Published: Sat, 22 Oct 2016 00:00:00 -0400
Last Build Date: Sat, 22 Oct 2016 17:31:54 -0400
Mon, 03 Oct 2016 14:05:00 -0400It's Friday afternoon and Chris Hughes is sitting inside his now-empty store in Williamsport, Pennsylvania. For the past three years, Hughes owned and ran Fat Cat Vaping, one of hundreds of small shops across Pennsylvania catering to the nascent community of electronic cigarette users. Hughes is a "vaper" himself, having switched from traditional cigarettes to the healthier electronic version a few years ago. After state lawmakers and Gov. Tom Wolf signed off on a budget bill that included a massive new tax on electronic cigarettes, Hughes knew Fat Cat Vaping's days were numbered. "I knew immediately that I would have to close," he says. He's not the only one. The estimated 350 vape shops scatter across Pennsylvania are getting hit hard by the new 40 percent wholesale tax on all vaping equipment and supplies. The real kicker is that the same 40 percent tax applies not only to purchases made after October 1—the day the tax took effect—but also covers all inventory on store shelves on that date. That means a store with $100,000 worth of inventory—about what a small vape shop would carry—owes the state $40,000 as of Saturday. "It's ludicrous to think what was a viable business yesterday — by the stroke of a pen — is no longer a viable business today," Dave Norris, owner of the Blue Door vape shop in Harrisburg, told PennLive in September as he prepared to close down all three of his locations because of the tax. The tax was passed in July as part of the 2016-17 state budget (taxes on packs of traditional cigarettes increased by $1 as well). It had support from both sides of the Republican-controlled legislature and was signed by Democratic Gov. Tom Wolf. The tax will raise an estimated $13 million. Some aren't so sure about that. "I am 100 percent confident that 40 percent of nothing is nothing," says Jeff Wheeland, R-Lycoming. What he means is that the state shouldn't be banking on revenue from the vaping tax if the tax decimates the businesses expected to pay it. Wheeland and state Sen. Camera Bartolotta, R-Washington, are rallying support to repeal the months-old tax. They are proposing a volume-based tax of five cents per milliliter on vaping fluid to replace the 40 percent wholesale tax. Wheeland says the trade-off would be almost revenue neutral, but would be easier for vaping businesses to handle and would be more in line with how other states tax e-cigarettes. Consumer Advocates for Smoke Free Alternatives, a national e-cigarette consumer group, favors the 5 percent sales tax. The 40 percent wholesale tax is "completely unworkable," the organization says. The clock is now ticking. The wholesale tax took effect on October 1, but businesses have 90 days to remit tax revenue to the state treasury. That gives lawmakers until the first day of 2017 to repeal the tax—but with the election looming, the state legislature is scheduled to be in session for fewer than a dozen days between now and the end of the year. Opponents of the vaping tax say it will not only wreck Pennsylvania's growing vape shops, but will also make it harder for smokers who want to use e-cigarettes to quit the habit. "A pack of cigarettes is going to be more affordable," Dori Odosso said in an interview last week. "That's something that I don't ever want to hear someone say to me—that they are smoking cigarettes instead of vaping because they can't afford to switch." Odosso owns the Sweet Home Vaper Company in Kittanning, Pennsylvania. She started the business in 2014 after switching from smoking to vaping and finding out that other smokers in her small hometown wanted to do the same. Despite fears from the federal government and anti-smoking groups, medical research shows vaping to be a safer alternative to smoking traditional cigarettes. Vapers get the same hit of nicotine and get to continue their habitual activity without inhaling the nasty tar, smoke and chemicals that are part of the reason why cigarettes are so unhealthy. A study published in August by the journal Nicotine & Tobacco Research seems to confirm the life-saving pote[...]
Sun, 02 Oct 2016 12:15:00 -0400If you care about substantive policy debate, it's not good for Donald Trump that The New York Times has published a few pages of 21-year-old state-tax returns showing he declared a $916-million loss in 1995. Cue another week wasted with trivial distractions from what we should be talking about in the final month-plus of a presidential campaign. Care about foreign policy, government spending, and more? Maybe we'll get around to hashing all that out after the election. But don't hold your breath. To be sure, a billion-dollar write-off is a lot of money and, as the Times suggests in the story's headline, it means "He Could Have Avoided Paying Taxes for Nearly Two Decades." This adds fuel to the fire that Hillary Clinton lit during last week's presidential debate when she said that there are only sketchy reasons for Trump not to release his federal tax returns to the public, as presidential candidates have almost all done since 1976. A billionaire who doesn't pay any taxes who dares speak for the common man! Ouch, even though there's no reason to think there's anything at all illegal or even fuzzy about Trump's taxes. This will harden Clinton supporters in their contempt for Trump and it will do the same for Trump supporters toward Crooked Hillary, especially if a Clinton operative is unmasked as the leaker. For the record, here's the Trump campaign's official response: Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required. That being said, Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes and federal taxes, along with very substantial charitable contributions. Mr. Trump knows the tax code far better than anyone who has ever run for President and he is the only one that knows how to fix it. More here. As I type, Trump and Clinton surrogates are duking it out on the Sunday morning shows, explaining why this unmasks Trump as a uniquely awful plutocrat or reveals him to be the single person who can dismantle our terrible tax code and replace it with something that will allow economic growth. This story, like the Miss Universe controversy that immediately preceded it, clearly puts Trump on the defensive. Given his softening in the polls after a weak debate performance and the rapidly approaching end of the campaign season (there are just 37 days leftt), the tax revelation forces Trump to engage an issue that has nothing to do with the core issues that put him in a tight race to the next president. Whatever. Sucks to be Trump right now. But you know what? No laws apparently have been broken and this doesn't even amble into the territory of bad judgment that many of his (and Clinton's) actions do. As Seinfeld's Kramer would note, most of us don't even know what a write-off is, and Trump is the one who's writing it off. Far more important, this sort of story is a major distraction from actually serious issues tied to the current state of the world and the specific proposals that candidates have laid out in their bids to become the country's next leader. As Matt Welch demonstrated with respect to foreign policy and failed military interventions, we already know that the "Media Would Rather Talk About Gary Johnson's 'Aleppo Moment' Than a Damning New Report on Hillary Clinton's Actual War." And as Brian Doherty pointed out, it turns out that Gary Johnson's trade-and-diplomacy vision for "has impressed even the foreign policy mavens at Foreign Policy magazine." Even as Aleppo is now being besieged by Syrian government, Iranian, and Russian forces and the president has dispatched new troops to Iraq, neither Trump nor Hillary have engaged in meaningful foreign-policy discussion about the United States' role in the world. And consider this: According to the latest numbers from the Committee for a Responsible Federal Budget, Hillary Clinton would hike spending and taxes over the next decade from its[...]
