The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (22 page)

The explanation has nothing to do with growing demand or even a shortage of landfills. Indeed, some landfills are actually shrinking—and sinking; that’s what happens when you spray water onto them and let bacteria silently dine on the buried trash. But your trash-hauling bills are on the rise because of a long-term strategy by the biggest garbage haulers to reduce competition, thereby handcuffing the invisible hand of Adam Smith’s competitive marketplace. In fact, executives of the two largest garbage companies, Waste Management and Republic Services, have touted their shares to Wall Street analysts as lucrative investments
because
, they boast, they have defeated the power of the market to hold down the prices customers pay.

Republic Services says it has about 18 percent of trash-hauling revenues. Waste Management has 26 percent. Two companies controlling 44 percent of a $47 billion industry describes not competition, but oligopoly. Competition is good for consumers and the economy overall as it promotes efficiency, tends to hold down prices and encourages innovation. Oligopoly is good for owners because it helps them escape the
rigors of market competition so they can jack up prices, earn bigger profits than a competitive market allows and expend less effort managing their assets.

Later in this chapter, we’ll look in more detail at the stranglehold these two companies have on their industry. First, though, some good news: you can fight the garbage gougers and win. The path to lower prices may surprise you: paying higher taxes lowers the cost of garbage collection. In my neighborhood in upstate New York we agreed in 2006 to raise our property taxes. The next year we started saving money and since then the savings have grown. Every extra dollar of tax I paid in 2011 meant $1.80 more in my pocket.

The truth behind such tax calculations has come under such vicious attack for the last three decades that many Americans have a blind spot, refusing to consider how expedient this strategy can be in cutting costs and maximizing services.

TRASH TALKING TAXES

At one time, a wide cross section of Americans understood that taxes could save money and help grow the economy. The principle has been largely forgotten since the modern antitax movement got going with the 1978 passage of Proposition 13, the ballot initiative that froze basic California property taxes at 1 percent of a property’s value.

According to the now dominant narrative, lower taxes are the only path to prosperity. Americans have been told for more than three decades that higher taxes equal less money to spend, that lower taxes equal more. As President George W. Bush liked to say about his tax cuts, “With my policies, you’ll keep more of your money in your pocket.”

That higher taxes are inherently bad has become the default rhetoric of politicians from both parties, an unassailable truth trumpeted by network and cable television news personalities. The best newspapers and opinion magazines implicitly embrace the belief that higher taxes must always cost individuals more. The result is that almost everyone accepts that the only way to keep more of their money is to cut taxes.

That narrative is so utterly false one might call it economic garbage. The people spewing it both in Congress and on the political trail, as well as in the news media, are largely people with less understanding of the economics of taxation than vote-getting savvy. So let’s take a fresh look.

Higher taxes can make you richer or they can make you poorer; ditto for lower taxes. What matters in both cases are three factors:

What is taxed.

How the tax is applied.

What the tax money is spent on.

The story from my neighborhood about taking out the trash illustrates how a well-designed tax can save you money.

I live on Council Rock Avenue in the Town of Brighton, five blocks outside of the city limits of Rochester, New York, the home of Kodak and, back in the 1820s, the town whose rapid growth made it the place first described as a “boomtown.”

The asphalt of Council Rock Avenue runs for two long, wide blocks lined with leafy trees; it is named for a big pockmarked boulder at one end. The boulder was deposited by the last of several dozen mile-thick glaciers that covered the area in eons past. Our rock is one of several “council rocks” where, long before the Europeans came to the New World, delegates to the first known democracy met. According to some of the Haudenosaunee people, better known as the Iroquois Indians, who occupied much of what is now western and northern New York state, their democracy began three thousand years ago—five centuries before the democracy of ancient Athens. Because of a solar eclipse told of in Iroquois history, we know for sure that their democracy existed on August 31, 1142, long before self-governance in Europe.

For today’s Council Rock Avenue residents—mostly doctors, lawyers, executives, and other professionals—the higher taxes that save them money started after Melinda Goldberg bought her dream home there in 2005. Rochester is one of the lowest-cost housing markets in America. Spacious homes here sell for about a tenth of what an identical property costs in the fancy communities of the Boston-Washington corridor or urban West Coast. While much of America is house poor, Rochesterians tend to be house rich because a smaller share of their money goes to buying shelter.

Goldberg chose a sturdy blue-gray, center-entrance colonial built decades ago on a large landscaped lot with graceful shade trees. It came with a bathroom for each of the five bedrooms and a home office big enough for her husband, Ron Turk, who sells the cab portion of tractor-trailer rigs.

“I was searching for my perfect Donna Reed neighborhood,” Melinda
Goldberg recalled. “Sidewalks, streetlights, family life. Pleasantville.” But on their very first morning in their dream home, the couple was awakened by a diesel engine revving and metal clanging as a garbage truck mashed a neighbor’s trash.

