowing by state and local government (Mullins and Wallin, 2004), and revenue limitations may increase the costs to states 82

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and localities of borrowing (Poterba and Rueben, 1997). Brooks et al (2016) found that one in eight municipalities imposed a TEL, and that once these rules are in place, municipal revenue declines on average by 13–​17 per cent. Impacts differ depending on what state or local-​ funded programs are already protected or likely to be on the chopping block, and the impact of local TELs on spending depends on levels of state aid to localities. What is certain is that once TELs are in place, all other revenue and expenditure decisions are made around them. Why are TELs so widespread? After all, local government responsiveness to voters is often celebrated as one of its chief virtues. Tiebout’s model says that when taxes are too high, people will vote with their feet. Why tie all local governments in a state to uniform revenue limits? Mullins and Wallin (2004) suggest that ‘support [for TELs] may have been motivated by a combination of “wishful” thinking and a self-​interested attempt to shift the burden of government finance’ (p 15). Another answer comes from the ‘Leviathan-​Niskanen-​Buchanan hypothesis,’ which derives from public choice theory. According to this hypothesis, TELs are a response to overreaching and inefficient government. Because governments are not subject to market forces, their impetus to spend (and tax) beyond need must be checked by accountability mechanisms like TELs. Tiebout’s theorem, along with Oates,’ is defeated by self-​interested bureaucrats who, motivated by professional interests and greed and subject to too little scrutiny, will inevitably produce government overreach and high taxes (Kheng, 2001, cited in Stallman et al, 2017). A third set of explanations focuses on the desire of politicians to promote economic growth and development with attractively low tax rates. Although conclusive evidence about the role of taxes in decisions by businesses about where to locate is lacking, politicians believe taxes play a huge role in company decision making. ‘As a result, tax and expenditure limitations must be imposed to focus fiscal discipline and keep taxes low’ (Stallman et al, 2017, p 200). Relatedly, low taxes are believed to create a ‘positive business climate.’ Thus, TELs allow politicians competing to attract private industry to argue that a positive business climate is locked in and that businesses can safely invest for the long term. Answers based solely on economic theory are unsatisfying. Public choice theory suggests that tax limitations indicate voters believe existing accountability mechanisms are inadequate. Politicians cannot be 83

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trusted to engage in fiscal restraint, therefore across the board, automatic measures are necessary. Perhaps politicians are faced with too many voices with disparate interests. A statutory or constitutional fiscal restraint is a guarantee against a future period when taxpayers desiring small government may lose political power. This might happen, for example, when the electorate becomes more diverse, as after the Civil Rights and Voting Rights Acts were passed in the mid-​1960s. Proposition 13 came on the crest of a wave of in-​migration that began shifting the balance of White and non-​White populations in the California. Federal desegregation mandates caused taxpayers to move to and create tax jurisdictions more in line with their preferences. On one level, TELs can be seen as an exercise in political power by a group fearing the loss of economic and political power –​an effort by today’s powerholders who, feeling threatened, seek to tie the hands of future powerholders in ways that lock in their preferences. Mullins (2004) suggests that rather than seeking to reduce the range or supply of public services on offer, voters who supported TELs ‘were, in essence, attempting to lower the price of the existing service package’ (p 115), and/​or to shift the tax burden to others, as revenue efforts shifted to sales taxes or various forms of non-​tax revenue. In this way, TELs offer insight into the mechanisms through which tax bargains are sustained over time. Imposing uniform revenue and expenditure restrictions across all jurisdictions regardless of their composition and diversity has the effect of reducing local autonomy and the idea that local government should be responsive to local preferences. In general, uniform standards on spending and taxing help prosperous and homogeneous communities more than poor and more diverse ones. By one estimate, more than 89 per cent of the tax savings generated by property tax limitations in 2011 went to White homeowners (Martin and Beck, 2017). More diverse communities tend to have higher public spending –​ perhaps because diverse populations have diverse preference profiles, or perhaps because there is greater need for public services in poorer communities. Although TELs are cloaked in the language of efficiency and responsiveness, they are neither. Instead, ‘it is precisely the fact that the effects of limitations are likely to be differentially felt by governments in different phases of growth and maturity (and with populations with different preferences and capacities for the outputs from the public sector) that makes these effects simultaneously so potentially arbitrary and biased’ (Mullins, 2004, p 114). 84

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Statewide TELs reflect and protect the interests of prosperous, established, and largely White communities. As is widely known, the drawing of electoral districts for state and local office has sorted people into politically (and often, racially) more homogeneous political districts. Thus, state officials can afford to appeal to a narrow base, while city governments face a diverse electorate. And states exercise tremendous power over local governments, not least through preemption laws, which can limit the power of local governments not just on taxing and spending decisions but on all sorts of rules. These preemption laws have proliferated over the last decade (see Blair et al, 2020). For all of these reasons, state officials’ interests are more likely to be served by imposing TELs than are those of local officials. Statewide TELs on property tax make it especially difficult for local governments to meet revenue needs. Only two states do not have statutory or constitutional limits on property taxes –​New Hampshire and Vermont.2 Elsewhere, state legislators impose limits on property taxes that mostly benefit local governments. In effect, as Haveman and Sexton (2008) point out, ‘assessment limits thus represent a restriction by one level of government, the state, on the funds available to another, local jurisdictions (p 16). Local jurisdictions must make this up by cutting spending, receiving more in state aid, or finding alternative revenue sources. The effects of TELs on overall revenue, of course, depend on the specific rules and on the local context. Where property values are stable or declining, limits on assessment are unlikely to adversely affect the tax base. Communities experiencing a significant influx of new residents will see less of a decline in their tax base if property taxes are assessed on fair market value upon sale (as in California). Nevertheless, TELs can have serious negative effects on revenue that are hard to balance. A study of one county in Georgia found a reduction of almost 10 per cent in the annual tax base from 1985 to1997 after the county imposed a limit on assessments. In most states, state and local jurisdictions are barred from raising tax rates to make up for shortfalls in tax revenue created by assessment limits. California counties and school districts were especially hard hit by Proposition 13, with county property tax revenues falling more than 57 per cent and school district revenue falling by 61 per cent in just two years (Haveman and Sexton, 2008). Intergovernmental revenue might be expected to provide some relief to localities, but it has been on a downward trend during the same period in which TELs have proliferated. According to Lav and 85

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Leachman (2018), since the late 1970s, state and federal aid as a share of local revenue has declined nationwide. In Massachusetts, an early TEL adopter, unrestricted local aid from the state was cut by almost half between 2001 and 2015 (Lav and Leachman, 2018). Local jurisdictions with smaller tax bases are most likely to be hurt by the combination of statewide TELs and declines in state aid to localities. These would be jurisdictions without a strong economic base or where property values were lower to begin with. The latter is more often the case in communities with a sizable minority population, exacerbating the negative equity effects of TELs. Property tax rate cuts reduce revenue less dramatically in more affluent areas where Whites are concentrated because average property values are higher in those areas to begin with. When property taxes are cut, White homeowners gain an even lower effective tax rate. Since higher property values at reduced rates still generate significant revenue, affluent communities can accommodate rate cuts without as big a loss in public services (Martin and Beck, 2017). Though TELs do show small reductions on government spending, they also make it harder for state officials to budget, oblige states to provide more aid to localities who now cannot provide for their own needs (probably increasing state borrowing), and tie land use to the need to generate more sales taxes in the absence of other revenue sources (Haveman and Sexton, 2008). TELs have led to an increase in reliance on non-​tax revenues like fines and user fees, especially in times of economic downturn and recession (Park et al, 2018; Maciag, 2014; McCubbins and Moule, 2010; Mullins and Joyce 1996). In effect, even if TELs have had relatively little impact on state and local public sector size, they have changed the mix of revenues used to fund the public sector. They have reduced the use of property taxes in favor of state aid, fees, and miscellaneous revenues (Park et al, 2018). They have also given more power to state governments to determine the content of the local public sector. Mullins (2004) finds that the same set of fiscal restraints have differential effects on the packages of services that local jurisdictions provide, exacerbating the effects of income inequality. Less affluent districts that need higher property tax rates to generate significant revenue are likely to be affected more than wealthier districts. The most important effect has been spending on education. Mullins (2004) also finds that efforts at local level to circumvent state-​imposed TELs have had important equity implications. Localities 86

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constrained from raising general levies instead resort to special-​purpose ones. This increases complexity and segments the electorate into slices of voters who must follow a specific issue very closely in order to trace the byzantine implications for their preferred outcomes and mobilize effective political support to defeat such measures. Few voters are equipped to do so. Moreover, these machinations around specific taxes for specific issues preferred by a narrow segment are likely to have broader implications that are hard to predict. In effect, the most well-​resourced, informed, and organized issue voters are more likely to receive the government services they prefer, with negative consequences in terms of efficiency, fairness, and accountability for the broader population. In strictly economic terms, TELs impose inefficiencies as governments search for workarounds that may have distortionary economic effects or other undesirable implications. There is a good deal of evidence that TELs shift the revenue mix away from broad-​based taxes and toward more narrow, less transparent, and less equitable forms of financing government and the delivery of essential public services. Stallman et al (2017) cite numerous studies showing that the impact of TELs includes, most significantly, a shift away from broad-​based taxes and toward user fees and intergovernmental [state-​to-​local] transfers and a larger role for state governments, in view of local governments’ restricted revenue authority. Restrictions on property taxes have repeatedly been shown to increase reliance on other forms of taxes as well as user charges (Sun, 2014). Amiel et al (2014) find that states with TELs have shifted from taxes and intergovernmental aid to greater use of ‘miscellaneous revenues,’ for example. Under Proposition 13, cities became more reliant on fees and charges and reduced their reliance on property taxes. Sales taxes did not pick up the slack from property taxes as much as expected (Hoene, 2004). Later TELs had a similar effect. For example, after passing its Taxpayer’s Bill of Rights law (TABOR), the state of Colorado increased its reliance on user charges and permits as a share of revenue (Mullins and Wallin, 2004). Thompson and Green (2004) found that after two TEL measures passed in Oregon (Measure 5 in 1990 and Measure 47 in 1996), fees and charges surpass property taxes in many local jurisdictions. The share of total local government revenue from fees went from 5% to 35% (p 79). These other sources of non-​tax revenue often cannot keep pace with falling tax rates (Shadbegian, 1999; Chapman and Gorina, 2012). Nationwide, the use of fees and charges to supplement revenue jumped to 23.1 per cent 87

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from 16 per cent between 1977 and 2015 (Lav and Leachman, 2018). In one particularly egregious example, in response to Missouri’s TEL, known as the Hancock amendment, local governments in the state allowed fee revenues to increase by 238 per cent over a ten-​year period from 1992 to 2002 (Stallman et al, 2017, p 200). The negative effects of TELs on government fiscal capacity become even clearer and more consequential in times of fiscal stress. Benedict Jimenez (2017) examines municipal government responses to fiscal stress generated by the recession of 2007–​2009. Nearly 70 per cent of municipal governments responded by increasing existing fees for services or adding new ones. Cities under a stringent TEL were 10 per cent more likely to introduce new user fees and 11.2 per cent more likely to raise existing user fees compared to non-​TEL cities (Jimenez, 2017). Very few municipalities chose to increase property tax rates or assessments, nor did they seek to raise sales tax rates or to broaden the sales tax base. Use of reserve funds, external borrowing, and debt refinancing were also common strategies, as was transferring services to other levels of government (Jimenez, 2017). A significant percentage of municipalities (around two thirds of them) took measures to improve revenue collections, and nearly 12 per cent of municipalities said they were more likely to contract out for services rather than supply them in-​house. In sum, TELs tend to create both horizontal and vertical inequities, contribute to long-​term and chronic revenue shortfalls, reduce local government autonomy, and thereby reduce local governments’ ability to be responsive to the preferences of their constituents, leading to policies that increase economic distortions. As a report by the Lincoln Institute of Land Policy concludes, ‘30 years of experience suggests that these limits are among the least effective, least equitable, and least efficient strategies available for providing property tax relief ’ (Haveman and Sexton, 2008, p 39).

