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Taxes



All Reason.com articles with the "Taxes" tag.



Published: Thu, 20 Jul 2017 00:00:00 -0400

Last Build Date: Thu, 20 Jul 2017 16:49:50 -0400

 



The Price of Press Bias

Tue, 18 Jul 2017 15:00:00 -0400

How seriously should one take President Trump's complaints about the press? About $37.06 a year seriously, to be precise. Trump tweeted earlier this week: "With all of its phony unnamed sources & highly slanted & even fraudulent reporting, #Fake News is DISTORTING DEMOCRACY in our country!" The most sinister interpretation of Trump's attacks on the press is that they are an effort to undermine public confidence in one of the few independent institutions that could challenge his grip on power. Trump's Republican Party controls Congress. Conservative-leaning justices hold four of nine Supreme Court seats. The Democratic Party is in disarray. That leaves the press—with the possible exception of the quasi-permanent federal bureaucracy—as the most formidable obstacle to whatever Trump wants to get done. The most charitable interpretation of Trump's complaint is that, even if he may be exaggerating or painting with an excessively broad brush, he's nonetheless performing a valuable service by highlighting a genuine problem. The truth, as usual, is somewhere in between. But Trump is right about the "highly slanted" part. I can say that as someone who has been documenting bias at The New York Times in items for my Smartertimes.com website now for 17 years. How can I quantify the cost of press bias so precisely—$37.06 a year? That's the amount my property taxes increased after the City of Boston voted to approve a tax surcharge. The slanted coverage came from the local National Public Radio affiliate, WGBH, which aired an indefensible piece that quoted two people in favor of the tax increase but not a single person who opposed it. Now, one might argue that the press is just serving its audience of left-leaning Boston-area voters. The voters approved the tax increase in 2016 with about 74 percent in favor. But it's a bit of a "which came first, the chicken or the egg" type of question. Are WGBH and the Boston Globe liberal because the citizens of Boston are? Or do the people of Boston lean left because the press is feeding them a diet of slanted information on which to make their judgments? The truth, as usual, is somewhere in between. The new property tax bill from the city, admirable in its transparency, has a line that itemizes the amount of the "community preservation act" surcharge. It's a line that didn't exist on last year's tax bill. The line is labeled "community preservation act," but I prefer to think of it as a "media bias" tax. For $37.06, I could buy a pair of shoes for one of my children, make a donation to WGBH, or hire a local teenager to mow the lawn or shovel snow off my driveway. Instead, the money will go to local politicians for spending on their pet projects. It's rare that the cost of press bias is as clear, and the consequence of it as direct, as with this property tax increase. But the price we pay is there, in every doctor's bill and every health insurance bill, every electric bill, every estimated tax payment, every payroll tax deduction, every sales tax imposed on every purchase at every store or restaurant. When the press tilts in favor of higher taxes and more regulation, against energy exploration, and for more government spending, democracy is indeed, as Trump accurately observes, distorted. The true cost, on annual basis, is probably well more than my $37.06 tax increase. The First Amendment wisely prevents Congress from making any laws to address this problem. But President Trump is free to complain. And the rest of us are free to read, watch, and listen with skeptical eyes, ears, and minds, and to call out egregious cases of slant when we see them. If we don't, we'll all be stuck with the bill.[...]



