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Published: Wed, 26 Apr 2017 00:00:00 -0400

Last Build Date: Wed, 26 Apr 2017 03:46:51 -0400


It Costs a Lot When Government Sets Prices

Mon, 24 Apr 2017 12:00:00 -0400

You probably couldn't get New York Mayor Bill de Blasio and President Trump to agree on the time of day. But on the question of prices they are of one mind. Both of them think they know better than others what stuff should cost. De Blasio recently boasted he will raise (apparently by decree) the price of a pack of cigarettes to $13—"the highest price in the country." The New York Times said his goal "is to persuade or coerce 160,000 of the 900,000 New York City residents who smoke to stop doing so by 2020." De Blasio clearly understands the law of supply and demand: When you raise prices, demand falls. But he evidently hasn't applied that lesson to labor; he supports raising the minimum wage to $15 (which, incidentally, would help the poor afford cigarettes again). Advocates of minimum wage hikes like to claim raising the price of labor doesn't affect the demand for it. They're about as convincing as skeptics of climate change. Trump also wants to raise the price of many things—particularly those things imported from China, for which he has proposed steep tariffs. The trouble with Chinese goods, as he sees it, is that they cost too little, so Americans like buying them, and that hurts domestic producers. To protect producers, it's important to deny the American consumer what she wants. And the simplest way to do that is to raise prices. On the other hand, Trump thinks prescription drugs cost too much. He says the prices must come down "immediately," and he summoned drug company leaders to the White House for a lecture on the topic. Certain drugs do cost a great deal. One stellar example is Sovaldi, a hepatitis cure that costs $75,000. But the price for Sovaldi actually has plunged from a decade ago, when it was essentially infinite because the compound didn't yet exist. Prices for certain goods—a gigabyte of computer storage or a megawatt of solar-generated electricity, for instance—have plunged in recent years. And in historic terms, the relative prices of most consumer goods has fallen sharply too. As the Federal Reserve Bank of Dallas noted 20 years ago, "If modern Americans had to work as hard as their forebears did for everyday products, they'd be in a continual state of sticker shock—$67 scissors, $913 baby carriages, $2,222 bicycles, $1,202 telephones." Prices for some goods do keep going up, however. Two obvious examples are college tuition and health care. By a remarkable coincidence, those also happen to be two areas of the economy in which the government is most heavily involved. Federal and state politicians keep increasing subsidies for college attendance, which encourages colleges and universities to raise prices. Two years ago the Federal Reserve Bank of New York issued a study showing that every dollar of federal student aid hikes tuition by 50 to 65 cents. Health care has suffered from a similar phenomenon. Exempting employer-sponsored health insurance from income taxation while treating it as income for collective-bargaining purposes encouraged employers to substitute overly generous health plans for salary and wages, leading to medical inflation and wage stagnation. All of this price-fixing produces a raft of unintended consequences, not least among them the gunking up of market efficiency. Too many politicians fail to understand that prices are not just charges, they are also signals. Among other things, they signal the need for conservation. When the price of batteries spikes after a hurricane knocks out the power, that tells consumers at least two things: (a) They should not waste batteries on frivolous purposes and (b) they should not buy more than they truly need, so that shortages will be mitigated. It also tells suppliers that they should ship more batteries to the affected area, even if it means extra work, because they will make a lot more money if they do. That's what makes anti-price-gouging laws so foolish: They short-circuit those important market signals. Hurricanes don't happen every day, but prices still steer goods to their highest and best use. A tungsten producer is never g[...]

Undocumented Workers Do Indeed Pay State Taxes

Tue, 18 Apr 2017 10:20:00 -0400

(image) Undocumented immigrants pay state taxes—a lot of taxes, as it turns out. So says the Oregon Center for Public Policy (OCPP), a left-leaning think tank. In a policy analysis released Monday, the OCPP found that the estimated 116,000-strong population of undocumented Oregonians paid a rough $81 million into state coffers.

Most of what the undocumented pay, says the OCPP report, was from property and income taxes which make up about $66 of the overall $81 million. The other $15 million comes from excise taxes paid on gasoline and alcohol (hopefully not purchased at the same time).

These numbers fit closely with much of the research done on the national level about the effect of undocumented workers on state and local budgets.

A March 2017 study released by the Institute on Taxation & Economic Policy (on whose numbers the OCPP study is largely derived) estimated that of the 11 million undocumented workers in the United States pay an average of 8 percent of their income to their state and local governments, for a grand national total of $11.74 billion a year.

The effective tax rate between states varies considerably however. The OCPP finds that Oregon's unauthorized workers pay a more modest 5.5 percent of their income in state and local taxes, likely thanks in part to that state's lack of a sales tax. The state of Illinois in contrast eats up about over 10 percent of income produced by undocumented residents.

These numbers clash with much of the rhetoric about illegal immigrants emanating from President Trump, who has long complained about the supposed free ride undocumented immigrants are getting in America.