Conclusion In his classic text on local tax policy, David Brunori argues that if we want local government in America, we need robust local property taxes. There are, he asserts, ‘no viable alternatives to taxing property, at least none that can ensure fiscal and political autonomy’ for local government (Brunori, 2003, p 2). Concern for efficiency dictates that public services should be provided by the smallest jurisdiction over which those benefits are distributed. 88

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And according to Oates’ and Tiebout’s firmly established theorems, taxpayers make known their preferences on taxes and services by voting with their feet (Tiebout) –​moving to jurisdictions that offer their preferred mix of services at the right price –​or through political processes (Oates), even if taxpayers are not perfectly mobile and able to move to neighboring jurisdictions. Thus, local governments will find themselves in competition with one another to offer the mix of services at the right price point in terms of taxes. If local jurisdictions undertax, they risk not being able to provide the services their constituents want. If they try to engage in government overreach, by providing too many services or using tax policy for redistributive purposes, they risk imposing taxes high enough to cause an out-​migration of taxpayers. Because of this competition, local government is expected to be the level of government that is most accountable to its citizens and most responsive to citizens’ demands. For that, though, local governments need a degree of fiscal and political autonomy from other levels of government. As we have seen in this chapter, over the last 50 years state governments have imposed legal limits on tax policy at state and local level. And they have increasingly enacted legislation preempting local ordinances on everything from tax policy, labor policies, and worker’s rights to gun control and monuments that celebrate the Confederacy. Summarizing the views of most economics texts on taxes, Brunori argues that sound tax policies are based on seven principles: taxes should target an immobile tax base; they should target those who benefit from services more than non-​residents; they should produce a revenue yield that is stable and predictable; they should be adequate to revenue needs; taxes should be relatively easy to administer; they should transparency; and they should ensure accountability to taxpayers. Accountability is essential to another principle of sound taxation, that taxpayers should perceive the tax as ‘reasonably fair’ (Brunori, 2003, p 43). For Brunori and most other tax policy scholars, from an economic perspective the property tax is the best tax for local government. It visibly obeys the benefit principle, taxing local property owners to pay for basic services property-​owners require, such as roads or public safety. It provides a stable income base that increases as property values increase. It is less regressive than a sales tax and more resilient during economic downturns. According to a recent report, most states have regressive tax systems, but the most regressive are those that rely least on property taxes and income taxes, favoring instead 89

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sales and excise taxes (Institute on Taxation and Economic Policy, 2018). The problem is that taxpayers, and voters, tend not to share economists’ appreciation of the property tax. It is a highly visible tax on non-​liquid assets. Moreover, its fairness and effectiveness depend on proper administration –​property valuation and assessment –​for which not all local jurisdictions have the capacity. The public’s distaste for the property tax helped fuel the conservative tax revolts of the 1970s and 1980s, when the majority of states moved to restrict property taxes, either by limiting assessments or results. Where once local property tax accounted for 80 per cent of local government revenue, by 2003 it accounted for half of that (Brunori, 2003). In 2021, property tax still made up the bulk of tax revenue for local governments and accounted for about 30 per cent of state and local tax revenue combined. Local governments generally pay for essential public services like roads, schools, and public safety with property tax revenue. But in the wake of the limitations on property taxes imposed by many state legislatures, local governments have increased their use of local option sales taxes, excise taxes, and user fees. For Brunori, user fees clearly follow the benefit principle, and they limit the overproduction of goods and services because their provision is supposed to mimic market mechanisms. ‘Citizens are exposed to the true cost of government. Citizens can better evaluate the extent of government services they desire by their costs’ (Brunori, 2003, p 42). However, fee-​for-​service models might well underproduce necessary public services, as some citizens will not be able to pay even if they want or need the service. This raises obvious problems for relying on user fees for essential services. While nationwide revenue from fines and fees makes up only 2 per cent of large general fund revenues, in smaller cities and rural municipalities they are significant, as we discuss in Chapter 5.

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5

Implications of the Reliance on Fines and Fees Introduction Chapters 3 and 4 traced the long history of tax constraints in the United States, through the conservative tax revolts of the 1970s and 1980s. Chapter 4 examined the rapid spread of tax and expenditure limiting measures adopted by many states in the last quarter of the 20th century, beginning with California’s Proposition 13 in 1978. As we have seen, the practice of limiting government spending and revenue collection–​whether by statute or by constitutional amendment –​has both political and fiscal motivations. The conservative tax revolt popularized an anti-​tax ideology in response to the civil rights movement and Great Society programs that threatened to expand the social contract and, by extension, the tax bargain. In response to this expanded social welfare role for the state, conservatives –​first in the South, and then more broadly –​asserted the narrow tax bargain that had long underpinned states in the South. With most US states having established statutory or constitutional limits on taxes and expenditures, local governments have shifted toward new forms of revenue generation that make the ‘tax bargain’ between governments and citizens less transparent, divorcing taxation from service provision. This chapter focuses on one of the most pernicious effects of the artificial creation of fiscal scarcity through TELs –​the use of law enforcement as revenue generation. The use of policing to generate government revenue, first through civil asset forfeiture, and then through traffic fines, court fees and other criminal justice fines and fees, as well as municipal ordinance infractions, has reinforced this 91

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low-​tax, small government tax bargain. And, though the modalities of its implementation have been updated over time, this narrow tax bargain continues to be premised on the exclusion of racially and economically marginalized communities. Non-​tax revenues raised through traffic citations and fines for minor infractions tend to fall disproportionately on people of color. In effect, these measures allow politicians and taxpayers to keep taxes low while singling out a marginalized class of people to help pay for essential services that are normally considered public goods. When non-​tax revenues take on a significant role in funding government, those paying the price for government services go from being taxpayers –​a status associated with citizenship, belonging, and having ‘a stake in the community’ –​to being users of services. Users are at best customers, cast as agents who can choose to use a service or not, even when it comes to essential services like public safety. A service provider’s obligation to its customers is different from a government’s obligation to its citizens. Of course, taxes have long been euphemized as ‘user fees,’ and not all user fees are bad. They ration the use of scarce resources in accordance with intensity of use, encouraging thoughtful choices on the part of potential users. But they can also have perverse and unintended consequences. One example of non-​tax revenue is the use of state-​r un lotteries to fund or supplement state education budgets. After introducing a lottery meant to help fund public education, officials in the state of Florida reduced funds allocated for education rather than supplementing the budget with lottery revenues. Thus, instead of taxpayers as a whole being asked to pay for public education, lottery-​players pay for some (or in extreme cases, all) of that burden. People at the lower end of the income scale tend to spend a greater share of their income on lotteries than those who are wealthy. Notwithstanding their potential practical benefits for revenue generation, education lotteries violate many of the economic principles of a ‘good’ tax, including the benefit principle and the equity principle, about which more later. The education lottery shifts the burden of taxation without a public, deliberative process that acknowledges this change for what it is –​a tax that shifts the cost of public education to those who elect to play the lottery. Education lotteries, in turn, look benign when compared with ‘policing for profit,’ a popular term for a practice whereby municipalities rely on their municipal courts as profit centers to offset 92

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more traditional taxes. In both cases, the principles used to decide who should pay for services has little to do with any recognized principles of taxation, such as the benefit principle. In the case of issuing citations for revenue purposes, it is the untidy (those with unmown lawns or cracked driveways that violate municipal ordinances), the poor, and racial and ethnic minorities who pay a disproportionate price of public safety. As a US Commission on Civil Rights report notes, ‘these fines and fees pass on the costs of governing to the “users” of the criminal justice system, rather than the taxpayers’ (US Commission on Civil Rights, 2017). This reliance on fine and fee revenue erodes conventional notions of government accountability and citizenship.

Revenue-​driven policing A recent nationwide study finds that in around 600 localities throughout the US, fines and fees amount to at least 10 per cent of local government revenues, a level that experts have determined suggests that governments are relying on police departments for revenue rather than simply ensuring public safety and order. That figure is much higher in certain areas, especially among rural localities in the South, which generally have a smaller tax base (Maciag, 2019b). A Harvard Law Review article, citing trends in local policing in the US, argues that in an increasing number of municipalities, policing is seen as ‘a source of revenue rather than a broadly socialized public good.’ In the wake of the success of municipal courts and policing as profit centers, the author notes, ‘budget authorities have even started to cut police funding in response to these departments’ raising their own revenue, in turn spurring police to raise even more money in these ways’ (Harvard Law Review, 2015). Indeed, this point was thrown into stark relief in the 2015 Department of Justice report into police practices in Ferguson, Missouri after the killing of Michael Brown. The report found that Ferguson’s revenue-​driven policing practices were discriminatory, unconstitutional, and unnecessarily punitive for members of the Ferguson community (US Department of Justice, 2015b). Ferguson threw a spotlight on the linkages between the role that police play in collecting municipal revenue, and policing policy and practices. The city of Ferguson earned 13 per cent of its annual revenue, on average, from citations that ranged from traffic tickets to citations for overgrown lawns. The Department of Justice report 93

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on Ferguson found that ‘[c]‌ity, police, and court officials for years [had] worked in concert to maximize revenue at every stage of the enforcement process’ (US Department of Justice, 2015). During a briefing on the Department of Justice investigations of police conduct in Ferguson, Missouri, then Attorney General Eric Holder cited the systematic, pervasive nature of racially biased, revenue-​driven policing in Ferguson. ‘Our investigation showed that members of Ferguson’s police force frequently escalate, rather than defuse, tensions with the residents they encounter. And such actions are sometimes accompanied by First Amendment violations –​ including arresting people for talking back to officers, recording their public activities, or engaging in other conduct that is constitutionally protected’ (US Department of Justice, 2015a). Holder concluded that the Department of Justice could find ‘no alternative explanation for the disproportionate impact on African American residents other than implicit and explicit racial bias’ (US Department of Justice, 2015a). Over a nearly four-​year period between 2010 and 2014, African Americans accounted for nearly 85 per cent of all citations issued by Ferguson police. The figure was more than 90 per cent for ‘highly discretionary offenses,’ such as ‘manner of walking in roadway,’ a charge levied almost exclusively on African Americans. In more than 90 per cent of excessive force incidents in Ferguson, African Americans were the ones on the receiving end of that force. Police officers’ remarks on work email and in other documents found that African Americans were very much seen as ‘the other,’ characterized as ‘transient’ or ‘lacking personal responsibility.’ The Department of Justice report called for improved accountability through better tracking of arrests, citations, and police behavior, ending the practice of issuing arrest warrants to collect on fines and fees, and changing bond and detention procedures, among other things (US Department of Justice, 2015). Ferguson’s experience clearly and painfully illustrates how things can go awry when long-​standing, institutionalized practices of racial discrimination in policing practices are compounded by revenue incentives. Events there sparked investigations into other police departments, revealing that Ferguson was not unusual in its policies or in the discriminatory outcomes of those policies. Since then, both scholarly and policy literature on the pernicious consequences of revenue-​driven policing has grown at a rapid clip. In addition, a number of policy institutes and professional associations have undertaken careful and exhaustive studies on the use of fines and fees 94

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and promoted initiatives to address the most egregious practices. For example, the National Task Force on Fines, Fees, and Bail Practices, managed by the Conference of State Court Administrators and National Center for State Courts (NCSC), drafts model statutes and reports on best practices (Conference of State Court Administrators, 2018). Its focus is to stop the practice of jailing people unable to pay their fees and to promote rules requiring courts to consider ability to pay and to exhaust alternatives to jail time before jailing someone for not paying court-​ordered fines and fees. The state of Missouri passed Senate Bill 5 in 2015, in response to the investigation into Ferguson’s policing practices. It set a cap on overall revenue from traffic fines, ordered judges to consider a defendant’s ability to pay when assessing fines and fees, and ended charges (and the associated fines and fees) for failure to appear in court to respond to a traffic fine. It also introduced an interesting political accountability measure. Local governments are required to turn over all revenue from law enforcement to the state, a measure designed to reduce incentives by local governments and police departments to let revenue concerns drive law enforcement decisions. And citizens may dissolve their local government by referendum if it fails to do so (Government of Missouri, Senate, 2015; Makowsky, 2019). The city of Philadelphia worked with the Institute for Justice –​a non-​profit public interest law firm –​and agreed to two consent decrees to reform its practices of asset seizure (Wimer, 2018; Graham and Makowsky, 2021). Some cities, including Atlanta, eliminated cash bail, though state legislatures were slow to follow suit. The Department of Justice also launched a competitive grants program that awarded funding to five states to explore alternatives to their current practices –​implementing systematic ability to pay assessments (US Commission on Civil Rights, 2017). By 2017, 14 consent decrees for police reform were in place with police departments in cities throughout the country, including Baltimore, New Orleans, Seattle, and Cleveland. The Department of Justice was in the early stages of a systemic, nationwide push to reform these practices, but the incoming presidential administration had other priorities. These moves were undermined to some extent under the Trump administration. Attorney General Jeff Sessions announced in November 2018 that his department would review consent decrees on police reform. Under the administration of President Donald J. Trump (2017–​20), the Justice Department issued new rules limiting the scope 95

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and duration of new consent decrees while leaving the old ones in place (Benner, 2018; Fortin, 2018). Civil rights advocates feared that the Justice Department stance would signal to police departments and local governments that addressing the inequities in policing were not a priority.1 The new rules required political appointees to sign off on new consent decrees, imposed a ‘sunset date’ for the consent decree, and added a requirement to show harm beyond the violation of constitutional rights in order for a consent decree to be imposed.2 Two years later, in May 2020, George Floyd was murdered by a police officer with witness cameras rolling, igniting nationwide protests and sometimes violent clashes between police and protestors, and catapulting the issue of police reform back to front and center in debates on equity and social justice in America.