Wed, 28 Sep 2016 11:30:00 -0400A prominent Las Vegas labor union and a conservative tax watchdog group have both come out in vocal opposition to the proposed $750 million public subsidy for a new stadium intended to lure the National Football League (NFL)'s Raiders to Sin City. As I noted here at Reason earlier this month, to get the stadium built, "the Raiders, who currently call Oakland (Calif.) home, will contribute far less at $500 million, while Sheldon Adelson, the billionaire casino owner and financier of failed political campaigns, will contribute $650 million through his Las Vegas Sands corporation." If the deal goes through as presently constructed, Adelson's group will not be required to share any profits with the public. Via the Twitter feed of KTNV political analyst Jon Ralston, The Nevada Taxpayers Association sent out a letter featuring 16 reasons to oppose raising hotel taxes one percent to help finance the stadium, including: The bond will have to be paid out of the public tax coffers whether or not the tax increase raises sufficient revenue. A recently as this year, a NFL team abandoned a city which publicly financed its stadium—before the debt on the stadium was paid off. The public won't share in the stadium's profits. Nevada Gov. Brian Sandoval (R)—who supports the stadium proposal—has called for $300 million in budget cuts "because other taxes are under-performing." And finally, "There is no evidence to suggest that a publicly funded stadium brings any benefit to taxpayers and there is significant data indicating that subsidized stadiums can be a detriment to a community." Earlier this week Nevada's largest private sector labor union—the Culinary Workers Union—released a Dr. Seuss-esque video mocking the stadium proposal. Watch below: src="https://www.youtube.com/embed/zwsq-3vTpEw" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0"> Not to be outdone, the Adelson-funded group Support the Las Vegas Dome (which has been pushing the unintentionally hilarious hashtag #DOTHEDOMETHING) released an NFL Films style video obviously directed at the jock-sniffers, but which was also loaded with overblown promises made countless times elsewhere about the thousands of new jobs and hundreds of millions of dollars that will be added to the economy. Tiltled "Five Things to Know About Bringing the Raiders to Las Vegas," the video includes such sound and reasoned arguments as, "The stadium will be awesome. Not awesome-awesome, Vegas-awesome," and "The public will own the stadium. That's right, it's YOUR stadium," though the video doesn't recommend you show up to the stadium without paying for parking and admission: src="https://www.youtube.com/embed/akwvOWDZITU" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0"> Gov. Sandoval has called for a special session of the legislature to convene in early October to vote on the stadium proposal, which if passed by two-thirds of both the Senate and the Assembly will become a reality. Read more Reason coverage on the never-ending boondoggle of publicly-financed stadiums here.[...]
Thu, 22 Sep 2016 15:45:00 -0400Residents of Chicago already pay for water and sewer services—like anyone else does. Starting next year, though, they'll be paying an extra 30 percent for the privilege of having indoor plumbing. Draining those dollars out of resident's wallets isn't a response to a sudden increase in the price of water and won't pay for upgrades to the city's sewers. In fact, not a single dollar of revenue from the new tax will be spent on any aspect of Chicago's public infrastructure. What it will do—maybe—is shore up a municipal employee pension system that's woefully underfunded and in danger of going bankrupt within the next few years. Right now, the Municipal Employees' Annuity and Benefit Fund of Chicago has only enough assets to cover 32 cents of every dollar owed to retirees and current employees. Since the Illinois Supreme Court ruled in March that retirement benefits are sacrosanct and cannot be reduced, Chicago is left with only one option: find a way to pay for promises that probably never should have been made in the first place. Mayor Rahm Emanuel pushed the tax through the city council with the promise that it would, within 50 years, close the pension plan's deficit. It's going to cost the average Chicago household about $53 in 2017, but will increase over the next four years. "Chicago's pension funds are now off the road to bankruptcy and on the path to solvency," Emanuel declared last week after the city council approved the new tax. Before getting into how the money will be spent and whether it will do what Emanuel says, you have to understand how the city got into this mess in the first place. The short answer: lots of bad decisions made over many years. The longer answer requires a bit of math, but I've tried to simplify things as much as possible. Chicago finds itself here because the city has failed to adequately fund the cost of its municipal pension plan. Going back to at least 2006, Chicago has never come close to fully funding its annual pension obligation—in most years, it hasn't even put in half of what would be required to keep the fund stable. Here's what that looks like. The blue line on the chart below is called the ADT—that's the amount of money the actuaries say the city should be putting into the fund each year. It's based on a lot of different factors, including investment performance, benefits due to retirees and benefits promised to current employees who will one day retire and have to be paid. If anything, the blue line represents the bare minimum that a city should be paying into the pension fund each year to keep up with its long-term obligations. It's the mortgage bill. The yellow line represents how much money Chicago has actually put into the pension fund each year. As you can see, the gap is huge. The big grey wall in the background represents the level to which the pension system is funded. A system funded at 100 percent has all the money necessary to pay for the retirement benefits promised to all current employees and living beneficiaries. Chicago isn't even close to being able to do that. It's not hard to see the relationship between the contributions and the funding level. There are other factors that affect the funding level—like investment returns—so it's not exactly that straightforward, but there's no doubt that failing to meet your annual obligations results in larger future obligations and a retirement system that is less well funded than it ought to be. If you enjoy gallows humor, you might get a laugh out of the MEABF's 50-year projection. This is something the fund is required by law to produce each year, but last year it was actually more of a nine-year projection because the fund is on pace to be completely out of money by 2025. (If you want to see this spelled out in black and white, it's on page 48 of the fund's 2015 annual report.) As you can see, the system isn't going to pull out of this funding nosedive anytime soon—and the ground is getting close. City officials say the n[...]