As far back as October 2015, Trump had suggested that only 5 to 10 percent of illegal immigrants paid taxes, while costing the United State economy an alleged $300 billion a year.

Trump has since ridden that message all the way to the White House, repeatedly promising both on the campaign trail and in office to save Americans' tax dollars by deporting those who entered the country illegally.

In his January joint address to Congress, he promised "billions and billions of dollars" would be saved by stricter enforcement of immigration laws.

The numbers coming from the OCPP report and others suggest that the opposite approach might actually be more of a budget winner.

"When previously undocumented workers become authorized, they tend to earn and spend more," writes OCPP policy analyst Janet Bauer. This she says would in turn boost tax revenue, saying that " a path to citizenship would result in about a 48 percent increase in the tax contributions of Oregonians who are currently undocumented."

Whether the possibility of bilking aspiring Americans of more of their hard-earned income will get many immigration skeptics to come around to the idea of reform is certainly an open question. On whether undocumented immigrants do indeed pay into state coffers however, the research leaves little doubt.

Watch Nick Gillespie Talk Taxes and Spending on Fox Business's Kennedy Tonight at 8 P.M. ET

Mon, 17 Apr 2017 19:46:00 -0400

(image) I'll be on Fox Business's Kennedy show tonight, talking about tax deadlines, the possibility of systemic reform, and what the function of taxes should be. Hint: I argue that taxes should be less about gulling people into certain types of behavior (such as buying homes or insurance) and more about paying for the government services that we agree should be provided.

By failing to account for the full cost of government, I suggest that people are willing to buy more government. If the government is borrowing 20 or 25 or even 30 cents on each dollar of what it spends, it makes government seem less expensive than it really is (even as it grows the national debt which will eventually need to be paid or inflated away).

More in that vein here.

The show starts at 8:00 P.M. Eastern Time and will be rerun later in the evening. Check your local cable listings for more information.

Taxes, Testosterone, and the Virtues of Overbooking [Reason Podcast]

Mon, 17 Apr 2017 19:30:00 -0400

The best way to solve the problem of too many people on an airplane is to "offer a price to get people to voluntarily give up a seat," says Reason Senior Editor Brian Doherty. "But it only works really well if they keep raising the price until they get the volunteer."

On today's podcast, Doherty joins Nick Gillespie and Katherine Mangu-Ward to talk about why busting heads and not overbooking was to blame for last week's United Airlines crisis, the libertarian case for free trade and immigration, how to convince non-libertarians that one person's gain isn't necessarily another person's loss, Arkansas' legal fight to execute eight men, filing taxes, and the virtues of recreational testosterone.

Subscribe, rate, and review the Reason Podcast at iTunes. Listen at SoundCloud below:

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23 Tax Facts and Tips

Mon, 17 Apr 2017 13:25:00 -0400

Just in time for the filing deadline, here are a few tips and facts you may not know about America's Rube Goldberg hellscape of a tax code.

They include:

Written by Austin Bragg, Meredith Bragg, and Andrew Heaton. Produced by Austin Bragg.

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California Road-Tax Hike Is Really A Pension Tax

Fri, 07 Apr 2017 00:01:00 -0400

Gov. Jerry Brown and Democratic legislators have caused a stir with their plan, which passed the legislature on Thursday, to increase taxes to pay for the state's unquestionably decrepit infrastructure of roads and bridges. Instead of thinking of this as a new transportation tax, however, Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees. Consider this sobering news from the CalMatters' Judy Lin in January: "New projections show the state's annual bill for retirement obligations is expected to reach $11 billion by the time Brown leaves office in January 2019—nearly double what it was eight years earlier." That's the state's "annual bill," i.e., the direct costs taken from the general-fund budget. That number doesn't even include those "unfunded" pension liabilities that according to some estimates top $1 trillion. That's more than double the $5.2 billion a year the Brown administration hopes to raise from a plan that would boost gas taxes by 12 cents a gallon, raise the vehicle-license fee by $25 to $175 a year (depending on the value of the vehicle), impose a $100 annual fee on electric cars because they don't currently pay gas taxes and include a large hike on diesel fuel. Money is fungible, so if the state overspends on pensions, it has to make it up somewhere else. The story refers to the Public Employees' Pension Reform Act of 2013, which was the governor's only attempt in his administration to rein in pension costs. Because that reform applies to new state hires, it won't produce noticeable savings for years, the article explains. As I've often noted, it also was unnecessarily modest and exceedingly cynical. The governor's original plan included some serious reform ideas, including a proposed hybrid system that nudged public employees away from the debt-laden "defined-benefit" plans they now enjoy toward a mixed plan that included some elements of a 401/k program. But he didn't push for it. Instead, he caved in to his union allies. Here's where cynicism comes in: The transparent goal was not to fix the broken pension system, but to woo voter support for Proposition 30, the laughably titled "Temporary Taxes to Fund Education" initiative. The measure raised sales and income taxes. The "temporary" moniker is laughable because Prop. 30 backers asked voters to extend the income-tax portion of the taxes by a dozen years in 2016, and they obliged. (It's a safe guess those taxes won't just expire in 2030—at least not without another union-backed attempt to extend them.) At the time, the state budget crisis was in the news, as were soaring public-pension liabilities. Polling looked dismal for Brown's pet tax increase, which was the linchpin of his effort to bring the state out of its deficit. He had to convince voters that the state was serious about reforming itself. And, voilà, the PEPRA legislation was born. Voters obliged by OK'ing the tax hike, and then legislators and the governor quickly moved past the pension issue. Fast forward five years and the state has another big problem. Its general-fund budgets have remained balanced. But Democrats and Republicans alike have been complaining about the estimated $130-billion backlog in infrastructure of all types, especially after the crumbling emergency spillway at Oroville Dam caused the evacuation of 188,000 people in the Sacramento Valley this year. And once again the governor turns to a tax-increase plan. Polling shows the public dubious of the tax plan. Californians oppose the myriad tax-hike proposals, but overwhelmingly agree (61 percent) with Republicans that instead of raising taxes, the California Department of Transportation,Caltrans, should "make better use of revenue." Instead of seeking voter approval for a tax hike, the governor needed only convince a supermajority of legislators in a Legislature where Democrats hold supermajorities i[...]