The scale of taxation by citation Although Ferguson grabbed headlines, it was by no means alone in the practice of funding municipal budgets through fines and fees. The term ‘taxation by citation’ has been coined by scholars and practitioners to describe the practice by municipalities of using their power to issue traffic fines and enforce local ordinances to raise revenue rather to enforce the law (Carpenter et al, 2019; Su, 2020). Municipalities that rely on such fines for more than 10 per cent of their revenue are identified in several different studies as likely practicing ‘taxation by citation’ (Carpenter et al, 2019; Maciag, 2019a, 2019b). A number of studies of different scope and scale have consistently found that cities use fine and fee revenue from policing to fill budget gaps (Kopf, 2016; DeVore, 2016; Maciag, 2019a, 2019b; Carpenter et al, 2019, 2020). A study by Governing magazine examined cities with over 5,000 residents that generated at least $100,000 per year in revenue from fines, fees, and forfeitures. They found that in close to 600 municipalities, fines and forfeitures amounted to more than 10 per cent of general fund revenues, and that in another 284, they accounted for more than 20 per cent of general fund revenue. Eighty governments in the survey made more than half of their revenues through fines and forfeitures (Maciag, 2019b). Just six states –​Georgia, Texas, Missouri, Illinois, Maryland, and New York –​account for 70 of the 100 cities in the US earning the highest share of their revenue from fines and fees, compared to other cities of similar size. 96

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In Georgia, 92 municipalities earn more than 10 per cent of their revenue from fines and fees (Maciag, 2019b). This amounts to around 17 per cent of the state’s 535 municipalities. Thirty Georgia municipalities rely on fines and fees for more than 30 per cent of their revenue. In 87 of Georgia’s municipalities (16 per cent), fine and fee revenue amounts to at least $100 per adult resident per year (Maciag, 2019b). Thus, about one sixth of Georgia’s municipalities rely heavily on fine and fee revenue compared to other municipalities of the same size nationwide. The use of fines and fees for local government revenue is both widespread in Georgia and, in some cases, far outpaces growth in other forms of local government revenue. Three municipalities in Georgia –​Clarkston, Riverdale, and Morrow –​were made the subject of an Institute for Justice study for their particularly heavy reliance on revenue from fines and fees. These three cities collect between 14 per cent and 25 per cent of their revenue from this source, while cities of similar size on average in the US garner just 3 per cent of revenue this way (Carpenter et al, 2020). Other studies have highlighted the Georgia town of Doraville, which counts on fines and fees for between 17 per cent and 30 per cent of its revenue. Doraville, population 5,000, raised revenue amounting to $800 per resident in one year, much of it through patrolling the section of interstate that runs through the town (Carpenter et al, 2020). A considerable number of municipalities in other states are also heavily invested in fine and fee revenue. Louisiana has 40 municipalities (13 per cent of its 303 total) that earn more than 30 per cent of their revenue from fines and fees. Eight of them relied for more than 80 per cent of their government revenue on fines and fees (Maciag, 2019a). Arkansas also had a large number of small municipalities that were heavily reliant on fines but that were excluded from the study, which only included municipalities earning at least $100,000 per year through fines. Oklahoma also stands out as a low-​tax state with a regressive tax code that relies heavily on fines and fees. The state passed a law in 1992 banning tax increases and has since added 30 additional fines and fees that state and local governments may collect. According to former District Judge Dwayne Steidley, ‘today, we fund probably 90 per cent or more of the operation of the courts actually out of the money that the court collects’ (KGOU and Oklahoma Watch, 2015). In cities and municipalities across the US, it remains common practice to jail defendants who lack the resources to pay fines. Few judges routinely implement rules about determining a defendant’s 97

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ability to pay an assessed fine or fee. The US Commission on Civil Rights noted that ‘the reliance on revenue from fines and fees distorts incentives and can lead to the misallocation of public safety resources. The recent increase in using private companies to collect fines and fees further exacerbates these issues’ (US Commission on Civil Rights, 2017, p 12). The studies cited previously tracked fine and fee revenue as a share of total municipal revenue, including intergovernmental transfers. Another recent study looks at how state laws and courts enable these practices, providing an index of the potential for municipalities to rely on this revenue source (Carpenter et al, 2020). Once again, Georgia tops the list of states that create strong incentives and opportunities for municipalities to use their municipal courts as revenue generators (Carpenter et al, 2020). The study assesses the rules about what municipalities may do with the revenues they collect from fines and fees. For example, in some states, municipalities must send these monies to the state general fund, while in others, such as Oklahoma, they can use it to fund public safety departments or officer pension funds (Maciag, 2019a, 2019b).

Impacts of revenue-​driven policing State laws and court structures have been crafted in the wake of TELs to facilitate revenue generation through citations, in ways that have affected the practice of law enforcement. A study conducted by National Public Radio, the Brennan Center for Justice, and the NCSC found that all but two states increased civil and criminal court fees between 2010 and 2014 (Menendez et al, 2019). Some states and municipalities proliferated offenses and raised fines at prodigious rates. A number of smaller studies of individual states or counties report similar findings. Su (2020) finds that counties in California consistently increased their traffic fines following a drop in tax revenue (but did not reverse the increase when taxes increased). And counties with more out-​of-​town traffic and with low-​income, Hispanic majority populations tended to raise more revenue from traffic fines. Evidence of this sort is widespread in popular reporting and scholarly literature. Makowsky et al (2019) confirm that local government budget deficits are positively associated with patterns of revenue-​driven policing with respect to civil asset forfeiture. The retention of civil assets 98

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seized through police action predates the substantial use of fine and fee revenue, and a sizable literature exists on the equity implications of civil asset forfeiture. Broadly speaking, scholarship finds civil asset forfeiture policies ‘serve as funding for the criminal justice system and are a significant share of police operating budgets’ (Baiker and Jacobson, 2007, cited in Makowsky et al, 2019, p 7). For example, in 2012, fees and forfeitures covered on average 15 per cent of police operating expenses nationwide. In 10 per cent of departments, fees and forfeitures averaged 32 per cent of operating expenses. In Arizona, half of criminal justice revenues for the state come from municipal courts. In some jurisdictions, revenues raised outpace the costs of policing (Makowsky, 2019). Civil asset forfeiture laws tend to be quite permissive, allowing the police to impound assets suspected of a connection to a crime, even if the owner of these assets is never charged with a crime. Indeed, many asset seizures are completed without a conviction. Owners of seized property must incur expenses of time and money to retrieve their assets. Where state law allows police departments to keep what they seize, there are strong incentives to focus policing efforts on crimes most likely to yield civil asset forfeiture (Makowsky, 2021). The connection between budget needs and policing practices is not limited to asset seizure, but extends to traffic stops and other discretionary stops. For example, Garrett and Wagner (2009) find that the rate at which traffic tickets are given rises with budget shortfalls. Makowsky and Stratmann (2009) also find that higher fines correlate with budget shortfalls. Moreover, the budgetary effects of fee and fine revenue tend to create a vicious cycle. Studies have shown that as police departments are successful in generating revenue, local governments often move budget allocations from other sources out of policing and criminal justice, thus regularizing revenue from fines and fees as a source of funding to be relied upon. And it is not simply to fund police operations, but often this revenue goes into the municipal general budget. This allows local government officials to maintain low taxes without a measurable drop-​off in services (Graham and Makowsky, 2021). The political aspect is an important element in this formula. Political effects of different forms of revenue-​driven policing likely depend on the particular types of fine or fee (traffic stops vs. asset forfeiture, for example). The makeup of the population, how law enforcement officials and governing officials are selected, the size and composition of 99

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the tax base, and so on are all important. Scholars are just beginning to untangle these relationships. In one recent study, Mughan et al (2020) find that local jurisdictions with elected sheriffs seized fewer assets than did jurisdictions with an appointed police chief. They argue that as elected officials, sheriffs are more attuned to the potential electoral costs of asset forfeiture than are appointed police chiefs. Sances and You (2017) find that while the use of policies that treat fines as revenue is correlated positively with the size of a jurisdiction’s Black population, this effect is mitigated by the presence of Black elected officials in city government. There is abundant evidence that fines and civil asset forfeiture disproportionately affect racial minorities. Scholars have found evidence of racial bias in traffic stops (Persico, 2002; Epp et al, 2014), and Makowsky et al (2019) find significantly higher rates of arrests for drug offenses, driving under the influence (DUI), and prostitution, among Black and Hispanic residents. Looking at county-​level data in all 36 states for which sufficiently detailed data were available, they find that fine and forfeiture revenues per capita increase as the share of the Black population in a county increases, while they decrease with increases in White population. Drug arrests of Black and Hispanic residents are higher in counties where there are local budget deficits and where the police are allowed to retain what they seize. The relationship does not hold for White residents. The same pattern emerged with respect to DUI arrests. For prostitution, arrests increased significantly across all races in conditions of local budget deficit and permissive laws for the retention by police departments of seized assets. In short, Makowsky et al report that in the 31 states with such permissive laws, they saw an ‘increase in the arrest rates of African Americans and Hispanics for drugs, DUI violations, and prostitution during periods of fiscal distress’ (Makowsky et al, 2019, p 17). They note that ‘the prospects for justice are dimmed when the probability an individual is arrested varies not only by the character of their transgression but also by the potential windfall they present to the public coffer’ (Makowsky et al, 2019, p 19). A 2017 study by the US Commission on Civil Rights, a bipartisan federal agency, found that reliance on fines and fees for municipal revenue is more common in communities with a higher share of racial and ethnic minority residents as well as low-​income residents. ‘Municipalities that rely heavily on revenue from fines and fees have a higher-​than-​average percentage of African American and Latino 100

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populations relative to the demographics of the median community’ (US Commission on Civil Rights, 2017, p 13). Another study found that race is more significant than income in terms of which cities rely most heavily on fines and fees, and that with respect to race, African American communities are more likely than Hispanic or other minority communities to be subject to taxation by citation (Kopf, 2016; Sances and You, 2017). This study, based on US Census of State and Local Governments data, found one demographic that was most characteristic of cities that levy large amounts of fines on their citizens: a large African American population. Among the fifty cities with the highest proportion of revenues from fines, the median size of the African American population –​on a percentage basis –​is more than five times greater than the national median. (Kopf, 2016) Cities that are poor tend not to rely as much on fines and fees if they have majority White or even Hispanic communities. And the 50 cities with the highest reliance on fines and fees are not significantly poorer than the average city of comparable size. In short, Kopf concludes, ‘The best indicator that a government will levy an excessive amount of fines is if its citizens are Black’ (Kopf, 2016). A number of other studies provide anecdotal evidence of a correlation between the racial makeup of a community and high rates of ticketing and fine and fee revenue. A study of ticketing practices in Chicago, which derives more than twice as much revenue from fines and fees as other cities its size, showed that low-​income neighborhoods and those with predominantly Black or Hispanic communities had higher rates of ticketing than White neighborhoods. In New Orleans, which derives a similar share of its revenue from fines and fees as Chicago does, Black residents are much more likely to be cited, and until 2019 the city –​like many other cities –​could jail residents who were unable to pay their fines (Calame and Boddupalli, 2020). Similarly, a study of Washington state found that Latinos ‘received higher fine assessment’ than non-​Latinos. A study of Las Vegas found that seven zip codes with the highest percentage of African American and Latino residents (and these were also among the poorest zip codes in the metropolitan statistical area) accounted for almost two thirds of traffic citations (US Commission on Civil Rights, 2017). Thus, in states across the country, a significant share of the burden of paying 101