Thu, 08 Sep 2016 13:15:00 -0400
(image) It seems likely that Californians in November will vote to legalize the recreational use of marijuana, along with a massive raft of state regulation and taxation schemes. We bribe our government to secure permission to do what we want with our own bodies. Go figure.
In any event, the regulations don't stop on the state level. Proposition 64—the initiative that will legalize recreational growth, manufacture, possession, and use—also permits municipalities to set up their own regulations, just like they do for most other businesses.
So in preparation for the likelihood that Prop. 64 passes, there are a whole bunch of municipalities that are putting up local regulations for vote as well. Brooke Edwards Staggs at the Orange County Register looked through the filings and determined that there were 62 marijuana-related local measures under consideration in California cities and counties. She notes the complex issues cities are facing:
Should cities welcome marijuana dispensaries but not farms, or vice versa? Should their fees be fixed or increase over time? Should they tax marijuana patients less than those who just want to get high? Would that encourage continued abuse of the medical system?
Some initiatives would place caps on the number of dispensaries permitted. Some propose additional local tax rates that vary wildly. One county (Sierra County) wants to ban commercial cultivation entirely.
Obviously, the possibility of cities making money off of marijuana sales is heavily influencing this rush of new regulation (maybe that explains the sudden lack of resistance to seriously curtailing police civil asset forfeiture in California). The state would add a 15 percent sales tax, plus a tax on cultivation, plus whatever municipalities convince voters to approve. San Jacinto council members say they want to make the tax very high in order to discourage the marijuana industry from settling in their city.
That's a misguided idea, because what actually happens when taxes get extremely high on a product people want to consume is that you get the same kind of black market you'd get if you banned it entirely. Not for nothing do states with very high cigarette taxes also struggle with black markets for cigarettes that require police intervention and enforcement (with sometimes terrible outcomes). Is a pot shop worse for the city than the shadowy way people in San Jacinto get marijuana now, or is the problem that the city's leadership can't just pretend it's not there?
Read more here.
Wed, 07 Sep 2016 11:00:00 -0400New Jersey Gov. Chris Christie delivered an unpleasant surprise to some Pennsylvanians over Labor Day weekend. Starting next year, New Jersey will be taking a larger share of the fruits of their labor. Christie announced on Friday that he will terminate a 39-year-long deal between the two states that allowed residents of Pennsylvania who work in New Jersey to pay The Keystone State's comparatively lower income tax rate. The change in policy affects about 125,000 Pennsylvanians—most of them in Philadelphia and the city's suburbs, according to the Associated Press. When the tax deal was struck in 1977, New Jersey had a 2.5 percent top income tax rate and Pennsylvania had a 2 percent top income tax rate. Today, things are quite different. Pennsylvania uses a flat income tax rate of 3.07 percent. New Jersey has a progressive tax, with rates ranging from 1.4 percent to 8.97 percent. Practically, that means a Pennsylvanian who works in New Jersey and earns the average per capita income of $50,000 will see their their effective tax rate nearly double next year. Christie, a Republican, did not even try to hide the fact that he's ending the longstanding tax deal in order to pad his state's bottom line. The Christie administration hopes to collect $180 million annually by dumping the tax agreement with Pennsylvania (it was one of several tax reciprocal agreements that exist between states, like the one that allows workers in Washington, D.C., to pay taxes in whichever state they live). "In the longer team, it's just one more example of New Jersey not having a welcoming tax environment," said Joseph D. Henchman, vice president of legal and state projects for the Tax Foundation, a nonpartisan think tank based in Washington, D.C. At least the change won't drop New Jersey any further down the Tax Foundation's annual rankings of state tax climates. For 2016, it was already ranked dead last among the 50 states. Pennsylvania ranked a mediocre 32nd in the nation. Pennsylvanians who are unhappy with their higher tax bills can perhaps find solace in the fact that they will be helping to pay for the retirements of New Jersey state workers and to close a budget gap created by years of questionable spending on corporate welfare. That's because—despite Christie's claims that he needs more revenue to balance the budget—New Jersey remains a classic example of a state with a spending problem, not a revenue problem. On a per capita basis, only five states collected more revenue in 2013 than New Jersey's state and local governments did (two of them are Alaska and North Dakota, where tiny populations and a reliance on oil and natural gas excise taxes skew per capita measurements like this). Meanwhile, spending has increased almost every year during Christie's administration: the state spent $29 billion in 2010 when he took over the governorship but the budget Christie signed in July spends $34.5 billion. Christie blames the spending increases on the state's escalating pension costs. New Jersey's unfunded pension obligations total more than $80 billion, and mandatory state bond disclosures say the two main retirement funds could be completely out of money by the mid-2020s. To be fair, New Jersey's pension crisis predates Christie's time in office—and it will still exist when he departs. Still, Christie shares in the blame for failing to bring those problems under control. In 2011, Christie reached a deal with Democratic lawmakers that would have curtailed state spending in favor of increasing contributions to the pension system (state employees would have to pay more into the system too). In theory, the deal could have closed the unfunded pension gap within a decade. In reality, Christie couldn't follow through. Facing political pressure and revenue shortfalls, the governor reduced pension contributions in favor of spending that money in other places. One of Christie's favorite ways to spend money is by handi[...]