California Wants To Make Itself Even Less Competitive

Fri, 31 Mar 2017 00:01:00 -0400

Economists sometimes talk about a fictional $1 million tax on, say, beagles to illustrate the perverse effects of a poorly designed tax code. In theory, the tax could bring in $20 billion, given there are about 20,000 registered members of the breed. But in reality, the tax would yield little, because few people would claim to own such dogs, suddenly "discovering" that their beagles were really something else, maybe mixed breeds or schmeagles. That idea is useful when discussing what's benignly referred to as the "estate tax." Critics refer to it by the ominous-sounding "death tax," given that it imposes a 40 percent hit on accumulated wealth after its owner heads to that great estate in the sky. It's really the "Tax on Your Dead Neighbor's Family," given it's all about grabbing others' inheritance. In the United States, the tax is imposed on estates valued at $5.5 million or more, which sounds like a lot of money until one starts thinking about the value of businesses. A nice house in Newport Beach can be worth millions of dollars, and the value of land in a bustling Central Valley nut farm can be worth many times that amount. It can be tough enough to keep a business going after the owner dies without giving Uncle Sam a big share of the operation. Just because a business operation has great value doesn't mean that it is operating on huge margins. It's therefore common for longtime family-owned businesses to be put to auction after the founder's death. Supporters argue that few estates pay very much for reasons that go back to our tariff on beagles. Wealthy folks spend an enormous amount of money on accountants and tax lawyers to shield their assets from the tax man. But obviously, some people cough up the money, or else officials wouldn't be so eager to maintain the tax. Liberals love the tax for ideological reasons. They are egalitarian, so they bristle at inherited wealth. "Our nation cannot survive morally or economically when so few have so much while so many have so little," said Democratic presidential candidate Sen. Bernie Sanders (Vt.), expressing the view of the class-warrior left. He and Hillary Clinton had both proposed dramatically increasing tax rates on people's estates. But conservatives find the tax particularly unproductive and unfair. It's unproductive to be forced to spend so much time and money sheltering assets. And it's unfair to tax something multiple times. It also quashes business development, since killing businesses has a perverse effect on working-class jobs. Fortunately, the Trump administration understands the problem. "No family will have to pay the death tax," Trump said on the campaign trail. "It's just plain wrong and most people agree with that. We will repeal it." It's an area where the new president has spoken with unusual clarity, and Republican members of Congress are moving bills that would do just that. California's Legislature, however, remains a hotbed of progressivism. Sen. Scott Wiener, a San Francisco Democrat who ironically has a reputation as being pro-business, has introduced Senate Bill 726. If approved by the legislature and then voters, it would impose a California estate tax that's identical to the federal one, but only if the federal tax is repealed. His goal, according to a statement, is "recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems." It's the latest example of Trump-spite in the state Capitol, but it sends a clear message that California isn't in any danger of becoming a business-friendly state any time soon. And I chuckle at the idea of "investing" in the state's governmental operations. Pick any government agency or project and the waste is rampant. Infrastructure is crumbling, yet it's not from a lack of dollars, given that taxpayers spend far more on most things per-capita than other states. There i[...]