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for local government is falling on those who are cited by police for a traffic or local ordinance violation. And a substantial share of these are poor and non-​White citizens. Of course, criminal justice scholars have for years highlighted the connections between racial bias and police practice (Knowles et al, 2001; Persico, 2002). Nationwide, 12 per cent of motorists are stopped every year. But for racial minorities, the figure is 24 per cent (Epp et al, 2014). Moreover, racial minorities are far more likely to be stopped by police for ‘investigatory stops’ –​instances that most powerfully demonstrate the discretionary power of police officers. Stops involving moving violations with public safety implications, such as speeding, are more evenly distributed across racial lines. Revenue incentives make this an even more combustible mix. Epp et al find that disproportionate use of the investigatory stop is not simply a function of individual prejudice but is instead ‘an institutionalized practice that is inherently unfair and discriminatory’ (Epp et al, 2014, p 6). These institutionalized practices significantly raise the chances that officers will ‘act on the basis of bigotry or implicit stereotypes, leading to racial disparities in outcomes’ (Epp et al, 2014, p 7). Makowsky (2019) argues that using police departments to raise revenue, ‘exacerbates racial bias and the expropriation of wealth from politically vulnerable sub-​populations through the criminal justice system’ (p 5). Many defendants charged with offenses have difficulty negotiating a reduced sentence or fighting a conviction, resulting in ‘a tax burden that is greater –​not just as a percent of income, but in absolute magnitude for lower-​income households’ (p 1). Epp and his coauthors trace the institutionalized practice of the investigatory stop to the 1970s and 1980s, when civil asset forfeiture policies, the broken window theory of crime and then the war on drugs led to officers being trained to make ‘proactive’ stops of motorists. The more contact with citizens, the greater the chance of finding contraband, so the reasoning went. Because of racial stereotypes, these stops targeted racial minorities. It is not surprising that more proactive approaches to policing would follow channels carved by long-​standing racial stereotypes. Institutionalized practices of stopping Black motorists in disproportionate numbers came to be seen as ‘professionally right and proper’ and ‘juridically endorsed.’ This has critical implications for the social contract. As Epp et al note, ‘police stops convey powerful messages about citizenship and equality. Across millions of stops, these experiences are translated into common stories 102

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about who is an equal member of rule-​governed society and who is subjected to arbitrary surveillance and inquiry’ (Epp et al, 2014, p 2). What does this have to do with taxation and the social contract? Disproportionate traffic stops of minorities have another effect as well, that of reinforcing a sense of exclusion for racial minorities. As Epp et al remind us, ‘no form of direct government control comes close to these stops in sheer numbers, frequency, proportion of the population affected and, in many instances, the degree of coercive intrusion’ (Epp et al, 2014, p 2). Traffic stops are the most common expression of the relationship between state and citizen. When fines and fees are financing 10 per cent or more of revenue, they are part of the tax base, part of the tax bargain. Traffic stops are in effect an expression of the social contract as it has been formulated by that community –​a social contract founded on racial inequities. The shift over recent decades toward reliance on fine and fee revenue thus amounts to a significant shifting of the state and local tax burden toward racial minorities. As the US Commission on Civil Rights pointed out in a 2017 report, ‘the best available data reflects that municipal fee targeting tends to aggregate in communities of color and, to a lesser degree, in low-​income communities. Targeting means these municipalities exploit their poorest citizens by, among other means, using law enforcement as ticketing and collections agencies to increase municipal revenues as distinct from focusing on public safety and civil compliance’ (US Commission on Civil Rights, 2017, p 72). Cities with higher African American populations spend more on policing and have higher arrest rates, even controlling for official crime rates (Epp et al, 2014). Epp et al (2014) argue convincingly that police investigatory stops –​ police discretionary stops which do not involve public safety –​are institutionalized practices in which police officers receive extensive training. This training, which encourages officers to be proactive and to find reasons both to stop ‘suspicious’ motorists and to take the opportunity to try to identify infractions or contraband, is legitimized in terms of its value for fighting crime. In practice, in the light of artificially imposed fiscal scarcity for local governments, it also aims to generate revenue. And deeply ingrained racial biases in American society lead to this practice being deployed disproportionately against racial minorities. Using survey and interview data from a sample of over 2,000 drivers, Epp and his coauthors find that investigatory stops typically 103

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leave African Americans feeling that they are ‘not regarded as full and equal members of society,’ while White Americans typically report that ‘reasonable traffic-​safety stops contribute to their perception of their equal status in a rule-​governed democracy’ (Epp et al 2014, p 16). As the authors aptly note, ‘racially defined investigatory stops … strike at the heart of democratic citizenship and racial equality’ (Epp et al, 2014, p 17). How we got here On the surface, revenue-​driven policing is simply a function of fiscal scarcity. It satisfies the preferences of taxpayers and politicians by offloading some of the burden of paying for local services to non-​ residents (as with speed traps), or to those who ‘choose’ to break the law. This has proven to be an irresistible mix for many cash-​strapped municipalities, even though awareness of the pernicious effects of these policies has broadened over the last decade. Tax and expenditure limitations at the level of state government have tied the hands of municipalities in terms of raising many kinds of additional tax revenue. No such restrictions existed for many years on non-​tax revenues, and even now relatively few constraints exist. This has encouraged local governments to rely more on fines and fees, and indeed to proliferate costly but minor infractions that can be administered through municipal courts. Property tax exemptions and assessment limits, limits on local income taxes, heavy reliance on sales taxes (especially in low-​ income areas), reductions in state aid to municipalities over the years, and other funding cuts have been found to coincide with the use of fines and fees to raise revenue. Indeed, as noted earlier, many state governments have laws and institutions that encourage revenue-​driven lawmaking and policing. These can and should be examined explicitly through an anti-​racist lens. The Institute for Justice finds that particularly in states where municipalities are allowed to keep the revenue they earn from fines, local governments have both increased the price of violations and increased, often dramatically, the number of things, acts, or circumstances that are defined as violations incurring fines or other penalties. State-​level rules and court structures that allow for the creation of municipal courts, and that allow municipalities to retain the revenues generated by those courts, along with those with lax state 104

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oversight or local government rules to protect residents accused of violating local ordinances and traffic regulations, together create opportunities for local governments to engage in taxation by citation (Atkinson, 2016). Small municipal tax bases are another potential explanation for heavy reliance on fines and fees. In some of the towns and cities that rely heavily on fines and fees for revenue, there is little economic base to tax. In Warwick, Georgia, which derives fully 75 per cent of its revenue from fines and fees, the median income is $22,000, and some 37 per cent of the town’s residents live in poverty. A speed trap has served as the town’s main revenue generator (Maciag, 2019a). Racial bias is well institutionalized in police practices when it comes to the enforcement of traffic laws and local ordinances. This fact burst again onto the scene in 2020, when protests at the killing of George Floyd at the hands of police in Minneapolis prompted the largest mass demonstrations the US has ever seen (Buchanan et al, 2020). It is the fact of this inbuilt, systemic racism that makes taxation by citation so profoundly damaging for equity, accountability, and ultimately the quality of democracy in America. In response to a spate of studies in the years after the Ferguson police department’s reliance on fines and fees was uncovered, a number of municipalities have taken action to reform their use of fine and fee revenue. Most of these are piecemeal, however, and many allow the problem to continue in another form. For example, revenue caps in Missouri apply only to citations for moving violations on state and federal roads. Towns can simply shift the focus of their traffic enforcement and continue to garner the revenue from fines and fees (Atkinson, 2016; Maciag, 2019a; Carpenter et al, 2020). In Pagedale, Missouri, which made headlines in 2019 for excessive fines for minor ordinances, including regulations on interior window treatments (matching curtains required), the state’s cap on traffic fines led it to increase its citations for such ordinances dramatically. A law in Georgia limits revenue from speeding citations to 35 per cent of a police department’s budget, but it says nothing about other kinds of traffic violations. As in other states, municipalities in Georgia will likely shift to other kinds of enforcement activities not covered by state restrictions (Maciag, 2019a). An increasing number of towns in several states have been sued for imposing ticket quotas in the service of revenue generation. Yet the narrow tax bargain that has led to the practice of taxation by citation remains intact. 105

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Conclusion Throughout, this book has argued that the basis of any government is the creation of relationships of exchange between government and citizens. A tax bargain sets the terms under which citizens will voluntarily surrender resources to the state, in exchange for some agreed-​upon set of services. In the comparative state-​building literature, representative institutions emerged to mediate this relationship. In the development of the US tax state, tax bargains forged at a time when non-​White residents were not recognized as citizens or as bearers of any rights at all, were successively challenged as democracy developed and the social contract expanded. Yet rather than new tax bargains, the response, especially in the South, was political mobilization to resist an expanded social contract by valorizing the narrow tax bargain as a long-​cherished emblem of freedom from state interference. At the core of this narrative, as discussed in Chapter 4, was the rejection of individual responsibility for the collective good, an attempt to minimize the importance of government, or of public goods and services, in favor of private provision or going without. The tax bargain at the core of state-​ level government in Georgia has remained essentially intact since its founding in the antebellum era. This state-​level tax bargain has in turn constrained governance models at local levels, leading to practices like taxation by citation. These practices only serve to reproduce and deepen long-​standing racial inequity. Over time, they sustain that original tax bargain by shifting the burden of paying for an expanded public sphere back onto those who have been systematically excluded from the tax bargain. In the US at the time of the establishment of federal and state-​level ‘tax states,’ taxpayer and citizen were not overlapping categories. Non-​ Whites paid taxes but were not considered citizens. In the South in particular, citizens who were party to the tax bargain imposed a narrow social contract on residents who had no channel to challenge it. Once the franchise was expanded, the coercive power of these states was marshaled, often in alliance with powerful local interests, to suppress that avenue of political challenge to the original tax bargain. Whether during Reconstruction, the New Deal, or the civil rights era of the 1960s, political communities have acted to preserve the founding tax bargain. State and local governments have systematically resisted enlarging the public sphere –​by refusing federal funds for New Deal 106

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programs in the 1930s or for Medicaid expansion nearly a century later. The conservative ideology of permanent tax revolt, a by-​product of civil rights mobilization to expand the social contract in the mid-​ 20th century in order to fulfill the century-​old promise of the 13th, 14th, and 15th amendments, led to politically manufactured fiscal scarcity and to increasingly regressive state and local tax structures. Sales taxes and other regressive measures proved unable to provide sufficient revenues, and other tax increases were increasingly restricted by TELs. Enter fine and fee revenue. Masquerading as a market-​based policy that has users pay a fee for service, a reliance on fine and fee revenue pretends that states have no responsibility to a collective public. Economically speaking, public goods cannot be provided in the absence of a ‘public.’ User fees make little sense for public, collective goods. By definition, public goods are not valued on a per unit basis. They are characterized by economies of scale, so that the per capita cost of a publicly provided good becomes cheaper as more of it is produced. Public goods are those for which it is difficult to prevent free-​r iding –​that is, to exclude users who do not pay. Thus, public goods should be paid for by everyone who is part of ‘the public’ –​by, for example, an assessment on all potential users. Public goods are often but not always non-​r ivalrous. For non-​r ivalrous goods, one person’s use of that good does not diminish its value for others. Private goods are those from which non-​payers can be excluded, and for which one person’s consumption reduces the availability for other users. Public safety is typically thought of as a classic public good. We all benefit from police protection, even if we never actually have to call the police. And it would be hard to make a case that one person’s use of police services fully consumes those services and diminishes their value for the next person, though perhaps this could be argued in some circumstances. The same could be said of the courts system. So why charge ‘users’ of courts and lawbreakers? The reasons, as we have seen, are political rather than merely economic. What can be done? We take up this question in Chapter 6.