Mon, 05 Sep 2016 16:00:00 -0400America can return to prosperity and robust economic growth by looking to the Kennedy-Reagan model of income tax cuts and a strong, stable dollar, a new book argues. JFK and the Reagan Revolution: A Secret History of American Prosperity, by Lawrence Kudlow and Brian Domitrovic, will be published this week by Penguin Random House's Portfolio imprint. It tells the story of how the tax and monetary policies of Presidents Kennedy and Reagan triggered impressive economic growth. As Kudlow and Domitrovic describe it in their introduction, "the combination of a strong and stable dollar with big, permanent, across-the-board tax rate cuts" can lead to a near-utopia. "Budget deficits, the retirement crisis, student loans, unaffordable health care, poor schools, [problems of] inner cities—all these things will fade away as lasting economic growth takes hold." Kudlow couldn't have been more gracious three years ago when my own book JFK, Conservative was published, and part of what I want to do here is repay the kindness. My own suggestions that the Kennedy tax cuts might be a useful model today have been met consistently and predictably by liberal objections that today's top income tax rates are considerably lower than the 91 percent top federal rate that obtained before Kennedy won a reduction to 70 percent. There's less room to cut now, the argument goes, and the effects on incentives and growth would be concomitantly less powerful. What's more, neither the Democratic presidential candidate, Hillary Clinton, nor the Republican one, Donald Trump, has been campaigning on a Kennedy-Reagan-Kudlow-Domitrovic platform. Clinton, while talking some about both economic growth and tax simplification, has also been calling for increased taxes on top earners and on some capital gains. Trump, while proposing some substantial income tax rate reductions, has also threatened to increase tariffs on imports. If that is more than just a negotiating threat, it would create a sharp contrast with Kennedy, who, Kudlow and Domitrovic write, "spurred the biggest round of tariff reductions of modern times." So are the Kennedy and Reagan examples irrelevant? Not quite. JFK and the Reagan Revolution doesn't really get into it, but it's worth mentioning that both presidents also spent heavily on arms buildups, pursuing a peace-through-strength approach to national security. They were fighting a Cold War against the Soviet Union, but some might argue that a similar strategy is in order now against the Islamic State or other manifestations of militant Islam. As for the argument that marginal rates today are lower than the ones that either Reagan or Kennedy began paring, I'd argue that there's still plenty of room to cut. State and local income taxes piled atop the federal ones mean marginal top rates for Californians or New York City residents are more than 50 percent. That means various governments take more than half of every additional dollar earned. At lower levels, phase-outs of benefits and subsidies create even steeper effective marginal rates. At 39.6 percent, the top federal rate is considerably higher than the 28 percent rate that Reagan left it at. Remember, too, the Sixteenth Amendment that gave the government the power to levy a federal income tax was only ratified in 1913, well more than a century after the country was founded. One useful contribution of JFK and the Reagan Revolution is to remind readers that Kennedy and Reagan didn't necessarily start off as tax-cutters, either. Reagan raised taxes as governor of California. When he ran for president in 1976, he insisted that tax cuts needed to be offset by spending cuts. As a congressman, Kennedy voted against tax cuts championed by Senator Robert Taft of Ohio. Kudlow and Domitrovic remind us, too, that even the Wall Street Journal editorial page, under the leadership of Vermont Royster and then Robert Bartley, was initially skeptic[...]