The Coming Federal Fiscal Binge

Thu, 30 Mar 2017 00:01:00 -0400

William Safire said that as a speechwriter for Richard Nixon, he would sometimes urge the president, "Take the easy way!" Nixon could then give a speech saying he had rejected advice from his aides to take the easy way, preferring to do what was right. Politicians may pretend to make hard choices, but they rarely do. Those in office now won't be inspired to heroic deeds by the failure to repeal Obamacare. Just the opposite. The lesson of this episode is that it's hard to reach agreement on taking things away from the voters. The corollary is that it's easy to reach agreement on giving things to the voters. The obvious next step is a fiscal binge that serves the selfish interests of everyone except posterity. Here's how it may play out: Congressional Republicans pass tax cuts. Democrats join them on a big infrastructure bill. President Donald Trump's proposed spending cuts come to little or nothing. The deficit balloons, and not many people in Washington care. Robert Bixby, executive director of The Concord Coalition, a nonpartisan budget watchdog, tells me, "There's a political logic to it: 'You get what you want. We get what we want. And the future will pay for it.'" Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, agrees: "The risk of irresponsibility is high." Having lost on overhauling health care, Trump indicated he is ready to move on to tax reform. This choice evoked chortles from skeptics, who say a major revision of the Internal Revenue Code will be an even harder challenge. But why assume Republicans will balk at anything short of a comprehensive overhaul? If they can't get that—and there is no reason to think they can—they will almost certainly settle for tax cuts, even if it means bigger budget deficits. That's been their default option for decades. Trump couldn't care less about the deficit. So GOP members will meet no particular resistance from him if they want to cut rates, scrap the estate tax or the alternative minimum tax, or increase the standard deduction. House Speaker Paul Ryan has in mind a border adjustment tax, which would bring in enough revenue to make up all or most of what the other changes would lose. But neither Trump nor congressional Republicans are likely to approve a measure that would raise consumer prices and be hard to explain. The path of least resistance involves dropping the proposal and not bothering to pay for the tax cuts. Paying for them holds little allure because it would mean either killing tax breaks cherished by millions of people or curtailing outlays. Trump has proposed some $54 billion in spending reductions, taken from agencies ranging from the Environmental Protection Agency to the National Endowment for the Arts, but those couldn't be used to offset tax cuts. The money saved is supposed to go for Trump's military buildup. But rest assured, it won't be saved in the first place. "Some of Trump's closest allies said his budget has virtually no chance in Congress," reported The Washington Post. "Even those fiscal conservatives who do want to cut spending don't necessarily think slashing major domestic programs is the answer." The only other place where spending could be cut much is in the biggest entitlements—Social Security, Medicare and Medicaid. But Trump the candidate promised not to go after Social Security and Medicare. Leaving Obamacare alone means Medicaid escaped the ax. The president should have more luck boosting outlays. He envisions a $1 trillion program aimed at "revitalizing our country's ruined roads, crumbling bridges and outdated airports," Press Secretary Sean Spicer explained. Trump told The New York Times he intends to "prime the pump to some extent. In other words: Spend money to make a lot more money in the future." It's a classic Keynesian formula with a long Democratic pedigree. Getting bipartisan support should[...]

Is California 'Death Tax' Bill Real or Just More Anti-Trump Spite?

Fri, 24 Mar 2017 00:01:00 -0400

This year's California legislative session has been thus far dominated by two persistent themes: the desire to stand up to the Trump administration and the pursuit of new tax dollars to fund infrastructure and other spending programs. Democrats have supermajorities in both houses of the Legislature, so Republicans have been able to do little more than complain. A recent proposal by a new state senator from San Francisco captures both of these concepts in one measure. In late February, Sen. Scott Wiener, D-San Francisco, introduced S.B. 726, a direct response to a proposal by President Donald Trump. (Ironically, Wiener has been viewed as a "pro-business" Democrat, at least by Bay Area standards.) The president wants to eliminate the federal estate tax, which imposes a 40 percent tax on estates valued at $5.5 million or more. A couple of Republican-backed bills to repeal the tax are currently making their way through Congress. Wiener's measure would institute a California estate tax that's identical to the federal estate tax. Under Wiener's bill, the tax would only go into effect if Congress does away with the federal version. Such estate taxes, often referred to as "death" taxes, don't apply to a huge number of estates, given the large exemption, but they have earned the wrath of the president and many Republicans. Trump called the tax "just plain wrong." President Barack Obama had proposed eliminating an estate-tax "loophole." And Hillary Clinton had proposed raising the estate tax to an unprecedented 65 percent, according to a Forbes analysis. Republicans dislike such taxes on grounds of "fairness," since many of these estates often are taxed twice and even three times. Such taxes can have a negative effect on small businesses, especially farms, which often struggle to stay afloat after the passing of the owner. Democrats see the tax as a way to find government revenue. They also make social-justice arguments for taxing larger shares of inherited wealth, which they view as exacerbating inequality. "If Donald Trump and congressional Republicans are hell-bent on cutting taxes for our wealthiest residents, we should counterbalance those tax cuts by recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems," Wiener said in a statement. Even if his bill passes both houses of the Legislature and is signed into law by Gov. Jerry Brown, it still faces a large hurdle; it would need to be approved by voters on a statewide ballot. That's because voters in 1982 approved two slightly different statewide ballot initiatives (Propositions 5 and 6) that repealed the state's then-existing inheritance and gift taxes and prohibited state or local governments from imposing them in the future. If Congress repeals the estate tax and Californians impose a new estate tax at the ballot box, then the "death" taxes currently flowing to Washington, D.C., would head to Sacramento instead—to the tune of around $4.5 billion annually. Californians pay 26 percent of the nation's total estate and inheritance taxes, according to Wiener's statements. "Considering that California is generally a donor state to the federal government, that would mean significantly more money would remain in California for critical investments," his office explained. "A foolish, unnecessary tax," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. "At least they have to go to the voters to do this and I suspect citizens will be skeptical." Wiener's approach, Republicans say, would leave California, which already has among the highest income-tax rates in the nation, at an even greater competitive disadvantage. California already has high tax rates that drive many businesses to other states. If the estate tax is gone nationwide, some believe it could spark[...]