Seattle's Income Tax Is Almost Certainly Illegal

Wed, 12 Jul 2017 14:59:00 -0400

This week Seattle's city council passed a tax of 2.25 percent on individual incomes above $240,000, or $500,000 for joint filers. Supporters waving bright red "tax the rich" signs greeted this development with cheers. But the tax is dubious economic policy—and almost certainly illegal under Washington state law. Jason Mercier, director of the Center for Government Reform at the Washington Policy Center, says the income tax runs up against a number of legal hurdles. "The first," he tells Reason, "is the city has to have a grant of authority from the state to impose any tax." Not only does Seattle not have that specific statutory authority, but a 1984 state statute bars any "city, county, or city-county" from "levy[ing] a tax on net income." The tax proponents claim that the new statute taxes "total income" rather than "net income," and thereby should be allowed. Former Washington Attorney General Rob McKenna and former State Supreme Court Justice Gerry L. Alexander dismissed that argument in a Seattle Times op-ed, arguing that it is "a tax's practical effect, not its label," that matters. The tax also runs afoul of the state constitution, which declares that "all taxes shall be uniform upon the same class of property." Not one, not two, but three Washington Supreme Court decisions have declared that income is property. If income is property, and if taxes on property must be uniform, Seattle's non-uniform income tax clearly violates the constitution. These problems do not seem to concern the Seattle City Council. When Progressive Army asked her about the legality of the new tax, Councilmember Kshama Sawant replied: "History shows that unjust laws need to be overturned and the only way to succeed is for ordinary people to build mass movements." Sawant, a member of the Socialist Alternative Party, was elected in 2013 along with the current mayor, Ed Murray. Both have been instrumental in passing a number of prized progressive policies, including a soda tax, a $15 minimum wage, and the nation's second "secure scheduling" ordinance, which mandates that employers set their employees' schedules weeks in advance and penalizes companies for changing them. But these progressive policies tend to have harsh regressive effects. The minimum wage will eliminate jobs, "secure scheduling" will probably bring cuts in hours, and the soda tax will raise the cost of living. That same disregard for a law's actual consequences was at play when the city council passed its income tax. Councilmember Lisa Herbold—one of the law's sponsors—said it moved Seattle's regressive revenue system toward "tax fairness." Yet the new tax law does nothing to actually lower the burden of property and sales taxes on lowe-r and middle-income Seattleites. It just layers a new levy on top of the others. But the new law's legal and policy problems do not seem to be important to Sawant, who touts the tax as a symbol of rising people power. "Our growing movement has now won $15 and taxing the rich," she said in a statement after the tax's passage. "We can continue organizing to win not only rent control, but a world free of exploitation and oppression."[...]



Illinois' Fiscal Problems Won't Stay in Illinois

Wed, 12 Jul 2017 13:21:00 -0400

A few weeks back, Chicago Tribune columnist John Kass offered a modest proposal for how to tackle Illinois' persistent (and worsening) budgetary problems. "Let's finally admit that after decade upon decade of taxing and spending and borrowing, Illinois has finally run out of other people's money," Kass wrote. His tongue-in-cheek solution: "The best thing to do is to break Illinois into pieces right now. Just wipe us off the map. Cut us out of America's heartland and let neighboring states carve us up and take the best chunks for themselves." In Kass' plan (which included an updated map of the Midwest, sans Illinois), the state would be consumed by it's neighbors, with parts of Illinois subsumed by Indiana, Kentucky, Missouri, Iowa, and Wisconsin. Those states have done a better job of managing their budgets and creating economic environments favorable to job creation, Kass reasoned, so maybe they can fix what's wrong with Illinois. At the very least, dissolving the state would be better for most Illinoisans than the alternative: higher taxes to pay off decades of piled up debt—including $251 billion in unfunded pension debt—along with worsening credit ratings, more never-ending budget fights, and cuts to government services. I don't know if Kass is right about the merits of breaking up Illinois, but he's certainly right that the state's fiscal problems can no longer be contained within its borders. Wisconsin's Legislative Fiscal Bureau (the state's equivalent of the Congressional Budget Office) estimates that tax increases approved by the Illinois legislature as part of that state's new budget will reduce Wisconsin's revenue by an estimated $51 million next year. That's because of a longstanding tax agreement with Illinois allowing people who work in one state but reside in the other to pay taxes only in the state where they live. Because more Wisconsinites work in Illinois than vice versa, Wisconsin makes a payment to Illinois every year to offset the difference. That payment is going to grow much larger in the wake of a 32 percent income tax increase, part of an Illinois budget signed last week after a two-year impasse by Gov. Bruce Rauner. The Fiscal Bureau notes things would be worse without the tax agreement. Without it, Wisconsinites working across the border would have to pay taxes to Illinois directly. Wisconsin, however, could still come out ahead. A 32 percent income tax increase is sure to drive more residents out of Illinois. The Land of Lincoln lost more than 37,000 residents in 2016, the third consecutive year that Illinois lost more people than any other state. And that was before a massive tax hike. No wonder Gov. Scott Walker is rolling out the red carpet for the exiles. "With the concerns they're seeing in Illinois right now, that makes Wisconsin—whether it's Kenosha, Racine, Milwaukee, Walworth, Rock County—all those areas will benefit from that," Walker told a local TV station during a parade on the Fourth of July. The breaking-up of Illinois won't happen geographically, as Kass sarcastically suggested. But it will happen. With the fiscal problems in Illinois spilling over to its neighbors, expect ever more people escaping from America's most mismanaged state. Correction: This story has been updated to correct the Wisconsin Legislative Fiscal Bureau's estimate.[...]