Tue, 30 Aug 2016 12:50:00 -0400Congress will be returning to session next week after Labor Day with a busy agenda that nobody actually wants to deal with because this year's elections seem so crazy. At the top of mind of small-government conservatives (and obviously libertarians) is the intense pressure to pass a spending bill to keep the government in operation. The omnibus spending bill approved last December funds the government to the end of September. So they've got to pass something. Several activist groups that support reducing the size of government and lowering taxes are putting forward an organized effort to try to discourage Congress from kicking the can down the road to December's lame duck session and then pushing through a last-minute, post-election, must-pass spending bill influenced by members of Congress who are on their way out the door and don't have to worry about accountability. (We're looking at you, Sen. Harry Reid.) Some of the groups involved—like Americans for Prosperity, FreedomWorks, and Americans for Task Reform—are heavy-hitters in small-government and Tea Party activism. They, and several dozen other organizations, are calling on Congress to avoid a last-minute push to fund government all the way through 2017 and quietly include all sorts of cronyist regulations that benefit certain influential parties that lobby the government. In a teleconference with the media this morning, participants noted efforts to re-establish the loan authority of the cronyist Export-Import Bank as a concern. In a letter, the groups note how last year's last-minute, must-pass omnibus spending bill turned out: Congress already considered the matter of expiring tax provisions a little under a year ago. The $680 billion package signed into law last December made some of these items permanent and allowed more than two dozen others to expire at the end of 2015, laying the groundwork for comprehensive tax reform. Included in the nearly $20 billion in tax provisions that are set to expire are provisions pertaining to small-scale wind power, geothermal heat pumps, race horses, film production—provisions that distort our tax laws and narrowly benefit favored industries over the rest of the tax base. These provisions were made temporary for a reason. It makes no sense to come back just one year later and selectively extend certain provisions in a lame duck. Reason noted some of the secret stuff buried in that Omnibus legislation earlier in our April issue (not all of it was bad—but it was certainly not transparent). In a press call this morning, representatives from three of the groups involved in this push said they're specifically focused on making sure spending legislation is not approved at the last minute, and only spending and tax-related legislation. They're going to stay focused on that goal and not other types of bills that could get pushed through in December. That may matter in the event that heavily negotiated criminal justice and sentencing reforms finally make it through Congress before the end of the year. But clearly something does need to be passed in order to prevent a government shutdown. What some Republicans are pushing for is a continuing resolution to fund the government through March of next year. That would put the new president and a new Congress into place. Read more about the push behind that six-month plan here.[...]
Fri, 26 Aug 2016 01:15:00 -0400In most of the country, a region's "big" industry—think automotive companies in Michigan's heyday, the oil business in Houston and entertainment in Los Angeles—is treated with deference by locals. Sometimes that attitude morphs into support for subsidies or even indifference to pollution or other problems. But it's rare to see city leaders purposefully stifle companies that produce a large share of good-paying jobs and tax revenues. Enter San Francisco, where officials often don't play by the normal economic rules. No metropolitan area is more closely identified with the burgeoning high-tech economy than the Bay Area. Yet in June, three of the city's 11 supervisors proposed a 1.5-percent payroll tax that would be imposed specifically on technology companies that earn $1 million in gross receipts. This "tech tax" was designed to raise money to battle the city's homeless problem. But the economic rationale was epitomized in a statement by the bill's author, Supervisor Eric Mar: "The rapid tech boom in our city and region threatens our city's ability to thrive and prosper," he said, in a Guardian report. "Five years after the boom, it's time for San Francisco to ask the tech companies to pay their fair share." Earlier this month, the measure that would have placed the tax proposal on a citywide ballot was defeated in committee. Enough San Francisco legislators apparently understand an idea that goes back to Aesop's day: Strangling a golden goose is a quick route to poverty. But this won't be the last San Franciscans will hear about such a tax increase, nor is it the only example of increasing hostility by city officials and local activists to the tech industry. "Corporate buses that Google and other tech companies (use) to ferry their workers from the city to Silicon Valley, 30 or 40 miles to the south, are being targeted by an increasingly assertive guerrilla campaign of disruption," according to a 2014 Guardian article. Protesters have blocked buses. A window was busted on one of them. As the article put it, protesters complain that "the tech sector has pushed up housing prices in the city and made it all but unaffordable for anyone without a six-figure salary." The Google buses make it easier for tech workers to live in beautiful San Francisco, rather than in the more mundane San Jose area. Likewise, San Francisco supervisors recently passed a law that legalizes short-term rentals in the city, but imposes restrictions on them. Property owners can only rent out their entire house 90 days a year. It must be their primary residency. They must pay hotel taxes. They must follow the city's rent-control laws. The most controversial element: Hosting sites, such as Airbnb and HomeAway, would be responsible for making sure hosts—i.e., the people who post their homes for rent on company sites—are registered with the city. Airbnb filed a lawsuit arguing the law violates the First Amendment and Communications Decency Act. The latter is a 1996 federal law that protects websites from being held accountable for what individuals post on them. Advocates for the short-term rental law use a similar argument as those who defend the "tech tax" proposal. They blame these rentals for depleting the city's housing stock and driving up the cost of apartments. "It is ultimately about corporate responsibility," according to Supervisor David Campos, quoted in the San Francisco Chronicle. "About an industry that has made and continues to make tens of millions of dollars in this line of work taking responsibility for the negative impact that they are having on the housing stock." Once again, many San Francisco officials see thriving tech companies as a problem. They blame their success for driving up housings costs. Apparently, the best way to drive down housing costs is to drive businesses—and residents—out of the city. It's[...]
Wed, 24 Aug 2016 10:30:00 -0400
(image) When is a live musical performance not a live musical performance? When it takes place in Chicago and the genre is rap, rock, country, or electronica. According to local officials, such concerts don't fall under the category of either "music," "fine art," or "culture"—and hence bars that host them must pay up.
See, under the law in Cook County—which includes the city of Chicago—all event venues are subject to a three percent tax on ticket sales unless the event in question is a "live theatrical, live musical or other live cultural performance." County code later defines cultural performances as "any of the disciplines which are commonly regarded as part of the fine arts, such as live theater, music, opera, drama, comedy, ballet, modern or traditional dance, and book or poetry readings." Most area venues that host live musical performances of any kind took themselves to be exempt.