In the years after a century-old wheat field became Council Rock Avenue in 1926, families hired their own trash haulers. There were white trucks and green trucks, red ones, even lilac ones named for the lilac gardens in a city park designed by Frederick Law Olmsted. Every weekday was trash day for someone. Trash cans and recycling bins lined the curbs, along with bundles of flattened cardboard boxes and the occasional old chair or worn-out appliance. In spring and summer, the trash detracted from the colorful flowerbeds and neatly trimmed hedges; in winter trash piles marred the white mantle of fresh snow.

Goldberg could not stand it. “The early morning clanging noise in my perfect neighborhood that awakened me five days a week, along with the ugly aesthetics of the trash cans that lined our otherwise beautiful street, led me to make a few phone calls.” She found out that the neighborhood could create a taxing district to finance trash collection on a single day of each week. When she met another resident, Tess McFarland-Porter, and found common cause in the noisy, smelly garbage trucks, they decided to act.

“I had lived in four other houses in town and all had refuse districts,” Goldberg said. “So I thought we would benefit from creating one. We talked to people and explained the benefits. Everyone was for it except two neighbors, who were just against paying any more taxes.”

They recruited a third neighbor, retired judge Dick Rosenbloom, to notarize signatures on a petition to create the Council Rock Refuse District and, despite the minor opposition, the neighborhood dumped the individual market system of buying trash removal retail and replaced it with one harnessing the collective buying power of the tax system for common benefit. For trash companies, stopping at every house on a street meant more efficient use of labor and equipment. A company could charge less and profit more. In 2012 dollars I had been paying about $575 annually for trash collection. The winning bid for the new system came in so low that my trash-hauling cost for 2010 fell 62 percent to $221.

So much for the rhetoric that higher taxes are always and everywhere a bad idea. Those higher taxes mean nearly a buck a day more money in my pocket. The $221 more in taxes my wife and I pay means we are buying improved service and spending only thirty-eight cents for each dollar we used to spend privately.

The winning bidder, currently Waste Management, must be making enough money to justify this piece of business because the price we pay has been going down, dropping by 12 percent from 2009 to 2010—even as Waste Management and Republic Services were jacking up prices elsewhere in America.

Until 1998, Republicans outnumbered Democrats in my town. Yet counter to almost universal Republican rhetoric, we embraced higher taxes for decades when it saved money or made good sense for other reasons. Brighton taxes us for other services that many people in other towns pay more for because they buy them individually. The town picks up leaves, branches and other plant material left curbside and takes them to a municipal compost heap year-round. When the maples, oaks and birches turn yellow, orange and red and shed their leaves in the fall, the town quickly hauls them away. At year’s end, it takes away dried-out Christmas trees, too. All of that is paid for with taxes. Those taxes save us money compared to the cost of having to haul away this detritus individually.

Our extra taxes also add convenience and safety beyond trash and yard waste removal. Goldberg and McFarland-Porter persuaded us to raise our taxes to start a second service, one particularly valuable to people who live in areas like the Finger Lakes region of New York where the snowfalls can be deep and the cold enduring. We created a sidewalk snowplowing district that, like trash hauling, is put out to bid.

“I wanted to live in a suburb that had sidewalks,” explained Goldberg, who grew up a few miles away in a neighborhood of mid-century homes without sidewalks. When the first snow fell, she found she had to walk in the street because not everyone promptly shoveled their sidewalk. Some people never did. Goldberg thought to herself: “This is ridiculous, this is dangerous. There are cars in the street!”

Sidewalk snowplowing cost me $35 in 2009, thus creating a double bargain for my bank account and my health. The price under the winning bid rose to $37 in 2010. Still, for a bit more than $7 per snowy month, I escape the drudgery of hours spent shoveling or the expense of an infrequently used snowblower. I also avoid the increased risk of a heart attack that comes with shoveling snow. (For men in top condition, that risk doubles after shoveling snow; it increases a hundredfold for men who are out of shape, according to a 1993 study in the
New England Journal of Medicine
.)

Of course, raising taxes does not always lower costs or prevent heart attacks. Higher taxes can leave you worse off, depending on what is taxed and, more important, how the tax money is spent. But, as Melinda
Goldberg and Tess McFarland-Porter showed their neighbors, paying well-structured higher taxes can drive down costs.

THE OTHER KIND OF TAX SAVINGS

The demonstrable fact is this: taxes are not an absolute economic evil, despite their simplistic portrayal as such by the antitax movement. Television personalities and actual reporters who lazily accept antitax comments without checking them help spread this lie; politicians who only know economics through talking-point memos reinforce the distortion. The truth is that, often, taxes harness the buying power of the many to save money and improve society through joint purchases. We may take these benefits for granted, but examples of money actually saved by taxes abound.