Don't Let Elizabeth Warren and Bernie Sanders Kill Tax Day

Thu, 23 Mar 2017 00:01:00 -0400

The deadline for filing federal income tax returns is approaching fast. While this is understandably a frustrating time for many, it's also the one time during which many taxpayers are confronted with just how much of their earnings are captured by the government. Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT), think that is one time too many. They want the Internal Revenue Service to prepare tax returns on behalf of taxpayers instead of leaving it as an individual responsibility. This idea is pitched as a "simplification." And, to be fair, the complexity of our tax code is undeniable. It results in tax-compliance costs that can reach nearly $1 trillion annually, according to my colleague Jason Fichtner. However, the solution to this complexity isn't to add to the opacity of the system and make the cost of government even less visible to those picking up the tab. There's already too much of that. First, automatic tax withholding has gone a long way to hide the amount of taxes we pay annually. Also hidden is the fact that the burden of any tax falls on—and is paid by—people, whether they be consumers, investors or workers. Different types of taxes—individual, corporate, capital gains, dividends, estate, gift, etc.—are all borne by people but not necessarily by the person who cuts the check to the IRS. It results in a fiscal death by a thousand cuts without taxpayers noticing. For example, consider payroll taxes, which are withheld from paychecks. Few people realize that this is likely the biggest tax they pay. It's also sold as something other than an income tax by taxing only qualified wages. Yet, because it's withheld from wages, the same ones that are used as part of the individual income tax base when filing your taxes in April, it's just a clever way to double-tax you without you even knowing. Furthermore, its full burden is hidden by pretending that half of the burden is carried by employers (employers pay 7.65 percent; workers pay 7.65 percent; and the self-employed pay the full 15.3 percent), when in reality, the burden of the employee share is shifted to workers in the form of lower salaries. As a result, without putting serious time and effort into figuring it out, it's all but impossible to tally how much is truly coming out of your pocket. The solution to this cost, however, is not to let the IRS prepare our tax returns and require nothing but a signature of approval from the taxpayer. For one thing, the government's incentive is to maximize tax collection, whereas individuals generally prefer to pay the lowest amount legally possible. And second, the IRS isn't particularly good at understanding its own rules, yet taxpayers would still be held responsible for the errors. Considering the tremendous and one-sided power held by the IRS, many would be scared to question the accuracy of an IRS-created return even if it's warranted. Automatic withholding was first proposed in the midst of World War II. It was considered an emergency wartime measure to fund a greater percentage of war costs with current taxes than was done during World War I, in hopes of avoiding the same degree of inflation seen during the prior war. Free market economist Milton Friedman was a young Treasury Department employee at the time, and he even helped develop the program. Friedman would later lament, "It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom." He did it by accident, as he never wanted the program to exist during peacetime. Sens. Warren and Sanders seek to do the same today but deliberately. We don't need taxpayers less involved in funding the government. For those with the goal of shrinking government and reducing tax[...]