But the county has recently been trying to squeeze more amusement-tax money out of local businesses by insisting that some live musical performances don't count for tax-exemption purposes because they're not artistic enough. The Chicago Reader reported last week on Cook County's attempt to ring more than $200,000 in back taxes out of Beauty Bar, along with money from around half a dozen other venues "that routinely book DJs or electronic music."
Pat Doerr, president of Chicago's Hospitality Business Association, said the move likely stems from a 2014 appeals court ruling allowing the county to go after the Chicago Bears for $4 million in unpaid amusement taxes. "My suspicion makes me think they wanted to look at every possible way to collect amusement taxes," he told the Reader, "and that's where we're at today."
At an administrative hearing on Monday, Cook County officials clarified their position: it's not just DJ or electronica music that is suspect but rap, rock, and country music also. "Rap music, country music, and rock 'n' roll" do not fall under the purview of "fine art,'" Anita Richardson, an administrative hearing officer for the county, explained.
Under Richardson's interpretation of the code, it's not enough for a performance to merely contain theater, music, comedy, dance, or literature. No, only specific works which live up to county culture cops' standards get a pass. As Bruce Finkelman, managing partner of one of the company that owns Beauty Bar, complained, such a position essentially requires a performance venue to check in with the county for every show it books to see what state art critics think.
Even Cook County Commissioner John Fritchey seems flabbergasted by the position. "No pun intended," he told the Reader, "but I think the county is being tone deaf to recognize opera as a form of cultural art but not Skrillex."
The next administrative hearing for Beauty Bar and co. is scheduled for October. The administrative hearing officer told owners they should bring musicologists to "further testify the music you are talking about falls within any disciplines considered fine art."
Wed, 24 Aug 2016 08:05:00 -0400If California voters back Proposition 64 to legalize marijuana in November, the state will have the lowest statewide excise taxes on weed in the country. Aside from the obvious response—cheaper legal weed!—this is an important development that shows California policymakers have learned from the mistakes made in some other states that went down the legalize-and-tax-it route in recent years. Lawmakers in Colorado, Washington and Oregon have already considered reductions to their states' marijuana taxes after finding that high tax rates—each of those states have rates of at least 30 percent for recreational marijuana—did not shut down black markets for weed. California has a robust black market for marijuana, of course. With that in mind, Proposition 64 contains a more modest 15 percent excise tax on recreational marijuana and would do away with the existing use taxes on medical marijuana. There would be no tax on marijuana grown for personal consumption but a per-ounce cultivation tax applies to buds and leaves sold by growers to distributors. Even with a lower rate—or perhaps because of it, depending on how the Laffer curve applies to marijuana—California could be looking at more than $1 billion in weed-related revenue within a few years after legalization, the Los Angeles Times reported this week. That's more than six times the amount that Colorado collected in 2015, a sign of just how large the marijuana market in California could be. Here's how the statewide taxes break down, courtesy of a new report from CalCann Holdings LLC, which helps marijuana-related businesses navigate California's legal and regulatory framework: But the state excise tax is only one part of the story, as the CalCann Holdings report details. Cities across California already have a myriad of taxes on medical marijuana and a similar patchwork of local taxes for recreational weed could be possible if Prop 64 passes. There are essentially three types of cities looking to tax marijuana, according to the analysts at CalCann. Progressive cities likely to welcome the marijuana industry will set low rates, like the 2.5 percent tax rate on medical marijuana currently found in Berkeley and Stockton. Other governments less welcoming to the end of marijuana prohibition might be inclined to pile on the taxes in the hope of keeping marijuana businesses out of the area—effectively outlawing legal marijuana and letting the black market continue to operate (it should be noted that Prop 64 also allows local governments to outlaw weed even if it is legalized statewide). The third group is probably the most interesting—and potentially the most worrisome. CalCann Holdings says deeply indebted cities could welcome marijuana-related businesses as sources of much-needed tax revenue. But high local taxes could offset the benefits of California's comparatively low statewide tax rate, something that is already worrying supporters of Prop 64. "If we're getting up to 30, 35 percent tax, yeah that's when people are going to stay in the illicit underground market," says Lynne Lyman, California state director for the Drug Policy Alliance, who discussed the taxation issue in a wide-ranging interview with Reason TV earlier this week. She says the message advocates are sending to local govenrments is "we know you need money for everything. Don't go crazy. Start low." Assuming, as all this does, that Proposition 64 is approved in November, that's good advice for cities in California to follow. On top of concerns about keeping some or all of the marijuana market in the shadows, high taxes will limit the potential economic growth from new investment in the cannibis industry--bringing growth and jobs that California sorely needs. src="https://www.youtube.com/embed/69ndkRkbMBk" allowfullscreen="allow[...]
