One of the most valuable lessons about negotiating that I learned in over 50 years as an accounting professional and businessman was to always leave something for the other side. Successful negotiating is not about winning everything and leaving nothing for the other party. That’s one of the biggest mistaken assumptions made by many people and can sometimes lead to undesirable and unintended consequences.

Negotiating is not dictating. It’s a give and take process that, hopefully, can be a win-win for both parties. Otherwise, it becomes an exercise in power, where one side simply dictates to the other.

That said, the example of the day is the unions that represent government employees vs the government entities that employ them and indirectly the taxpayers who ultimately pay the bill. Think about it. What is the long-term outcome likely to be when unions obtain wages and benefits from the government that cannot be sustained over time?

Pogo’s well known quote comes to mind: “We have met the enemy and he is us.” That seems to be the case with government employee unions, which have negotiated wage and benefit packages that are generally better than those of most the taxpayers who are forced to pay the bill.

The argument is sometimes made that government employees are also taxpayers. True enough. However, that would only be appropriate if they were paying the major share of the bill for their own compensation.

The problem has been a combination of government revenue streams that grew steadily for many years, coupled with compliant politicians who responded to the political muscle of the unions that have actively supported their campaigns for election. A particularly egregious example of this was the Santa Barbara City Council election a few years ago, in which the employees’ union asked candidates for City Council a series of questions but would not release their responses to the public.

Not only do the government employee unions have the power to strike but they also vote and, given the percentage of the workforce that now work for government, they represent a major portion of the voting population.

We, that is, our political leaders can resist, but they don’t. Ronald Reagan demonstrated the value of pushing back against the excessive demands of government employees when he fired 11,345 air traffic controllers in 1981, when they attempted what was then an illegal strike.

The result has been the steady growth of government employee costs, to the point that they can no longer be sustained. This is clearly demonstrated by the current plight of Santa Barbara County, which is currently grappling with a projected budget deficit of some $39 million.

The percentage of government budgets that is allocated to employee retirement has been steadily increasing. At some point, those government entities that fail to stop approving expenditures they do not have the money to pay them will eventually go broke. When that happens, whatever retirement benefits they may be contractually bound to pay to their employees will be drastically reduced, of necessity, possibly by a bankruptcy court, if no other way.

But, both the unions and the various government entities seem to keep trying to “soldier on” as if there’s no tomorrow. One gets the impression that if no one looks, the problem will just go away. But, it won’t. There will be a day of reckoning, which appears to be approaching fast.

Writing in the Santa Maria Times, Julian J. Ramos noted (March 3, 2010): “Faced with the unenviable task of closing an overall $40 million budget gap, the Santa Barbara County Board of Supervisors agreed Tuesday to hold off giving direction to county staff on how to narrow that deficit… Most of the budget gap is linked to skyrocketing county employee retirement costs and shrinking property tax revenues, which makes up the majority of the board’s discretionary funding and supports most public-safety programs.”

Fifth District Supervisor Joe Centeno of Santa Maria said he would rather see cuts to non-essential services than see reductions in services to children and adults who need mental-health care. “We have to find a way to accommodate their needs,” he said.

It all sounds good, but no one seems to have any idea how to stretch the available funds to accomplish that without going broke in the process.

It’s time for people in government (at every level) to get real.

© 2010 Harris R. Sherljne, All Rights Reserved

Read more of Harris Sherline’s commentaries on his blog at www.opinionfest.com

Continuing with my annual tax season observations about taxation in America, following are some additional random facts (in no particular order), along with some of my conclusions about our income tax laws, who pays, who doesn’t, and the impacts our system of taxation have on the nation’s productivity:

• Households in the lowest 20% of income received about $8.21 in federal, state and local government spending for every dollar of taxes paid (in 2004), while those in the top 20% received only 41 cents in benefits. (Tax Foundation Working Paper No. 1, March 2007).
• There are 1,890 forms files are available on the IRS website, IRS.gov. The easiest federal income tax form, the 1040EZ, has 33 pages of instructions.
• The IRS distributes 8 billion pages of forms and instructions annually. End-to-end, they would encompass the earth 28 times.
• Approximately 60% of taxpayers hire a professional to have their tax returns prepared each year.
• Income taxes consume over 38% of the average family’s income, which is more than they spend for food, shelter and clothing combined.
• The top ten states that have the highest percentage of people who do not pay taxes are (in descending order): Mississippi (43%), Louisiana (43%), Arkansas (40%), New Mexico (38%), Alabama (37%), Texas (37%), Montana (36%), Oklahoma (36%), South Carolina (36%) and Georgia (36%).

Our tax laws have become so complex and contradictory that no one, not even the most brilliant tax professionals, including IRS experts, fully understand them.

It’s worth noting, I think, that when I started practicing public accounting in the early 1960s, the filing deadline was March 15, not April 15, and only one 90-day extension was permitted. Today, the due date for filing is April 15, and it is possible to obtain a six-month extension – to October 15 – primarily because of the increased difficulty of obtaining the necessary information and the complexity of preparing and filing tax returns.

Many societies view taxation as a contest between tax collectors and citizens, with payment or avoiding payment of taxes as the prize. But we are different we are told, because Americans voluntarily, that is, willingly, file tax returns and pay their taxes.

Baloney! If that’s true, why do we hear so much about taxes not being paid by people who work or do business in the “underground economy”? Would you file a tax return if you were not afraid of the consequences of not filing?

Putting aside the government’s hype and PR initiatives, the reason our income tax system is so successful is FEAR. Fear of being audited, fear of being assessed, fear of tactics employed to collect unpaid taxes, fear of intrusion into our personal affairs, fear of not being able to defend ourselves against the unlimited power of government in general and the IRS in particular.

I believe the IRS has carefully cultivated this image over a period of many years. Who can say that they don’t have a sudden, albeit perhaps brief, fearful reaction when they find a letter or notice from the IRS in their mail? I know I do, and I’m a retired CPA. I don’t want to hear from them, ever! When I do get some sort of communication from my friendly tax agency (federal or state), I just know it’s going to cost me time, money and aggravation. Perhaps you’ve noticed over the years that around tax time it’s common to see a spate of media stories about prosecutions for tax fraud. In my opinion, that’s no accident.

One of Ronald Reagan’s many sage observations sums up the situation rather neatly: “The taxpayer: That’s someone who works for the federal government but doesn’t have to take the civil service examination.” For my part, I believe Americans are over-taxed and under served by their government, while our politicians are constantly looking for ways to impose new taxes under the radar of public scrutiny and awareness. Will it ever end? Probably not, until we have allowed ourselves to be taxed into near or complete oblivion.

© 2010 Harris R. Sherline, All Rights Reserved

Read more of Harris Sherline’s commentaries on his blog at www.opinionfest.com