Food Taxes Should Die, but Won't

Sat, 18 Mar 2017 08:00:00 -0400

How much do you pay for food at the grocery store? In some states—thanks to growing discussions about food taxes—you could be paying more money for less food if lawmakers have their way. What are food taxes? They're particularly odorous and onerous taxes on purchases of food for home preparation and/or consumption from grocery stores and similar establishments. They're distinct from taxes that single out a particular food category—such as soda taxes—and also from taxes on foods sold for immediate consumption by restaurants, which are subject to taxes in most states. In recent months, several states have proposed new food taxes. Some states have proposed to revive old ones. But others have also moved to repeal or reduce existing taxes. New Mexico, one of the states considering a food-tax revival, adopted a statewide food tax in the 1930s "as part of a 'temporary' and 'emergency' measure to keep schools open during the Great Depression." The state repealed its "temporary" food tax only in 2004, after earlier efforts under then-Gov. Gary Johnson (and a dozen or so governors before him) fell short. Since 2004, though, the state has chipped away at the total repeal, and the drumbeat has grown louder among state lawmakers and activists for a partial or total revival of the tax, at a 4 percent rate. If New Mexico's proposed 4 percent tax seems high, consider that lawmakers in West Virginia—which repealed its own state grocery tax in 2013—recently proposed an 8 percent tax on groceries, which would be the highest in the nation. Thankfully, not all movement on food taxes in the states is in the wrong direction. In Idaho, recent efforts to repeal the state's existing grocery tax appeared to be floundering, and were given little chance of success. But just yesterday, a coalition of Democrats and Republicans in the state senate voted to repeal the tax. Utah lawmakers rejected a proposal to more than double the state's existing sales tax. And Tennessee lawmakers have taken steps to reduce that state's food tax by 20 percent. A recent analysis of state grocery taxes by the Center on Budget & Policy Priorities CBPP), a Washington, D.C.-based nonprofit that looks at how federal and state budget decisions impact low-income Americans, found that nearly two-thirds of states exempt most foods from taxation. But that doesn't tell the whole story. Because many local governments have their own food taxes, notes a Pew Charitable Trusts piece, "people living in more than a third of the nation's roughly 3,000 counties are taxed at some level on the food they buy at the store." The impact of those taxes isn't small peanuts. "The average (combined) grocery tax rate for the places taxing grocery was 4.3%, which translates to more than $200 for a family with annual grocery bill of $5,000," says a 2016 study by university researchers from Auburn, University of Kentucky, and Cornell. What makes food taxes so attractive to lawmakers? A Pew piece last year noted the easy allure of food taxes: they "provide a steady source of revenue in volatile times." The same factors that make food taxes so attractive to lawmakers are what make them so odious to many consumers: they're all-but-impossible to avoid. Everyone buys food; food taxes punish everyone who buys food. Another reason food taxes are unpopular is that while food buyers all pay the same tax rate, the taxes don't punish everyone equally. They're regressive, in that low-income buyers pay a larger percentage of their income for food. Low-income buyers are also less likely or able to frequent discounted membership grocers like Costco—where taxes may be the same but food costs less—or to buy meats and produce at farmers markets, which are exempt from sales taxes in many states. For these reasons, New Mexico's proposal t[...]

Gender 'Injustice' Behind Call to Reduce Taxes on Tampons

Fri, 17 Mar 2017 00:01:00 -0400

In his veto message of a series of tax-reduction bills last September, California Gov. Jerry Brown (D) explained that "tax breaks are the same as new spending—they both cost the general fund money." He said such measures should be on the table during budget negotiations, "so that all spending proposals are weighed against each other at the same time." Among the bills that were vetoed at that time were two that would have repealed sales taxes on diapers and tampons. Both measures passed unanimously, but the governor wanted to assure that new spending-related measures didn't lead to deficits. So the authors of those two measures are back again this year—but this time they are addressing the revenue issue. The Common Cents Tax Reform Act, Assembly Bill 479, would "exempt diapers, tampons, pads and other basic necessities from California's sales tax," according to a statement last week from its authors. The February version of the bill would have exempted sales taxes from the sale, storage and use of various physician-prescribed medicines, but was amended to target diapers and feminine products. To deal with the governor's concerns, its co-authors (Assembly members Cristina Garcia, D-Bell Gardens, and Lorena Gonzalez Fletcher, D-San Diego) want to raise taxes to offset the tax cut. The bill would increase the excise tax by $1.20 per gallon on hard liquor that is 100 proof and and by $2.40 a gallon for liquors that are more than 100 proof. They estimate the tax increase will add about 1.5 cents per gallon to the typical hard-liquor serving and say that it's a modest increase, but the tax rate would be boosted by more than 36 percent—raising it from $3.30 a gallon to $4.50 a gallon. The state's excise taxes, however, would remain the same on the sales of beer and wine. "Common sense is that liquor is a choice and a luxury and human biology is not," said Garcia, who authored the tampon-tax bill last year. "There is no happy hour for menstruation. Our tax code needs to reflect the fact that it's not OK to tax women for being born women." Gonzalez Fletcher, who had authored the diaper-tax measure, depicted the matter as one of "babies over booze." Because the bill requires a tax increase, it will need two-thirds supermajority support in the Legislature. But opponents of the legislation caution against using the tax code to favor some goods over others. "Taxing drinks to reduce the taxes on other consumer goods is folly—not least because retailers will mark up diapers and feminine care products to their current price," said Kevin Kosar, a senior fellow of the R Street Institute in Washington, D.C., and author of the 2016 book, Moonshine: A Global History. "Drink taxes should only cover the social costs they produce—not expenses attributable to normal bodily functions like defecation and menstruation," he added. "What's next—taxing drinks to pay for toilet paper and fingernail clippers?" This is likely to become a partisan issue. Some California Republicans supported previous efforts to reduce taxes on diapers and tampons, figuring any tax reduction is a good thing. Likewise, many Republicans generally took issue with the governor's statement equating tax cuts as spending. If a cut is the same thing as a spending hike, then it implies the government—rather than individuals—is the steward of all income. But they appreciate Brown's insistence the budget remain balanced, which means any diversion of revenue has to be made up somewhere else. California Democrats are jumping on a national "gender equity" campaign designed to reduce the prices of feminine products and other necessities. For instance, The Washington Post reported that New York's Democratic Gov. Andrew Cuomo last year signed a law exempting sales tax from tampon[...]