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6

Taxing Democracy: Conclusions This book has sought to use concepts of state formation and the social contract to understand the relationship between taxes and democracy. It has traced the development of the US tax state in terms of theories of state formation. It has offered a conceptual framework for understanding a longitudinal process of democratic development in which tax models act as a brake on the expansion of the social contract. The objective was to offer a new perspective on tax policy as being deeply rooted in the history of state formation and consolidation. The tax bargain governing the US tax state rests on a set of dynamic and overlapping social contracts at federal, state, and local levels. At each level, the social contract, while dynamic and responsive to exogenous influences and to the ideological narratives of dominant political interests, also carries forward and reproduces power dynamics (and their ideological justifications) that shaped the state at its time of formation. Regional differences in the resource bases and relative power of key economic agents, differences in how states elicited consent or compliance (universal suffrage, limited machine politics, or Jim Crow politics), and differences in their administrative capacity were all influential in determining the shape and strength of the tax bargain. The tax bargain, in turn, creates path dependency by generating narratives used by politicians to shape citizens’ views of what kind of taxes are legitimate, who is justly marginalized, and so on. In other words, a tax bargain, once reached, is durable and exerts material consequences in the world. The book has argued that tax policies embed and carry forward an implicit social contract that defines the formal boundaries of a political community, who is considered a full citizen and who is not, the public goods and services local government is expected to provide, and what 108

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citizens must give up in exchange for those goods and services. When political changes are sought –​such as the expansion of the franchise (first legal, and then a century or more later, in practice), an electoral coalition in support of expanding the welfare state (as in the New Deal or Great Society program), or the public sector enjoyed on an equal basis by citizens regardless of race (as called for by civil rights legislation of the 1950s and 1960s) –​these efforts to expand the social contract come into conflict with those actors who have long been empowered by the original tax bargain, which must also change to accommodate an expanded social contract. Tax policies change, but the underlying understanding of what the state should do, what taxes are for, and who should pay them remains remarkably stable. Due to a range of factors, cities and towns have in recent decades shifted the burden of paying for public services toward ‘users’ of services through fines and fees. This is consistent with a broader, long-​term trend at state level throughout the country of shifting away from broad-​ based taxes on property and income toward taxing consumption and raising revenue through gaming (lotteries, gambling), asset forfeiture, and fines and user fees. Chapter 4 detailed the historical process that foreshadowed and fueled this trend. These tax models use a legitimating language of individual responsibility for one’s fate and stress the primacy of laissez-​faire capitalism. This is a starkly ahistorical perspective. As Chapters 2 and 3 show, tax policies have deep historical roots. Tax bargains in support of a founding social contract have determined the scope of the public sphere and shaped government institutions and the patterns of politics. Governments form around a tax bargain that serves as the material and policy incarnation of a social contract. Neither the income distribution, the allocation of resources between public and private spheres, nor the division between administrative and market allocation of resources in any political jurisdiction emerges sui generis. All are rooted in bargaining, and bargains are made by those with something to give and something to gain. Bargaining is at the root of politics, regardless of regime type. This book arose out of a tension between the view of taxes that prevails in the study of public economics and a view of taxes that arises out of the comparative politics literature on state formation. Open any economics textbook and you will learn that taxes are for funding essential services. Tax codes should obey principles of efficiency, effectiveness, fairness (similar treatment, those who benefit 109

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more should pay more), etc. It is a view of taxation grounded in the individual and ahistorical. But in the state formation literature, taxes are constitutive of states, forming relations of reciprocity between rulers and subjects. The process of turning subjects into citizens can be understood, perhaps, as a process in which taxpayers negotiate and renegotiate that reciprocity in ways that ultimately define both states and their citizens. At first, rulers decide who to tax and why, but this evolves into a bargaining process as subjects gain leverage, either through the diversification and diffusion of wealth, through the development of participatory processes, or both. In this view, taxes are not an add-​on nuisance –​they are the reason that we have states in the first place. Is tax policy about creating efficient ways to generate sufficient revenue to fund necessary government services in ways that do not disrupt the market? Or is tax policy a tool that governments can and should use to remake society? Those leading the conservative tax revolt rejected the notion that tax policy should be used to address inequalities or indeed anything other than what is strictly necessary for the functioning of a free market economy. But this view overlooks the fact that the evolution of the US tax state is a history of crafting tax policies that have tremendous power to shape social, political, and economic outcomes. Tax policies at federal, state, and local levels have consistently reinforced existing economic and political power structures and reinforced exclusionary notions of who is and who is not a citizen. All tax policies are informed by, and seek to impose, a vision of society. To determine what allocation of resources produced by any economic system should be public vs. private (and therefore how much should go to taxes to fund the state), say Murphy and Nagel (2002), we would have to sit down together and figure out what we want, collectively, as a political community. What values [do] we want to uphold and reflect in our collectively enacted system of property rights –​how much weight should be given to the alleviation of poverty and the provision of equal chances; how much to ensuring that people reap the rewards and penalties for their efforts or lack thereof; how much to leaving people free of interference in their voluntary interactions. (Murphy and Nagel, 2002, p 177) 110

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What might a casual observer infer about the tax bargain by looking at the US tax state? One inference might be that the tax bargain is based on an understanding of a minimalist state, which privileges a free market above all. In the US tax state, at federal level but most especially in the South, taxes are to be as low as possible so as not to distort the market. Yet the ‘free’ market, as Adam Smith himself recognized, is a creation of the state and could not exist without it. And the economic system at the time of state formation in the South was built on slavery. A second tenet of the US tax bargain that could be inferred is that taxes are to be paid by those least able to pay. Thus, it is political power rather than economic logic that drives tax policy. As a number of scholars have recently made clear, the federal tax system is skewed in favor of White taxpayers, reflecting the circumstances of the founding of the US welfare state, when racial minorities did not enjoy full political, social, or economic rights. As discussed in Chapter 3, major tax breaks that were designed and then continued to exclude racial minorities and especially Black Americans facilitated the growth of a massive racial wealth gap, which in turn sustains economic, social, and political inequality. As Nikole Hannah-​ Jones points out, ‘it is white Americans’ centuries-​long economic head start that most effectively maintains racial caste today’ (Hannah-​Jones, 2020, p 34). While Black Americans paid into this tax system, they were excluded from many of its benefits. It is by now well known that federal, state, and local tax policies have contributed to racially segregated residential patterns. The American tax state directed benefits on the basis of racial exclusion initially, and later the patterns already established under racially exclusive policies remained so because race and class are closely correlated. Because of race-​based geographic segregation, even when Blacks earn high incomes, their income does not track with the likelihood of living in an affluent community with high property values the way it does for Whites. The average Black family earning $100,000 per year lives in a neighborhood where the average annual income is $54,000 per year (Sean Reardon, cited in Hannah-​Jones, 2020). Blacks who earn more than $75,000 per year tended to live in poorer neighborhoods than Whites who earn just $40,000 per year (Hannah-​Jones, 2020). Since these patterns exist, property tax rate cuts tend to hit communities of color harder. Property tax rate cuts reduce revenue less dramatically in more affluent areas where Whites are concentrated, 111

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because average property values are higher in those areas to begin with. When property taxes are cut, White homeowners gain an even lower effective tax rate. Since higher property values at reduced rates still generate significant revenue, affluent communities can accommodate rate cuts without as big a loss in public services (Martin and Beck, 2017). A narrative of fairness and equity in America has been widely accepted among White Americans despite the stark inequities that still exist. The ground was laid for racial inequality in the tax bargain that was part of state formation and the social contract it implied. Racial inequality has been consistently reinforced over time through tax policies that continue to restrict the full realization of demands for a broader social contract. As so many economic historians have pointed out, federal tax expenditures built the White middle class in the United States. Thanks to slavery, Jim Crow, legal exclusions from federal entitlement programs, and long-​term de facto exclusion from tax breaks like the home mortgage interest deduction, Blacks continue to be significantly behind Whites in the accumulation of wealth. In 1950, and still today, Black household income is half that of Whites. Indeed, ‘the typical black household is today poorer than 80 per cent of white households’ (Hannah-​Jones, 2020, p 51). Thus, on myriad levels, racial minorities have long borne a disproportionate share of the tax burden. Decades of tax cuts, a reaction against efforts to use political processes to expand the social contract, have led finally to the use of policing –​the coercive power of the state –​to raise revenue to fund local governments. Local police departments, sanctioned and enabled by local and state governments, have developed a tax bureaucracy, a set of procedures that facilitate the identification of taxpayers (in the form of people who have violated an ordinance or committed a low-​ level traffic offense), from whom municipal court systems collect fines and fees that fund a wide range of local public services, including but not limited to the police themselves. Aside from the obvious perverse incentives this creates for policing, it also raises important questions about what the state is for, and about who the state is for. Shirley Tillotson, in her tax history of Canada, notes that ‘the work of democracy lies in tough conversations about how to define and pay for our collective life’ (Tillotson, 2017, p 68). Tillotson describes how the creation of the national income tax helped create a national Canadian identity of the taxpayer-​citizen. 112

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The tax bargain that undergirds local government in the wake of the conservative tax revolt seems to turn that notion on its head. Taxpaying is not the badge of the citizen but the badge of the less worthy ‘other,’ onto whose shoulders communities shift the burden of paying for the public sector. This puts those who shoulder this burden outside of the social contract, and thus outside of the political community. These individuals fund the tax bargain; they do not benefit from it. The revenue collected through fines and fees bears a greater resemblance to tribute paid for the privilege of living within the boundaries of a state than it does to taxes in the kind of reciprocal relationship Levi and Tilly describe. Without fiscal accountability, governments become predatory. In the American tax state’s system of fiscal federalism, state and local governments retain considerable taxing power and control budgets for core public services, including public safety and education. Despite periodic efforts to expand the federal social contract, states had their own tax bargains, their own social contracts. Political and economic powerholders have worked to sustain and reproduce those in state and local tax models, in decisions about whether to accept federal resources (or federal sanctions) conditional on expanding the social contract to include full civil rights for Black Americans. Consistent resistance, in the name of a minimalist tax bargain, against these expansions of political rights resonates with Carles Boix’s model of democratization as a function of redistribution. He predicts that suffrage will be extended only after income inequality has moderated. In the South, Jim Crow laws ensured that income inequality would remain an enduring fact of life. And because of the way the South was reincorporated into the Union after the Civil War, southern states enjoyed disproportionate influence in national politics, blocking attempts from the federal level to change the underlying regional social contract in the South. Boix’s theory attends only to economic factors. In his model, the structure of the economy shapes the relative power of different economic actors, whose political interests and strategies are determined by economic interests. He includes mobilizational capacity of the lower classes as a key element of his theory, but he assumes that it too depends exclusively on economic interest. A more robust theory would explore the way that other interests might reinforce or crosscut economic interests. Comparative political scientists studying democratization and state consolidation have 113

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often observed how communal identities have been constructed and instrumentalized to forge political coalitions. When racial or ethnic identity aligns closely with economic interests, divisions can more easily become entrenched. Where they do not align closely, identity can shift political alignments in ways not predicted by class-​based or factor-​based political economy theories. Note, for example, that homesteaders, middle-​class taxpayers whose capital assets might be wages and therefore who would otherwise be expected not to fear redistribution, might be recruited into a different ‘revenue coalition’ by means of identity politics. It is also worth noting that Boix’s theory of state repressive capacity does not count on the potential of non-​state actors to mobilize violence at micro-​and meso-​levels. We know from the extensive comparative scholarship on political violence that state repressive capacity can be supplemented, supplanted, or undermined by societal actors with repressive capacity. In the American South, the obvious example is the Ku Klux Klan. Today’s most relevant non-​state actors able to mobilize organized violence to oppose or reinforce the state’s use of force are armed state ‘militias.’ These groups call for a low-​ tax, minimalist state guided by ‘free market’ principles, the absence of shared communal responsibility, and a consequent privileging of ‘individual responsibility.’ That, of course, describes the tax bargain forged at the founding of southern states (and of the central state before the expansion of the Constitution in the ‘second founding’), one built on racial exclusion. That legacy found expression in the conservative tax revolt, which has its roots in desegregation and federal mandates that contradicted the long-​established social contract in the South. Fiscal policy –​at federal and especially state and local levels –​is connected to the quality of our democracy. Tax policies can either reinforce or undermine transparency and accountability. They affect the distribution of wealth in progressive or regressive directions. They empower some economic actors or social groups and weaken others. They provide incentives and disincentives for collective political action by economic actors affected by these policies. Sometimes these effects are unanticipated, sometimes they are deliberate. But they are not random. As discussed in Chapter 5, the killing by police of Michael Brown in Ferguson, Missouri in 2014 brought to light predatory policing practices in Ferguson and in other jurisdictions around the country, 114

