Trouble Brewing

Guest Post by The Zman

One of things you cannot help but notice is that pretty much everything in America is some sort of scam run by the managerial class to extract money from the rest of us. The most common way to do this is via cost shifting and you see it in the so-called non-profit rackets. Everywhere you look, non-profits are working the tax code so that Cloud People can live self-actualizing lives, while we get to pay for it. It looks like that scam may be reaching its end.

When New Haven Mayor Toni Harp gazes out her office windows, she can see across the street to Yale University’s idyllic buildings and grounds — none of which are on her city’s property tax rolls.

Yale, a nonprofit despite its $25 billion endowment and sprawling property (it owns about half the land in the city, Harp says), doesn’t pay property taxes. And some officials in Connecticut, including Harp, would like to see that change.

They aren’t alone. City and state officials in other parts of the country, including Maine, Massachusetts and New Jersey, also are questioning whether they can continue to allow wealthy schools like Yale, or big nonprofit hospitals, to remain off tax rolls while they scramble for money to pay for police, fire, streets and other infrastructure and services.

In some cases, they are looking for ways of taxing what until now have been tax-exempt sacred cows.

For a long time now, the Federal government has strong armed states into going along with policies they would never implement on their own. They do this by threatening to withhold Federal funds for thing like roads and education. The result is state budgets have swelled as they take on the burden of the the Progressive fantasies, while the Washington politicians strut around like heroes for having cooked up these programs. The states are now running out of money to pay for this crap, so they are look for new taxes.

Of course, these colleges are working the same rackets. Yale could offer free tuition to its undergrads. They could expand their undergrad population and thus reduce tuition costs. Schools like Yale have the same sized student body they had after WWII, when the country was a third of its current population. Instead of doing those things, they have turned Yale into a five star resort whose primary purpose is to be a money laundering operation for the super-rich, looking to avoid taxes.

All of these cost shifting schemes have something in common and that’s leverage. State governments have been able to hide the cost of social programs through debt issuance. Colleges have become luxury resorts by passing those costs onto graduates in the form of student debt. Young people are holding north of $1 Trillion in debt at the moment, with close to 20% of it technically in default. What that is telling us is that this form of cost shifting is reaching its end as well.

There’s a Assembly of Notables vibe to stories like this because what we are seeing is the beneficiaries of the system desperately trying to keep the plates spinning. The people in power, the members of both parties, all know that either government spending at all levels is sharply reduced or that taxes are sharply increased. In all probability, both will be necessary. The trouble is the people with the money to be taxed are rich and powerful. Yale does not want to pay taxes and it does not want its patrons to pay them either.

As was the case in the French Revolution, what we are seeing in America is the use of debt to perpetuate a system that was evolved for a bygone era. Social democracy, which is what we have in America, is a 19th century concept implemented in the 20th century. Big parts of it are no longer useful, but no one knows how to reform it. There are millions still making a nice living doing busy work in the system and they will fight anything that resembles reform. The result is endless haggling over how to make 2 + 2 = 5.

The most likely outcome of this is we first see state governments begin to buckle. California is, for all practical purposes, insolvent. Illinois is probably going to be the first state to face defaulting on its pension obligations. All but a handful of states are facing very serious debt problems that will require doing what they previous assumed was unthinkable, like taxing hospitals and colleges.colleges. Next up will be a push to get rid of the tax breaks for charitable deductions. That’s when the whole non-profit racket collapses.

What will be interesting to watch is what happened when the people on the fringe of the managerial class start to be cut loose to save money. When hospitals need to cut costs, they will not be laying off nurses and doctors. They will go for the diversity coordinator and the patient liaison officer. Colleges are not going to drop the football team, but they will get rid of the Transgendered Studies people. A whole lot of people in self-actualizing careers will find out they are luxury items, not necessities. That’s when things could get fun.