Thu, 18 Aug 2016 15:10:00 -0400Hillary Clinton recently laid out her plan for the economy, which boils down to more government, more spending, more taxes, more regulations, and more red tape. It translates into more debt and less growth. Some of the most outrageous provisions of her plan are those that target U.S. corporations abroad. To be fair, Clinton's policies are very similar to those of President Barack Obama. They both want to prevent U.S. companies from leaving the country through a process called inversion. They both also fundamentally misunderstand the reasons behind inversions and try to fix the perceived problem by treating the symptoms rather than the causes. The reason companies engage in inversions (usually by merging with a foreign firm to pay taxes abroad instead of at home) is obvious to most economists: U.S. companies doing business overseas are put at a terrible disadvantage because of our punishing corporate income tax system. The United States has the highest rate of all the Organization for Economic Cooperation and Development countries (35 percent at the top federal level and close to 40 percent when you add state taxes), including all the big welfare states in Europe. The United States also taxes income on a worldwide basis. This means that a U.S. company operating in Ireland pays the Irish rate first on its Irish income and then will pay the U.S. rate minus the tax paid in Ireland when it brings the income back to the United States. Contrast that with a French competitor doing business in Ireland. The French company pays the low Irish rate of 12.5 percent, period. To cope with the penalty or to try to remain competitive, U.S. companies are either not bringing their income back to the United States (there's supposedly $2 trillion of earned U.S. income abroad) or performing inversions. As it happens, there is wide bipartisan support to reform the corporate income tax. But it wouldn't happen under a President Clinton. Her plan would change a key rule to make it more difficult to invert. Another portion of her plan would limit the deductibility of interest when it is supposedly used as a tool to avoid American taxes. Never mind that it would be up to the government to decide when the use of such a deduction would be appropriate or not. Another provision is an "exit tax" on companies that relocate outside the United States without first repatriating earnings kept abroad. This one is particularly awful because it amounts to demanding a ransom from companies when they decide that enough is enough and that the survival of their business requires them to effectively change their citizenship. Interestingly, Clinton may have gotten this authoritarian idea from her husband, who enacted a law in 1996 that imposes an exit tax on people who decide to move abroad and change their citizenship to avoid the same punishing tax system. It's worth noting that the United States is one of the very few countries taxing individuals on worldwide income. What's stunning is that Clinton's refusal to reform the corporate income tax doesn't fit well with her claim that she wants to help American workers and that she cares about rejuvenating left-behind communities, such as Detroit. The economic literature shows that workers are shouldering the burden of the corporate income tax. Writing in The Wall Street Journal, the American Enterprise Institute's Kevin Hassett and Aparna Mathur note, "Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 22 years, confirmed that the corporate tax is for the most part paid by workers." In a piece appropriately called "The Cure for Wage Stagnation," they also cite works by the University of Michigan and Harvard University, among others. For instance, they w[...]
Wed, 17 Aug 2016 12:21:00 -0400A couple of nights back, while watching the Olympics, I saw these two expensive-to-air commercials in rapid succession. The first is the brainchild of New York Gov. Andrew Cuomo, the second is a campaign ad for presidential nominee Hillary Clinton. This is your Democratic Party on economics: src="https://www.youtube.com/embed/uC7WVvmHUTE" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0"> Making our economy work for everyone starts by making sure those at the top pay their fair share in taxes.https://t.co/uDdkrzKL9O Making our economy work for everyone starts by making sure those at the top pay their fair share in taxes.https://t.co/uDdkrzKL9O — Hillary Clinton (@HillaryClinton) August 3, 2016 I can think of no better snapshot of major-party economics as practiced in 2016. We need incentives to reward companies for moving in, and penalties to punish them for moving away! Let's waive taxes for a decade on one politically acceptable category of businesses, while raising taxes permanently on a disfavored class right next door! And no matter what, it is government that will help your business grow, and create millions of new jobs. At least Clinton's intelligence-insulting ad was paid for by her own campaign. Cuomo, on the other hand, has poured more than $200 million of taxpayer money into promoting New York like this since 2012, including north of $50 million for Start-Up NY, a program that the governor promised would "supercharge" the Empire State economy. So how many jobs has Start-Up NY produced, in exchange for all this advertising, and an estimated $100 million in waived taxes? Uh, 408. Cuomo, meanwhile, insists that the many critics of the ad campaign's desultory return on investment are "wrong," because the advertising is generic. "Come to New York," and "We will help your business grow if you come to New York," and "New York is not the frightful place that you thought it was," "We're not a high-tax state — we'll eliminate taxes." So that's what the advertising did. We had a very anti-business reputation, and if you asked any company, we actually did — you ask companies around the country, "Would you ever move to New York?" They'd say, "Oh no no no — New York is anti-business. It's very high tax, it's very high regulations." So we had a bad reputation that we had to correct to even be considered. And the quote-unquote Start-Up ads are really generic. Start-Up means, "Come to New York and we will help you start up your business—no taxes, but usually we'll also give you a loan, we'll give you an incentive, we'll invest in your business and take an equity participation." But if a state wants to be competitive now, it's going to take more than just no taxes. That's sort of the opening bid. But most often you're going to have to put an additional investment package on the table to be competitive with what the other states are offering. What a godawful mess. And as for why New York has a bad enough business/regulatory reputation that it needs to spend eight figures counteracting that impression, look no further than Cuomo's own speech at the recent Democratic National Convention: [O]ur progressive government is working in New York. We raised the minimum wage to $15, the highest in the nation because we insist on economic justice! We enacted paid family leave because all workers deserve dignity! We are rebuilding our middle class and we're working hand in hand with organized labor because the middle class is the backbone of this society! We are protecting the environment by banning fracking because this is the only planet we have. There is a better way, one that both 19th-century political parties have long since abandoned. And that is this: Make the rules—inc[...]