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where local governments had begun to rely on fines and court fees to support their budgets. Tax cuts, sparked by the conservative tax revolt and exacerbated by the recession of 2009, as well as cuts in intergovernmental transfers from states, led many local governments to rely more heavily on asset forfeitures, fines, and fees. In the summer of 2020, George Floyd was murdered in public, in daylight, with cellphone cameras rolling, as police officer Derek Chauvin knelt on his neck for nine minutes until Floyd stopped breathing. These events in Minneapolis, Minnesota sparked nationwide protests on a scale not seen since the civil rights movement of the 1960s. By some accounts, the summer of 2020 saw the largest protests in American history.1 Police killings rightly get our attention and prompt calls for reform of policing practices. Partly in response to the resurgence of the Black Lives Matter movement during the summer of 2020, a number of scholars and journalists highlighted the ways that government policies, including the federal tax code, continue to reinforce and exacerbate long-​standing patterns of racial inequality. There are other ways besides taxes that governments can assert and sustain a particular social contract. Take, for example, the controversy that has been generated in the US around the teaching of racial discrimination as being systemically ingrained in legal institutions. This controversy has been labeled as a debate over the teaching of ‘critical race theory’ (CRT), which is not taught in public schools, but is a theory that originated with legal studies and aims at uncovering systemic institutional biases. Critics have miscast CRT as focused on individual and collective ‘guilt’ associated with slavery, Jim Crow, and so on.2 In 2022 the state of Georgia, along with Florida and Texas, passed laws designed to limit the discussion of race in public school classrooms. These apply to kindergarten through 12th grade, though Georgia’s draft initially included public colleges and universities in the restrictions. Georgia Senate Bill 377 lists nine ‘divisive concepts’ that should be excluded from classroom lessons and discussions. These include teaching that one race or ethnicity is inherently superior to any other (a statement that very likely did not appear in legislation passed in Georgia during any previous point in its history); that the US and the state of Georgia are ‘fundamentally or systematically racist,’ or that any individual is ‘inherently racist’ solely due to the color of their skin or their ethnicity. The law also prohibits teaching that ‘an individual, because of his or her race, skin color, or ethnicity, bears 115

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responsibility for actions committed by other individuals of the same race, skin color, or ethnicity.’3 The ‘divisive concepts’ included in the bill are noteworthy for what they say about lawmakers’ understanding of history, and in particular how policy decisions and the design of governing institutions affect people of different races and ethnicities differently. Another of the divisive concepts the bill identifies is the idea that ‘meritocracy, or traits such as a hard work ethic, are racist, or were created by individuals of a particular race to oppress individuals of another race’ (Georgia Senate Bill 377, 2021, p 2). The bill is particularly concerned to banish discussion of how individuals of different races or ethnicities might be affected by discussions of slavery, systemic racism, or racist institutions. Whites today must not be made to feel responsible for the misdeeds of their forebears. Moreover, we must not teach students that implicit bias against minorities is real. That is defined in the bill as ‘ethnic scapegoating.’ Setting aside the fact that these very practices –​ethnic scapegoating, judging an individual’s character on the basis of their race or ethnicity, averring that one race is inherently superior to another –​have long been used against Black citizens, this law and others like it point to just how seriously we have failed to understand, as a society, how institutions, policies, and practices reproduce our long-​standing, exclusionary racial contract. Efforts like this one, to ban discussions about the nature of the state and the nature of its social contract, constitute a legal mechanism with cultural and political effects, whose impact is to further entrench that same social contract. Two other examples of contemporary policies reasserting a narrow tax bargain are worth mentioning –​states’ reactions to increased federal food aid and Medicaid expansion. During the COVID-​19 pandemic, the federal government increased the amount of assistance raised by families already receiving food benefits. Officials in states like Georgia and others that ended their participation argued that the benefits are exacerbating a labor shortage by disincentivizing work. A few months later, the state sent federal COVID-​19 relief money it had received to help support the work of four non-​state, non-​profit food banks.4 Georgia was joined by 15 other states in ending these benefits, despite continued need. ‘At least 16 states now have opted out of providing the emergency allotments, with Republican leaders in some of those 116

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states arguing that the extra food aid and other pandemic-​related help are contributing to worker shortages across the country.’5 These states form an arc from the mountain West through parts of the Midwest and into the South and Southeast. Outside of this arc, Arizona is also on the list. Their hesitation in receiving federal funds to support food aid –​despite its documented positive impact in reducing food insecurity for the poor –​is consistent with the long-​standing notion that states ought not to be providing a robust social safety net. Medicaid expansion policies tell a similar story. Toward the end of 2019, Georgia Governor Brian Kemp announced a plan for the partial expansion of Medicaid. Medicaid is a federally funded program to provide health care for low-​income individuals and families. According to one estimate, new revenue resulting from expanding coverage to serve half a million Georgians whose income is 138 per cent below the poverty line would cover 80 per cent of the state’s costs of expanding the program.6 Governor Kemp’s more modest plan would have extended coverage to 50,000 more people, in exchange for a work requirement that mandated recipients work or engage in job training or ‘other qualifying activity’ for at least 80 hours a month. The Biden administration blocked the proposed initiative, arguing that the work requirement posed a barrier to those who needed coverage and that it undermined the purpose of the program. In August 2022, a federal judge ruled in favor of the state of Georgia and ruled that the plan could go forward.7 The issue was not finding the money in the state to pay for these programs by increasing taxes, since the programs’ costs were minimal for the state. Instead, visible in these stories is a clash between the federal social contract and that of the state. At federal level, the social contract includes the provision of a basic social safety net, while at state level, in Georgia, Governor Kemp was asserting a narrower social contract by restricting the provision of public services. We mostly understand democracy to require regular, periodic elections, which generally encourage accountability of elected politicians to voters. Of course, an entire field of the discipline of political science is devoted to understanding electoral behavior and public opinion, and the ways that political candidates and parties influence them. But at a basic level, democracies are based on political accountability, and this is secured through a political process whose formal rules are transparent and subject to regulation by elected officials. Democracy requires not only electoral or political 117

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accountability but also fiscal accountability. Fiscal accountability is less commonly discussed among political scientists as an element of democracy, but it is no less important. And policies like revenue-​ driven policing dramatically reduce the transparency needed for both political and fiscal accountability. In the literature on comparative state building, how states raise the money that allows them to secure authority is precisely the question. Leading theories of state building see state authority as based, in the first instance, on a tax bargain or revenue coalition between rulers, or would-​be rulers, and those with resources the state needs. The power of both government actors and those with resources is negotiated in accordance with their relative power. Historical context becomes important. And this initial tax bargain determines the reach of the state, the scope of the ‘public’ that is subject to the rules and protections offered by the state, and the price, in terms of taxes, that people must pay to live under that umbrella. It also determines how that price is distributed across the population. Eventually, this becomes codified in tax policies. That literature was the starting point for a formulation of democracy in America that takes account not only of electoral accountability but also fiscal accountability. If the tax bargain is at the core of the state’s authority, as the literature on state formation argues, then fiscal accountability is also key to that authority. Fiscal accountability means that the costs of government, as well as its expenditures, are transparent. Taxpayers can see not only what they are being asked to pay for and how much it costs but also where the revenue is coming from. For economists, a good tax is fair (similarly situated taxpayers are treated similarly), proportionate to benefits (those who pay taxes should be those who benefit from them), efficient (have minimal distortionary effects), and effective (raising sufficient revenue to meet needs). Political scientists –​concerned with the link between taxes and accountability –​trace the making of tax bargains from the days of absolutist rule to contemporary democracy, arguing that taxation requires a political process to achieve a tax bargain. Sociologists remind us of the power differentials that shape even those administrative processes designed to be ‘impartial.’ The theoretical and conceptual framework laid out in this book has attempted to draw on each of these perspectives. But the book is really a starting point, an effort to pull together perspectives from 118

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different scholarly literatures to understand democracy and taxation from a different angle. The goal has been to develop the argument that the social contract set at the moment of state formation can cast a long shadow via the tax bargain. In an effort to make the case for continuity over time, the discussion may have unduly simplified a far more complex and dynamic reality, that there are multiple conceptions of the social contract that emanate from this moment of state formation, and that these can remain in sustained competition with one another over time. This is the idea that King and Smith (2005) so deftly capture in their theory of racial orders in American political development, and in a rich scholarship of ‘institutional order’ within the fields of American political development and comparative politics (Orren and Skowroneck, 2004; Lieberman, 2003). This scholarship moves away from a state vs. social movement dichotomy to admit of ideological and institutional alliances that can cut across state and society. For King and Smith, racial change comes from the clashes and reformulation of alliances of actors, institutions, and ideas about race (King and Smith, 2005). They identify a ‘White supremacist’ racial order, opposed by a ‘transformative egalitarian’ one. Together, these two racial orders encompass essentially all of the political space concerned with race. They are durable over time as coalitions, but they are also recombinant, with some actors breaking off to join the other. Within these orders, actors have deployed flexible ideological, institutional, and coalition-​building strategies to achieve the overarching goal of racial change. These competing racial orders shift in terms of their success, with one dominant now, another dominant in another historical period. Applied to the social contract and the tax bargain, we can envision competing orders championing narrow and more expansive social contracts, with their attendant tax bargains, as emanating from the moment of state formation. We could then study the progress of these political orders in response to critical junctures over time. Tax policies at state and local levels have systematically limited political efforts to boost political equality and address socioeconomic inequity. The federal tax code has for decades redirected taxpayer dollars toward tax expenditures that primarily benefit White, middle-​ class Americans. What is less well understood is how, by relying more heavily on non-​tax revenues, governments have been able to remove tax policy from the political agenda and have delinked taxpaying as a mark of citizenship. 119

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Envisioning tax policies as a manifestation of a tax bargain underpinned by a long-​standing social contract, we can begin to uncover and address the consequences. A recent example is the policy solution proposed by Makowsky (2019) to the problem of revenue-​ driven policing. Makowsky proposes a ‘public safety rebate’ to state residents of funds collected through revenue-​driven policing and municipal court activity. Under this proposal, all revenues generated by law enforcement and criminal justice activity in local jurisdictions would be sent to the state and then redistributed to residents. But instead of the rebate going to every taxpayer, as Colorado’s TABOR amendment does, this rebate would be administered in a progressive basis to prioritize those residents whom studies show are most likely to be targeted and most heavily impacted by revenue-​driven law enforcement. Low-​income families are both more likely to be victims of violent crime and more likely to be targeted by revenue-​ driven policing. Makowsky suggests using recipients of Supplemental Nutrition Assistance Program (SNAP) funding as a way to channel funds back to these individuals. Using the SNAP administrative framework facilitates both the identification of these individuals and the administration of the rebate. This policy, Makowsky argues, would re-​orient the incentives of police officers, and the political officials to whom they respond, toward public safety. Since the funds do not stay in the community where they are generated but go back to the state for redistribution, officers and public officials will not be tempted to try to generate maximum revenue for ‘their’ community. Neither law enforcement agencies nor local governments would be able to boost their own budgets from these revenues. Moreover, he argues, ‘rebating proceeds to individuals would broaden the movement for police transparency from a focus on individual officers to a focus on the broader bodies of elected and appointed officials’ (Makowsky, 2019, p 19). Policy ideas like these are informed by an understanding of how a restricted fiscal contract can been used to counter an expanding social contract. Fiscal scarcity and a history of racial prejudice and structural racism produced a situation in which revenue-​b ased policing practices, or ‘taxation by citation,’ could be seen by many Americans as acceptable public policy. It is tempting to wonder whether the Black Lives Matter protests of 2020 signify change. Unlike protests in the wake of Michael Brown’s killing in Ferguson, these protests were nationwide in scope and were held in big cities and small towns. 120

CONCLUSIONS

More than 40 per cent of the counties in the United States had at least one protest. Ninety-​five percent of those counties that reported holding a protest were majority White. Protestors were younger and wealthier than their counterparts at civil rights protests in the 1950s and 1960s, and for half of them, this was their first protest (Buchanan et al, 2020: see endnote 1, this chapter). In 2015, after Ferguson, only 26 per cent of Americans said they considered racism and discrimination to be ‘a big problem,’ while in the summer of 2020, 75 per cent of Americans said they did. And more Whites than ever reported believing that Whites and Blacks are treated differently by the police. Perhaps most relevant in terms of the subject matter considered here, protestors also framed their rallying cries in terms of funding for the state. ‘Defund the police’ was a provocative slogan signaling impatience with piecemeal reform. By demanding that local governments reconsider their use of tax dollars for the provision of policing that results in disproportionate numbers of police killings of long-​excluded minorities, it also shows an understanding of the link between fiscal accountability and democracy. Perhaps no tax bargain is permanent.

