It’s Our Money

Thirsty West Virginians who plunk quarters into soda machines help finance a state medical school. Cigarette smokers in Washington State cough up $31.7 million a year to clean Puget Sound, while home buyers in Maryland pay transfer fees that help buy new parklands. This practice of earmarking taxes for specific government functions is growing steadily: at least 18 states have adopted targeted taxes since mid-1984, and dozens more such levies — for schools, police, roads, drug-abuse treatment — are pending in states from California to Michigan.

The fresh popularity of earmarking shows that much has changed, and much has not, since ten years ago this week, when Californians endorsed the tax- slashing Proposition 13 and triggered a national tax revolt. Pollster Mervin Field has found that while opinion still runs against any general tax increase, 7 out of 10 Californians would support higher taxes for specific programs — even efforts for the homeless. South Dakota’s former Republican Governor William Janklow, a populist proponent of earmarking, explains, “People know that if they just trust the money to government, it’s going to suck it up like an amoeba, leaving them nothing to show for it. So now people are saying, ‘It’s our money, and we’ll tell you what we’re willing to pay for.’ “

Many economists dislike earmarked taxes because they make public budgets less responsive as funding needs change. Another pitfall vexes Steven Gold, a tax expert at Denver’s National Conference of State Legislatures: “Voters are sometimes misled when they support earmarking, because new revenue sometimes just offsets money the state was already spending.” Nearly $500 million annual earnings from California’s lottery are designated for public schools. Yet the schools’ share of the state’s budget has fallen by $443 million. That general-fund money not spent on schools is available for politicians to spend (or squander) on larger staffs, salaries or pet projects.

The major effect of earmarking is not financial but political: it builds constituencies who help sell new taxes and programs. In New Jersey, voters rejected casino gambling in 1974 but approved it two years later when it was limited to Atlantic City and when its tax revenues were pledged to help the disabled and senior citizens.

The appeal of earmarking has attracted interest even from private developers. In Los Angeles the Occidental Petroleum Corp. has sponsored a ballot initiative to allow it to drill for oil near fashionable Pacific Palisades. The proposal upsets local homeowners, but Occidental has plans to offset their votes: the oil company pledges to pay taxes estimated to exceed $60 million a year for the police, $40 million for city hall and $25 million for the schools. All earmarked, of course.