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Taxes, flooding, and an Australian idea

As the water recedes, and the East Coast is faced with the significant clean up after Hurricane Sandy, it’s probably worth a minute to consider whether it’s possible for the US to mimic the actions Australia took after the Queensland floods.

After a period of significant flooding in Queensland in 2010–11 — covering an area of around a million square kilometres and claiming 44 lives — ­the Queensland state and Australian federal governments faced a pretty large reconstruction bill, both to replace infrastructure and to assist those who couldn’t receive flood insurance.

This isn’t unlike the situation in the US right now. Hurricane Sandy’s bill is difficult to calculate at the moment, but no doubt it will number in the many billions of dollars. And as the Wall Street Journal explained, private insurance companies won’t be on the hook for much of it:

Sandy is expected to become one of the costliest storms ever. But a substantial share of the tab won’t be picked up by insurers, because standard homeowners’ policies don’t cover flood damage.

Instead, an indebted federal flood-insurance program is expected to pay for billions in property damage, while local, state, and federal taxpayers will likely take the lead in financing repairs to subways, roads, and other infrastructure.

As such, the US federal and state governments are likely to face a hefty bill, not unlike their Australian equivalents did after the Queensland floods. So how did the Australians address it?

A couple of months after the floods, the Australian Government passed legislation that would temporarily raise taxes to pay for the reconstruction. All Australians earning over $50,000 per year would pay an extra one per cent tax in the 2011–12 financial year. The levy only applied to people who were not affected by the disaster, and raised about a third of the total needed for reconstruction. The rest of the money required was raised through spending cuts and delaying scheduled infrastructure projects.

All-in-all, it was a pretty balanced policy that was a sensible response to an unprecedented event.

Yet it’s hard to see the US adopting such a policy. Raising taxes has become such an anathema to the Republican Party in particular that even in the face of overwhelming destruction, the idea of even a temporary raise taxes will be off the table. In reality, paying a small extra amount in tax to help the East Coast rebuild would be a deeply patriotic act. But the notion that taxes should not be raised, except perhaps on the wealthiest Americans (and even then it’s still pretty unpopular), is so deeply embedded in the current American political discourse that not even a major disaster such as Hurricane Sandy could shake it.

Which is a shame, because kicking in a little bit extra for those whose lives have been affected by this would be a pretty decent thing for citizens to do, and the perfect project for a lame duck session.

Originally published at the United States Studies Centre blog.

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