121

Notes Chapter 1 1 2

US Department of Justice, 2015a. For discussion of the variety of meanings and (mis)interpretations of Defund the Police, see Henderson and Yisrael, 2021. See also Andrew, S. (2020) ‘There’s a growing call to defund the police,’ CNN, June 17. Available at: https://​www.cnn.com/​ 2020/​06/​06/​us/​what-​is-​defund-​police-​trnd/​index.html (Accessed: July 15 2021).

Chapter 2 1

For discussion of the critical junctures concept, see Collier and Collier (2002).

Chapter 3 1

2

Many excellent studies have been made of this period –​here our purpose is to provide a set of ‘stylized facts’ to illustrate the broader argument of this book. Missouri 1820, Tennessee 1834, Arkansas 1836, Florida 1838, Louisiana 1845, Texas 1845 (Einhorn, 2006; Newman and O’Brien, 2011).

Chapter 4 1

2

The literature on residential segregation and desegregation and any reasonably comprehensive treatment of these topics is beyond the scope of this book. Our goal in this section is to highlight those arguments which bring to the fore the role of local public service provision and taxation. New Hampshire has no sales tax or personal income tax, so it relies heavily on its property tax. Vermont has high property taxes but also has ‘circuit-​breaker’ provisions that reduce property tax burdens for lower income residents (Lincoln Institute of Land Policy, Vermont, https://​www.linc​olni​nst.edu/​gwipp-​sta​tes/​ verm​ont; Lincoln Institute of Land Policy, New Hampshire, https://www. lincolninst.edu/research-data/data-toolkits/significant-features-property-tax/ state-state-property-tax-glance [Accessed: October 31 2017]).

Chapter 5 1

2

Fortin, J. (2018) ‘Sessions … sharply limits use,’ The New York Times, November 8. Available at: https://​www.nyti​mes.com/​2018/​11/​08/​us/​polit​ics/​sessi​ons-​lim​ its-​cons​ent-​decr​ees.html (Accessed: September 1 2022). Fortin, 2018.

122

Notes

Chapter 6 1

2

3

4

5

6

7

Buchanan, L., Bui, Q. and Patel, J.K. (2020) ‘Black Lives Matter may be the largest movement in US history,’ The New York Times, July 3. Available at: https://​ www.nyti​mes.com/​inte​ract​ive/​2020/​07/​03/​us/​geo​rge-​floyd-​prote​sts-​crowd-​ size.html (Accessed: September 22 2022). Fortin, J. (2021) ‘Critical Race Theory: a brief history,’ The New York Times, November 8. Available at: https://​www.nyti​mes.com/​arti​cle/​what-​is-​criti​cal-​ race-​the​ory.html (Accessed: September 22 2022). Bernstein, S. (2022) ‘Georgia becomes latest US state’ Reuters, 28 April. Available at: https://​www.reut​ers.com/​world/​us/​geor​g ia-​beco​mes-​lat​est-​us-​state-​ban-​ divis​ive-​conce​pts-​teach​ing-​about-​race-​2022-​04-​28/​ (Accessed: September 22 2022). Williams, D. (2022) ‘Georgia’s pandemic food stamp benefit ending,’ Georgia Public Broadcasting, May 23. Available at: https://​www.gpb.org/​news/​2022/​ 05/​23/​georg​ias-​pande​mic-​food-​stamp-​bene​fit-​end​ing-​on-​may-​31 (Accessed: September 22 2022). Hernández, K. (2022) ‘More states are foregoing federal food aid,’ Governing, July 22. Available at: https://​www.govern​ing.com/​now/​more-​sta​tes-​are-​forgo​ ing-​extra-​fede​ral-f​ ood-a​ id?utm_c​ a​ mpai​ gn=N ​ ews​ lett​ er (Accessed: September 15 2022). Sweeney, T. (2014) ‘Adding up the net cost,’ Georgia Budget and Policy Institute. Available at: https://​gbpi.org/​wp-​cont​ent/​uplo​ads/​2014/​02/​Add​ing-​UP-​the-​ Net-​Cost-​of-​Medic​aid-​Exp​ansi​on1.pdf (Accessed: May 4 2021). Nolin, J. (2022) ‘Judge clears the way,’ Georgia Public Broadcasting, GPB News, August 19. Available at: https://​www.gpb.org/​news/​2022/​08/​19/​judge-​cle​ars-​ way-​for-​imp​lemen ​ tati​ on-o ​ f-g​ eorg i​ as-n ​ ar r​ ow-e​ xpans​ion-​of-​medic​aid#:~:text=​ Georg​ ia%20is%20one%20of%2012,under%20the%20Affo ​ rdab​ le%20Ca​ re%20Act (Accessed: September 1 2022).

123

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135

Index A absolutist rule  24 accountability  15, 23, 25–​32, 89, 117–​18 African Americans  37, 74, 81, 94 arrest rates  103 disproportionately affected by fines and fees  100–​1 excluded as citizens  63 and investigatory stops  104 in the police  2 and social contract  67 and social insurance  61 aid  86, 104, 116–​17 Alabama  4–​5, 55, 56 Amiel et al  87 Arizona  99, 117 Arkansas  5, 97 armed state ‘militias’  114 arrest rates, and African Americans  103 asset forfeiture  95, 100, 109, 115 Atlanta  95 authoritarian governments  29 autonomy  8, 21, 44, 84, 88, 89 B bargaining power of citizens  23 Beck, Kevin  72, 77 benefit principle  4, 89, 90, 92, 93 Betts, J.R.  71 bias, racial  100, 102, 105 Black Codes  50 Black Lives Matter  115, 120–​1 Blacks  concentrated in ‘ghettoes’  69 disproportionately affected by fines  14, 100–​1 and Dred Scott v. Sanford  19–​20

families hold 10 per cent of the wealth that the average White family had  17 incarcerated at rates from 12 to 20 times higher than those for White people  56 income  111, 112 and Jim Crow laws  54–​5, 56 paid into the tax system, but excluded from many of its benefits  111 and property tax limitations  72 and public services  68 and social insurance  76 and tax bargains set during a time when full political and economic rights were denied to  16–​17, 106 where populations higher, lower expenditures on welfare and public goods  70 Block, F.  74 Boix, Carles  28–​9, 113, 114 Brennan Center for Justice  2–​3, 98 Britain, income tax in the 18th century  25 broken window theory of crime  102 Brooks et al  83 Brown, Michael  1, 93, 114, 120 Brownlee, W.E.  44 Brunori, David  88, 89, 90 C California  80–​1, 84, 85, 98 Canada, income tax  31, 112 capacity, administrative  21, 24 capital holders  29 capital mobility  30, 31 cash bail  95 cash crops  49 charges, user  87–​8 Chauvin, Derek  3, 115 136

INDEX

Chicago  101 citations  31, 93, 94 citizenship  28, 35, 46 civil asset forfeiture  98–​9, 100, 102 civil rights  67, 80 Civil Rights Acts  45–​6, 53 civil rights movement  65, 66, 73, 91, 107 color, people of  34, 92 see also Blacks Colorado  87 color-​blind policies  76 Conference of State Court Administrators  95 consent  6, 21, 24 consent decrees on police reform  95–​6 conservatives  74, 77 conservative tax revolt  72, 73, 76, 79, 110, 114 and civil rights movement  65, 91, 107 and property rights  77 and property tax  90 and social contract  63, 77 Constitution, US  44 constitutional monarchy  24 contractarianism  19 contract theory  19 convict lease system  55–​6, 76 cotton  9, 44, 45, 48, 49, 60 COVID-​19 pandemic  116 critical race theory (CRT)  115 D Democracy and Redistribution (Boix)  28–​9 democratic elections  29 Democratic party  47, 52 democratic regimes  28–​9 Democrats  60, 61 Depression, 1873  53 desegregation  68, 72, 73, 74, 84 Dincecco, M.  23 discrimination  34, 62, 65, 115, 121 laws against passed in the South  50 in policing  94, 102 and the social contract  42, 67, 76 diversity  41, 71, 80, 84, 85 Doraville  97 Dred Scott v. Sanford  19–​20

driving under the influence (DUI) arrests  100 drug arrests  100 E economic power  28, 29, 42 education, funding  5, 55, 81, 86, 92 education lotteries  92 egalitarianism, transformative  11 Einhorn, R.L.  43, 48, 49, 79 elections  29 electoral accountability  117–​18 elites, urban business  75 Epp et al  37, 102–​4 equity  27, 39, 86 An et al  71 ethnic scapegoating  116 excise taxes  66, 90 exclusion, racial  111 exclusionary zoning  33 F Fairlie, R.  71 fairness  27 federal aid  86, 116–​17 federal desegregation mandates  84 federal income tax  58–​9 federal school lunch program  62 federal tax bargain  33, 58 federal taxes  44, 45, 58, 74 fees  100 fees, as a source of revenue  27, 32, 66, 107 about one sixth of Georgia’s municipalities rely heavily on  97 African Americans and Latinos disproportionately affected by  100–​1 in Ferguson  2 from convicts  56 go into the municipal general budget  99 and local governments  90, 93, 104–​5, 115 part of the tax bargain  103 pay for public services  14, 109, 112 private companies used to collect  98 and TELs  86, 87 used to fill budget gaps  96 Ferguson, Missouri  1–​2, 93–​4, 114–​15 finance systems, public  23 137

TAXING DEMOCRACY

fines  31, 32, 86, 92, 93, 107 about one sixth of Georgia’s municipalities rely heavily on  97 cap on overall revenue from  95 defendants who lack the resources to pay are jailed  97–​8 disproportionately affect racial minorities  100 hit the poorest the hardest  66 and local governments  14, 90, 104–​5, 115 part of the tax bargain  103 pay for public services  109, 112 and race  100–​1 revenue goes into the municipal general budget  99 used to fill budget gaps  96 Fines and Fees Justice Center  2–​3 fiscal accountability  15, 27, 31, 118 fiscal centralization  23 fiscal contract  7, 120 fiscal federalism  7, 40, 57, 61, 113 fiscal policy  3, 60, 114 fiscal restraint  84, 86 fiscal scarcity  13, 14, 104, 107, 120 fiscal stress  88 Flint, Wayne  5 Florida  55, 56, 115 Floyd, George  3, 96, 105, 115 Foner, Eric  43, 51, 53, 54, 63, 66 food aid, federal  116–​17 forced labor  55–​6 freedom of association  74 free-​r iding  107 G gaming  92, 109 Garcia-​Mílà et al  41 Garrett, T.A.  99 gender inequality  19, 34 geographic segregation  68–​72 Georgia  50, 96, 97, 98, 105, 106 and Medicaid  117 passed laws to limit the discussion of race in public schools  115–​16 rejected New Deal aid  6 super-​majority required for any change in tax policy  5 Gervasoni, Carlos  26 GI Bill  36–​7, 62 Gilens, M.  71

Gingrich, Newt  68, 73 Governing magazine  96 Great Migration of Blacks out of the South  69 Green, M.T.  87 group identity  34, 35 H Hancock amendment  88 Hannah-​Jones, Nikole  65–​6, 76, 111, 112 Harlan, John Marshall  53–​4 Haveman, M.  80, 85, 88 have-​nots  29 Hayes, Rutherford  54 Hispanics  72, 98, 100, 101 Hobbes, Thomas  18, 32 Holder, Eric  1–​2, 94 horizontal inequity  88 I identity  group  34, 35 national  31 identity politics  114 Illinois  96 import tariffs  44 income inequality  86, 111, 112, 113 income tax  41, 44, 58–​9, 81 in 18th century Britain  25 in Canada  31, 112 incorporation  36, 37 industrialization  44, 46 inequality  income  86, 113 racial  69, 71, 112, 115 and zoning  70 inequities  6, 16, 36, 71, 77, 112 horizontal and vertical  88 in policing  96 racial  103 Institute for Justice  95, 104 institutional ‘lock-​in’  36 interpersonal trust  71 investigatory stops  102–​4, 103 J jailing, for not paying court-​ordered fines and fees  95, 97–​8