Mon, 15 Aug 2016 16:00:00 -0400When the senior senator from New York, Charles Schumer, and the president of Americans for Tax Reform, Grover Norquist, are on the same side of an issue in Washington, it's worth taking a moment to figure out what is going on. Schumer, a tax-and-spend Democrat, and Norquist, a small government, low-tax Republican, are usually policy foes. But when it comes to a special tax break for U.S. Olympic medalists, the two have emerged as unlikely allies. Schumer this month launched what a press release from his office described as a "major push" to win passage of a bill known as the United States Appreciation for Olympians and Paralympians (USA Olympians and Paralympians) Act. The bill would make Olympic medals and the cash prizes that the U.S. Olympic Committee awards with them tax-free to U.S. Olympians. Norquist's Americans for Tax Reform, meanwhile, is hosting a petition to "stop the IRS from taxing our Olympians." ATR warns that an Olympic Gold medalist could face as much as $9,900 in taxes on a $25,000 award from the U.S. Olympic Committee. The Senate passed the tax break for Olympic medalists by unanimous consent on July 12. Sponsors of the bill included not only Schumer but also some prominent Republicans such as Senators John Thune (R-South Dakota) and Orrin Hatch (R-Utah). A companion bill awaits action in the House of Representatives. I hesitate to get in the way whenever anyone is talking about lowering taxes of any kind. Even more so when the tax-cutting involves an unusual example of bipartisan cooperation. But the more one gets into the reasoning behind this particular tax break, the more—well, to use an out-of season Winter Olympics metaphor—it looks like the senators and Norquist are skating on some thin logical ice. This was brought to my attention by a post at the conservative website Hot Air that began, "Without the teeniest sense of irony, Sen. Chuck Schumer (D-NY) has proposed that America's Olympic medal winners should not have to pay taxes on the cash prizes they are awarded with their medals. Schumer's reasoning behind lifting the tax? Because 'hard work' and excellence shouldn't be punished. Seriously." The point is that a whole lot of other income subject to federal taxation is also the result of hard work. Sen. Schumer seems to value the hard work of Olympic medalists enough to deem it worthy of tax-free treatment. But what about the hard work of the Wall Street investment banker or lawyer working through the weekend to close a merger or acquisition deal? Or of the plumber answering a call on a holiday weekend to fix a flooding toilet? Or a pro football player risking concussions, or a pro baseball player facing a 100-mile-an-hour fastball? What about the hard work of the surgeon who worked 90-hour overnight shifts as a hospital resident and fellow before breaking into the ranks of million-dollar earners? In choosing a particular class of individuals whose hard work deserves to be tax free, Senators Schumer and Thune are engaging in a time-honored and troubling political game of picking favorites. When politicians established favored classes of those whose hard work gets better treatment than those of others, it not only adds complexity to an already egregiously complex tax code, it creates a beneficiary class of grateful recipients who now have politicians to thank for their special tax treatment. It breeds legalized corruption, as the beneficiary class then says "thank you" with campaign contributions or by hiring lobbyists with ties to the politicians who can keep the tax break on the books. In choosing the "hard work" and "excellence" arguments to justify the Olympic tax break, supporters do touch on a key point about taxation; as much as possib[...]
Wed, 27 Jul 2016 12:31:00 -0400More than a year ago, in February of 2015, Donald Trump—who was not yet running for president—said he would "certainly" release his personal tax returns. "I would release tax returns," he told conservative radio host Hugh Hewitt, reiterating later in the interview that, "I have no objection to certainly showing tax returns." In January of this year, as Trump was leading in the GOP primary polls, he again said that the returns were forthcoming. "We're working on that now. I have big returns, as you know, and I have everything all approved and very beautiful and we'll be working that over in the next period of time," he said on MSNBC. In May, after he had effectively locked up the nomination, he said once again that he planned to release them—though perhaps not until after the election. "So, the answer is, I'll release. Hopefully before the election I'll release," he said on Fox News. "And I'd like to release." The hold-up, he explained, was that he was under audit by the Internal Revenue Service. Trump formally accepted the Republican party's nomination for president last week. And this morning, his campaign manager, Paul Manafort, confirmed what Trump's year-plus-long dodge on the matter has always implied: Donald Trump won't release his tax returns before the presidential election this November. "Mr. Trump has said that his taxes are under audit and he will not be releasing them," Manafort said this morning. This isn't a violation of any rule. But as with so much of Trump's campaign, it's a violation of norms and expectations. He will be the first major party nominee in more than 40 years to not make any returns public. There's no modern precedent for his refusal to release this information; instead, Trump is setting a precedent, paving the way for candidates of the future to avoid transparency. There's lots of speculation about why, exactly, Trump won't release the information. Would it show financial connections to Russia? Would it reveal that he paid no taxes, or that he made very little money? Would it suggest that Trump is not nearly as rich as he says he is? These sorts of guessing games, while interesting, don't get us far. But the refusal to release the returns is telling enough. It's more evidence that his word isn't worth a damn, and neither are his excuses. Trump's vows to release his tax returns, like so many of his promises, were totally worthless. And his stated reason—that he is under audit by the IRS—doesn't hold up either. There's no rule whatsoever prohibiting Trump from releasing returns, even in the midst of an audit, presuming that he is, in fact, being audited (and there's some question about whether this is even true). He could do so if he wanted. Indeed, there's a precedent for a presidential candidate releasing his returns even as an audit is ongoing. In 1973, Richard Nixon was embroiled in a tax scandal over a charitable donation on his personal tax returns. As a result of the scandal, according to tax historian Joseph Thorndike, Nixon's taxes were scrutinized by the Joint Committee on Taxation, which found that he owed nearly half a million dollars more than he had paid. The IRS eventually agreed. Despite all this, Nixon still managed to make his tax returns public. That's how shady Trump is: He makes Nixon look like a model of transparency and accountability. (Correction: Nixon wasn't running for re-election in 1973! Apologies for the error.) [...]