With nearly every state and locality dealing with some degree of budget strain, it is becoming increasingly commonplace for legislators to raid dedicated funds in order to finance shortfalls in their general funds. Raiding these dedicated funds is both disingenuous and unfair to taxpayers who were led to believe these taxes would go toward a specific program.
One way government diverts money is through “fund sweeps,” which move unspent money from dedicated funds into the general fund. The legality of this tactic is questionable, and the policy creates an incentive to waste money across the board instead of being more prudent with tax dollars.
Often tax hikes are specifically but loosely tied to popular programs in order to gain public support for tax increases that would not be accepted otherwise. Examples include creating a cell phone tax to fund 911 services, gas and/or vehicle taxes to finance road upkeep, and, on the federal level, the payroll tax for Social Security. In too many cases, these revenues are not being used for their original purpose and are instead being diverted to fund other spending. This lack of transparency and accountability enables governments to put a heavier burden on taxpayers than they would be willing to pay for if asked openly.
Just last week, New York State’s comptroller, Thomas DiNapoli, issued a press release noting, “Since 1991, just 34.9 percent, or $11.6 billion, of the money in the state’s Dedicated Highway and Bridge Trust Fund went directly toward the repair and improvement of the state’s deteriorating roads and bridges.” Unfortunately, this is an all-too-common example of taxpayers not getting what they thought they were paying for.
In July the Associated Press reported more than $200 million has been diverted from 911 telephone funds over the past two years to shore up states’ budget shortfalls. These funds are financed by cell phone taxes supposed to pay for the emergency service. Similarly, the Atlanta Journal-Constitution on November 8 noted that of the $15 million raised from a fee on prepaid cell phones in Georgia, “not a penny has gone where it’s supposed to, and now the state has lost out on more than $1 million in federal funds.”
If these dedicated funds have so much “extra” revenue, legislators should reduce the taxes, not raid the funds. Diverting these taxes from their original purpose turns these dedicated funds into slush funds for big-spending politicians.
Taxpayers should be very wary about approving earmarked tax increases, especially when legislators are not required to be transparent about and held accountable for how and where the money is being spent.
John Nothdurft ([email protected]) is the budget and tax legislative specialist for The Heartland Institute.