When Gutting A Tax Board Is Actually Bad For Taxpayers

Fri, 30 Jun 2017 00:01:00 -0400

When I first learned about the existence of something called the California Board of Equalization (BOE), it sounded like something that might have existed in the novel, "Animal Farm." All animals are equal, but some are more equal than others. Few things sound more totalitarian than a government agency in charge of equalizing things. But California's BOE, founded in 1879, simply is a banal tax board that oversees collection of the state's sales and excise taxes. It also handles appeals of the state's income and corporate taxes. The "equalization" has nothing to do with equalizing Californians' financial status, but making sure "that county property tax assessment practices were equal and uniform throughout the state," according to the agency's own description. Currently, it's the only state tax bureau in the nation run by elected officials. The board has four elected members who represent large districts, plus the state controller. It has a staff of more than 4,000 people and offices across the state. There have been multiple efforts to eliminate the agency over the years, and in the wake of a series of recent problems, it looks like the agency finally is having its powers drastically reduced. California legislators recently approved some urgency bills that are part of a budget deal that will surely be signed by the governor. One such bill takes away most of the board's powers and replaces them with two new departments. The first agency will collect taxes and fees, explained the Sacramento Bee. The second will serve as a tax court run by administrative law judges. Almost all of the BOE employees will work under the new agencies. Columnist Dan Walters argued in April, following a Department of Finance audit that was highly critical of the BOE, that it's time for the board to go away after allegations "such as spending lavishly on personal offices, misusing civil service workers and interfering with pending tax cases." Board members, he added, treat these elected posts as "well-paid sinecures or stepping stones to higher office." As a limited-government guy, I should be applauding the board's dismemberment. We're talking about gutting a tax board, which should be every libertarian's dream. Few politicians really aspire to be members of the Board of Equalization, so Walters has a point about sinecures and stepping stones. Nevertheless, gutting the board is terrible news for taxpayers. "It's the difference between being represented by elected officials who are accountable to the people in their district or the IRS model," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. He doesn't downplay the problems at the board, but argues that the Democratic-dominated legislature targeted the BOE mainly because "it is perceived as too taxpayer-friendly." Indeed, Republicans wanted the board to retain its powers. "People still need representation for taxation," said BOE member Diane Harkey, whose fourth district represents Orange, Imperial, Riverside, San Diego and parts of San Bernardino county. "People don't have the time and resources to fight a tax agency with unlimited resources." She said the agency's problems could have been corrected. "Did they shut down the Senate?" she asked, after three senators faced criminal charges. Indeed. Elected board members—perhaps given their interest in higher office—and their staffs frequently serve as advocates for the lowly taxpayer. Sure, the new agencies will have an adjudication process by which taxpayers can appeal their cases. But "administrative law judges" are not actual judges. They are agency employees. Would you want to throw yourself at the mercy of some faceless regulatory entity or an agency accountable to elected officials? I know what I would choose. The current system works a little like a congressional office. There's no saying your U.S. representative will be able to help you, but you're more likely to get help from Congresswoman Whatshername than you are by sending letters[...]