Leaked Returns: In 2005, Trump Claimed $150 Million in Earnings, Paid $36 Million in Taxes

Tue, 14 Mar 2017 21:50:00 -0400

Rachel Maddow of MSNBC today announced she had a big exclusive: a copy of President Donald Trump's tax returns from 2005. She promised she'd reveal the details on her show tonight at 9 p.m. Unfortunately, she has decided that she should open her show by using her captive audience to babble on and on and on about every single thing she thinks about corruption in the Trump administration, sounding like the guy at the gym you never, ever make eye contact with. The Daily Beast has some analysis from the source of the leaked returns, David Cay Johnson of And you don't have to endure a 15-minute monologue first: Donald Trump earned more than $150 million in the year 2005—and paid just a small percentage of that in regular federal income taxes. Daily Beast contributor David Cay Johnston has obtained what appear to be the first two pages of Trump's 2005 federal income tax return, and published an analysis of those pages on his website, The Daily Beast could not independently verify these documents. The documents show Trump and his wife Melania paying $5.3 million in regular federal income tax—a rate of less than 4% However, the Trumps paid an additional $31 million in the so-called "alternative minimum tax," or AMT. Trump has previously called for the elimination of this tax. "Before being elected President, Mr. Trump was one of the most successful businessmen in the world with a responsibility to his company, his family and his employees to pay no more tax than legally required," the White House said in a statement. "That being said, Mr. Trump paid $38 million dollars even after taking into account large scale depreciation for construction, on an income of more than $150 million dollars, as well as paying tens of millions of dollars in other taxes such as sales and excise taxes and employment taxes and this illegally published return proves just that." The actual tax return info itself doesn't sound particularly interesting or damning. Note that this is the same tax year where Trump had previously gotten a major tax deal. Probably the bigger news is that Trump insisted and insisted and insisted both before and after the election that he could not release his tax returns because he was being audited. It became very clear very quickly that this is nonsense and many people have said so. But hilariously, before Maddow even made it on the air, the White House responded by confirming the number (ruining her scoop) and then complaining that providing the information is illegal. So the White House just deflated Trump's previous argument that he couldn't release his tax documents. But they also responded in a way that attempts to cast Trump as some sort of victim of an "illegal" disclosure that wouldn't have happened had he been transparent in the first place. I'm hesitant at this point to even suggest that anything valuable at all will come from this info leak other than the continued polarization of two sides. The fact that Trump refused to release his returns for the dumbest of reasons didn't seem to affect those who voted for him. His angry response was to attack the media and then promise to stick with his own agenda. So it's perhaps political business as usual. Still, it's a net good for public transparency that Americans get this information and are able to evaluate it and decide for themselves whether they should care. Update: The lack of any sort of smoking gun in the tax filings and the fact that they're apparently labeled "client copy" are already leading to theories that Trump himself had them leaked.[...]

With Sales Depressed by Soda Tax, Philly Grocers Look to Cut Jobs as Mayor Blames 'Greedy' Soda Industry