138

INDEX

Janiewski, D.E.  74–​5 Jim Crow institutions  33 Jim Crow laws  54–​5, 56, 66, 67, 76, 113 Jimenez, Benedict  31, 88 Justice Department, US  95–​6 K Kant, Immanuel  32 Katznelson, I.  60–​1, 62 Kemp, Brian  117 killings, by the police  63, 105, 115, 121 George Floyd  3, 105 Michael Brown  1, 93, 114, 120 King, D.S.  11, 76, 119 Kopf, D.  101 Kruse, Kevin M.  67–​8, 69, 73, 74, 78 Ku Klux Klan  114 L land reform  51–​2 Lassiter, Matthew  74 Las Vegas  101 Latinos, disproportionately affected by fines and fees  100–​1 Lav, I.J.  85–​6 Leachman, M.  85–​6 Leff, Mark H.  57 Levi, Margaret  21, 22, 25, 31 ‘Leviathan-​Niskanen-​Buchanan hypothesis’  83 Lieberman, E.  10–​11 Lincoln Institute of Land Policy  88 local governments  43–​4, 69, 82, 85 and property tax  89, 90 rely on fines and fees  14, 102, 104, 115 revenues  93 and Senate Bill 5  95 and ‘taxation by citation’  104–​5 Locke, John  18, 32 ‘lock-​in,’ institutional  36 lotteries  92 Louisiana  97 Lowi, Theodore  35 M Makowsky, M.D.  99, 102, 120 Makowsky et al  98–​9, 100 marginalized communities  14, 31–​2, 34 Martin, I.W.  72, 77

Martin et al  32 Maryland  96 Massachusetts  86 McGee, Heather  67 McGirr, Lisa  74 Medicaid  107, 116, 117 Mettler, Suzanne  34–​5, 37 Michelmore, M.C.  57, 59 middle classes  and GI Bill  62 and income tax  58 and property tax  46 segregationists  72–​3 White  72–​3, 78, 80, 112, 119 ‘militias’, armed state  114 Mills, Charles W.  17, 18, 19–​20, 32–​3, 35–​6, 42 Minneapolis, Minnesota  105, 115 minorities, disproportionately affected by traffic stops  103 Mirkay, N.A.  33, 66, 81 Mississippi  55 Missouri  88, 95, 96, 105, 114–​15 mobility, capital  30, 31 modernization theory  75 Moe, Terry  78–​9 monarchy, constitutional  24 Moore, Mick  24, 25–​6 Moran, Beverly  28, 45 Morgenthau, Hans  57 mortgage redlining  76 Mossberger, K.  75 Mughan et al  100 Mullins, D.R.  81, 82, 83, 84, 86 municipal court fines and fees  14, 27–​8, 32 municipalities, state aid to  104 municipal ordinances  26, 34, 91 municipal revenue  reliance on fines and fees  100–​1 and TELs  83 Murphy, L.  4, 76–​7, 110 The Myth of Ownership (Murphy and Nagel)  4 N Nagel, T.  4, 76–​7, 110 National Center for State Courts (NCSC)  95, 98

139

TAXING DEMOCRACY

national identity  31 National Public Radio  98 National Task Force on Fines, Fees, and Bail Practices  95 New Deal  6, 9, 40, 57, 59–​61, 106–​7 Newman, K.S.  5, 49 New Orleans  101 New York  96 The New York Times  65–​6 non-​tax revenues  92 the North  44–​5 North, Douglass  10 the Northeast  46 O Oates, Wallace  30, 89 Oates’ Decentralization Theorem  30 O’Brien, R.L.  5, 49 Oklahoma  97, 98 old age insurance  57–​8 Olson, Mancur  21 P Pagedale, Missouri  105 Pateman, Carole  19, 35, 42 path dependency  10, 36, 108 payroll tax  57–​8 people of color  34, 92 see also Blacks permits, as share of revenue  87–​8 Peterson, Paul  75 Philadelphia  95 Pierson, P.  34, 36 planters  51 police chiefs  100 police investigatory stops  102–​4 police killings  115 police reform, consent decrees  95–​6 policing  1–​3, 27 and African Americans  103 defunding demanded  121 racially discriminatory  37, 102 revenue-​driven  2, 3, 93–​105, 112, 114–​ 15, 120 ‘policing for profit’  34, 92–​3 political accountability  31, 117–​18 political action  40, 114 political institutions, representative  23, 24 political order  10–​12

political power  37, 42, 49 political representation  13, 46, 49, 53 politics, and policies  38 Pollack, S.  44 power  economic  28, 29 political  37, 49 preemption laws  85 preference heterogeneity  71 prison chain gangs  56 private goods  107 property rights  45, 76–​7 property tax  4, 27, 46, 49, 50 in Alabama  55 and Brunori  88 cuts  86, 111–​12 exemptions and assessment limits  104 limitations  71–​2, 77, 80–​1, 82, 84, 85 and local government  89, 90 and Redeemer governments  54 restrictions on  87 Proposition 13  78, 80–​1, 84, 85, 87 prostitution arrests  100 protests 2020, Black Lives Matter  120–​1 public choice theory  83 public education  5, 13, 55, 92 public finance systems  23 public goods  13, 14, 69–​70, 107 public safety  98, 102, 103, 107, 113 in Ferguson  1 is a public good  107 and policing  93, 120 and property tax  89, 90 rebate  120 and revenue collection  3, 15 public schools  50, 67, 72–​3, 81, 115 public services  9, 60, 67, 69, 70, 71 paid for through fines and fees  14, 109, 112 and property tax revenue  90 and small government  68 public spending  and diverse populations  84 and electoral support  67 and racial inequality  71 R race  and fines and fees  101 140

INDEX

Georgia passed laws to limit discussion of in public schools  115–​16 and racial institutional orders  11 ‘racial animus’  71 racial bias  100, 102, 105 racial contract  17, 19, 20, 32–​3, 35–​6 racial discrimination  62, 76, 94, 115 racial exclusion  20, 32, 62, 111 racial inequality  69, 71, 103, 112, 115 racial institutional orders  11 racially biased traffic stops  37 racially discriminatory policing  37, 102 racially segregated communities  77–​8 racial minorities  disproportionately affected by fines  100–​1 disproportionately affected by traffic stops  102, 103 have long borne a disproportionate share of the tax burden  112 racial orders  11–​12, 119 racial prejudice  120 racial segregation  68–​72 racial social contract  20, 36, 59, 60, 70, 76 racial wealth gap  17, 62, 65–​6, 77, 111 racism  105, 120, 121 Radical Reconstruction  6, 47, 50–​4 Rawls, John  19 Reagan, Ronald  73 Reconstruction  5, 40, 43, 45–​6, 63, 67 Redeemers  43, 50, 54 Redemption  40, 54 redlining  33, 62, 76 Reese, Laura  6 regressive tax systems  89–​90 rentier state theory  25, 26 representative political institutions  23, 24 Republican party  52, 60, 61, 73 residential segregation  68–​72 revenue, municipal  83, 100–​1 Revenue Act, 1942  59 revenue-​driven policing  2, 3, 93–​105, 112, 114–​15, 120 rights  26, 28, 29 Roosevelt, President  57 Rousseau, Jean-​Jacques  32 rulers  20–​1, 22–​3, 24, 28 Rustow, Dankwart  10

S sales taxes  27–​8, 66, 88, 90, 104, 107 and Proposition 13  87 Sances, M.W.  100 scapegoating, ethnic  116 Schattschneider, E.E.  35 school lunch program, federal  62 schools, public  50, 67, 72–​3, 81, 115 Schumpeter, Joseph  4 segregation  50, 68–​72 segregationists  72–​3, 74 Senate Bill 5 (Missouri)  95 Senate Bill 377 (Georgia)  115–​16 Sessions, Jeff  95 Sexton, T.A.  80, 85, 88 sexual contract  19 sharecropping  9, 54, 60 Sheingate, A.  10 sheriffs  100 slavery  33, 45, 48, 66–​7, 111 slaves  50, 79 former  33 ‘small government’  13, 68 Smith, Adam  28, 111 Smith, R.M.  11, 76, 119 social contract  6, 7, 8–​9, 10, 17, 64, 108–​9 and civil rights movement  66 and conservative tax revolt  63, 77 definition  3–​4, 12–​13 and discrimination  42 in Georgia  117 and Jim Crow laws  54–​5, 56 and politics  38 and racial exclusion  32 and racial orders  119 during Radical Reconstruction  51 and social security  59 in the South  52, 60, 62, 67 and suburbanization  76 and tax policy  34–​7 and TELs  78 and traffic stops  103 and ‘uncivilized peoples’  32 social contract theory  18–​20 social insurance  57–​8, 61, 76 social security  59 social service provision  57 social welfare provision  58

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TAXING DEMOCRACY

Soss, J.  34, 35 the South  antebellum tax structure  48–​50 and convict lease system  55–​6 and the Democratic party  47 and the Depression, 1873  53 during the New Deal  59–​60, 61–​2 preferred low tariffs  45 and Radical Reconstruction  47, 50–​4 and slavery  66–​7 and super-​majorities  55 and zoning laws  70 South Carolina  50 speeding citations  105 Stallman et al  83, 87 state aid  86, 104 state building  46, 49, 59, 106, 118 state formation  20–​5 state governments  8, 45, 51, 89 and convict labor  55–​6 and the police  112 and property tax  4 and Proposition 13  81 and public good provision  14 and Redeemer governments  54 and slaves  79 and tax bargains  43 and TELs  78, 86, 87, 104 state-​run lotteries  92 Steidley, Dwayne  97 Strand, P.J.  33, 66, 81 Stratmann, T.  99 Su, M.  98 subordinate populations  22 suburbanization  75–​6 suffrage  51, 113 Supplemental Nutrition Assistance Program (SNAP)  120 supremacy, White  19, 20, 35, 43 T Taney, Roger  19–​20 tax and expenditure limitations (TELs)  78–​ 88, 104, 107 ‘taxation by citation’  14, 34, 96–​8, 105, 120 tax bargain  7, 9, 10, 12, 21, 56, 64, 108, 109 in 1789 Constitution  43

and armed state ‘militias’  114 and autonomy  8 based on an understanding of a minimalist state  111 confers economic advantages  72 and consent  6 constrains tax policies  37 differs between states  41 entrenches differences in political and economic power  42 and equity  39 federal  58 fines and fees, as a source of revenue, part of  103 and former slaves  33 and limited role for the state in the provision of public goods  13 and marginalization of excluded communities  14 and payroll tax  57 and racial inequality  112 and racial orders  119 set when rights were denied to Black Americans  16–​17, 106 and the social contract  22, 63 in the South  52, 59–​60, 66–​7 supports an agenda of resistance to change  65 those who fund it, do not benefit from it  113 tax incidence  4, 31, 57 Taxpayer’s Bill of Rights law (TABOR)  87 tax policy  seven principles  89 and the social contract  34–​7 tax state  creation of  21 definition  6 tenant farming  54 Texas  5, 96, 115 A Theory of Justice (Rawls)  19 Thompson, F.  87 Tiebout, Charles  30, 31, 83, 89 Tillotson, Shirley  31, 41–​2, 112 Tilly, Charles  21–​2, 24, 31 traffic citations  92, 101–​2 traffic fines  95, 105 traffic stops  37, 99, 100, 102–​3, 104 transformative egalitarianism  11 142

INDEX

transformative egalitarian racial order  119 transparency  15, 25, 28, 31, 89, 118 Trounstine, J.  69–​70, 71 Trump administration  95–​6 trust, interpersonal  71 U ‘uncivilized peoples’  32 uniformity clauses  49–​50, 54, 79 Urban-​Brookings Tax Policy Center  81–​2 urban business elites  75 urbanization  46, 68 urban regime analysis  75 US Commission on Civil Rights  93, 98, 100–​1, 103 user charges  87–​8 user fees  90, 92, 109 V vertical equity  27 vertical inequity  88 violence from armed state ‘militias’  114 W Wagner, G.A.  99 Wallin, B.A.  81, 82, 83 Warwick, Georgia  105 wealth  28, 29 wealth gap, racial  17, 62, 65–​6, 77, 111

welfare provision  58, 70 White flight  68, 72, 73, 74, 77–​8 Whites  believed that government treated its citizens equally, regardless of race  17 farmers  51 fled from urban areas to suburbs  67, 68 income  112 middle classes  72–​3, 78, 80, 112, 119 and property tax  71–​2, 86 public services to limited for nearly one hundred years after Civil War  9 reported believing that Whites and Blacks are treated differently by the police  121 taxpayers, federal tax system skewed in favor of  111 and traffic stops  37, 104 White supremacy  19, 20, 35, 43, 119 Williamson, Vanessa  55, 56 Wilson, Darren  1 Wright, Gavin  48 Y Yearley, C.K.  31 You, H.Y.  100 Z zoning laws  69, 70

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