Wed, 22 Feb 2017 14:33:00 -0500

It's one of those basic laws of economics: when you tax something, you get less of it. Philadelphia is getting a crash course in what that looks like. A little less than two months after the city imposed a new tax on sugary drinks, sales of those beverages are down—way, way down—and revenue collections are too. It's hard to have much sympathy for the city, which probably deserves to come up short on the revenue side as punishment for implementing such an obviously misguided policy. Unfortunately, the soda tax is doing more than just wrecking Mayor Jim Kenney's budget projections—it's also going to cost some Philadelphia residents their jobs. One of the city's largest beverage distributors is planning to cut 20 percent of its workforce, reports, and grocery stores across the city are also planning to shed jobs to make up for declining sales. It appears that the tax is causing some shoppers to drive beyond the city's borders in order to do their grocery shopping (who could have seen that coming, right?). "In 30 years of business, there's never been a circumstance in which we've ever had a sales decline of any significant amount," Jeff Brown, chief executive officer of Brown's Super Stores, told Bloomberg. "I would describe the impact as nothing less than devastating." For now, Kenney and other city officials seem unfazed—dismissive, even—of the problems caused by the new tax. A city spokesman told that no one knows whether low sales figures and predicted job losses are anything more than "fear-mongering to prevent this from happening in other cities." Kenney put an even finer point on it. "I didn't think it was possible for the soda industry to be any greedier," Kenney said in an emailed statement to reporter Julia Terruso. "They are so committed to stopping this tax from spreading to other cities, that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs rather than marginally reduce their seven figure bonuses." It's not the first time Kenney has tried to ignore basic economics when it comes to the soda tax. A few weeks ago, he blamed grocery stores and restaurants for "price gouging" when they increased prices for sugary drinks to make consumers pay for the cost of the tax (the tax is technically applied on the transaction between distributors and retailers, but, like all other taxes, it gets passed along). If Kenney's right, then soda manufacturers and distributors are engaged in a massive conspiracy with grocery stores and eating establishments to lie to city tax collectors, fire workers, and craft a fake narrative about the devastating effects of the Philadelphia soda tax. I suppose that's possible—all those groups did oppose the tax before it was passed, after all—but it seems far more likely that all those groups, and the city itself, are experiencing a first-hand lesson in how economic incentives work. Consumers who don't want to pay an extra 1.5 cents per ounce for their favorite sugary drinks have a strong incentive to avoid buying soda (or juice, or iced tea, or sports drinks) in Philadelphia. They're leaving the city to buy soda, and doing the rest of their grocery shopping outside the city too. That leaves grocery stores with less revenue and creates an incentive to cut costs, which could mean laying off workers. Or, as Pennsylvania State Rep. Stephen Bloom, a Republican, put it on Twitter: Economics is to Politics as Gravity is to Jumping. — Rep. Stephen Bloom (@RepBloom) February 22, 2017 Philadelphia planned to use the money from the tax to fund a new pre-K program in the city's public schools. Th[...]

Energy Efficiency Mandates Are Worse for Poor Americans Than Energy Taxes

Fri, 27 Jan 2017 13:30:00 -0500

When U.S. automakers met with President Donald Trump this week, they asked him to relax the vehicle fuel efficiency standards imposed by his predecessor. Just before Barack Obama left office, the Environmental Protection Agency issued a final determination that its Corporate Average Fuel Efficiency (CAFE) standard of requiring fleet-wide fuel efficiency of 50.8 miles per gallon on new cars by 2025 was achievable. "At every step in the process the analysis has shown that the greenhouse gas emissions standards for cars and light trucks remain affordable and effective through 2025, and will save American drivers billions of dollars at the pump while protecting our health and the environment," said outgoing EPA head Gina McCarthy. Ratcheting up the mandatory energy efficiency standards for vehicles and appliances was a major part of Obama's effort to reduce greenhouse gas emissions. The Department of Energy calculated that the Obama administration's energy efficiency standards would save consumers more than $520 billion on electricity costs by 2030. But not all consumers are alike. In a new study contrasting the effects on consumers of energy efficiency standards versus energy taxes, the Georgetown economist Arik Levinson notes that both energy efficiency standards and energy taxes function as a regressive tax, taking a larger percentage of a lower income and a smaller percentage of a higher income. His analysis aims to find out which is more regressive—in other words, which is worse for poor Americans. Levinson cites earlier research that estimates a gasoline tax would cost 71 percent less than the comparable CAFE policy per gallon of fuel saved. Meanwhile, a 2013 study calculates that CAFE standards cost more than six times as much as a corresponding gas tax for the same reduction in fuel consumption. In other words, if policy makers want people to use less fuel and drive more fuel-efficient cars, taxing gasoline is a much cheaper way to achieve that goal than mandating automobile fuel efficiency. Levinson concludes that "efficiency standards are, ironically, inefficient." But would energy taxes be more regressive? Many analysts argue that while both hit low-income Americans, energy efficiency standards whack them less. Levinson disagrees. Levinson argues that energy efficiency standards can be treated analytically as an equivalent to a tax on inefficient appliances and vehicles. Using data from 2009 National Household Travel Survey, he compares the amount of gasoline consumed by Americans at various income levels. The poorest 5 percent (with annual incomes of under $10,000) consume an average of 247 gallons per year; for the richest 20 percent (over $100,000), the average is 991. Assuming a gasoline tax of 29 cents per gallon, the poor pay $71, compared to $286 per year for the wealthy. Families with 10 times the income pay only four times more in fuel taxes. At the outset Levinson cites research that rejects the notion that consumers are shortsighted when it comes to purchasing more expensive vehicles and appliances that will save them money in the long run. Levinson compares the consequences of a 29 cent per gallon gas tax with a notional CAFE standard "tax" on inefficient vehicles that would raise the same amount of revenue. Rich folks own more and larger vehicles and drive more miles than do poor Americans, so they would pay more in either gas taxes or CAFE "taxes." Another wrinkle makes CAFE standards even more regressive. In 2012, the Obama administration set CAFE footprint standards based on vehicle size, determined by multiplying the vehicle's wheelbase by its average track width. Basically, a vehicle with a larger footprint has a lower[...]