Oregon Passes Hefty Insurance Tax to Prop Up Its Scandalous Medicaid System

Fri, 23 Jun 2017 09:45:00 -0400

On Wednesday, Oregon lawmakers passed a major new tax on hospitals and health insurers to raise $673 million to shore up the state's scandal-ridden Medicaid system. The new levies - 1.5 percent on health insurers and 4.6 percent on hospitals are a desparate attempt to plug the state's $1.4 billion budget deficit, about $1 billion of it is the result of Medicaid expansion. They will, however, do little in the way of reforming a wasteful system shot through with failed projects and inappropriate expenditures. By far the costliest of these failed projects was Cover Oregon, the $300 million Obamacare exchange so utterly unworkable when it launched in 2014 the state was forced to abandon it. It's successor, the Oregon Eligible or ONE system, is faring little better. The Oregon Department of Human Services commissioned the ONE system in 2015 to handle a far less ambitious goal of verifying income eligibility for those applying for the Oregon Health Plan (the state's Medicaid program). After spending $166 million—four times the initial contract costs—the state did manage to cobble together a workable website. But Oregon still has not managed to perform federally-mandated income eligibility checks on 86,000 current Medicaid enrollees. The state is spending $37 million a month on potentially ineligible recipients, according to a May audit by the Oregon Secretary of State. That $444 million a year is about two-thirds of what the new hospital tax is projected to raise. The state has booted some 14,000 people from the Medicaid rolls as a result of the audit and another 17,000 are under investigation. Since 2016—when a federal waiver on conducting these income eligibility verifications expired—the state has terminated coverage for 300,000 ineligible Medicaid recipients, and state officials still can't say how much Medicaid money was dispersed in error. Oregon Republicans have been harshly critical of the new tax plan, saying it does nothing to ensure the new revenue will not be wasted in a similar fashion. "It should be a requirement to prove to the people we are making efficient use of the money they are already sending us before we ask for more," State Sen. Jeff Kruse (R-Roseburg) said in a newsletter. State Rep. Knute Buhler (R-Bend) made a similar point in an Oregonian op-ed, calling the new taxes a missed "opportunity to repair and reform how the state funds and spends government health care dollars." Still, enough Republicans voted for the plan to hoist it over Oregon Legislature's three-fifths requirement for levying new taxes. The bill now goes to Gov. Kate Brown, who is expected to sign it. Oregonians who are already facing double-digit premium hikes for 2018 can be expected to pay even more for health insurance premiums and hospital visits to cover a consistently wasteful and poorly-managed state healthcare system.[...]



Kansas' Tax Cut Experiment Was A Predictable Failure

Mon, 19 Jun 2017 11:45:00 -0400

"What's the matter with Kansas?" In 2004, Thomas Frank asked the question fearing a "right-wing class war grown so powerful" that it induced "the common people" to vote against their own interests. Now, 13 years later, pundits are asking the same question—but under drastically different circumstances. Headlines like "How the grand conservative experiment failed in Kansas" and "Trickle-down economics is a nightmare. Kansas proved it" have been dominating the news out of Kansas this month. On June 6, the Kansas legislature voted to roll back years of tax cuts championed by Republican Gov. Sam Brownback. Many in the media could not resist gloating about a supply-side policy failure in the home state of the Koch brothers. Comparisons between Brownback's policies and Trump's tax plan quickly followed suit, with warnings about how the whole nation could soon suffer from a supply-side induced fiscal crisis. The state certainly finds itself in a fiscal crisis, but chalking up its woes solely to the governor's tax-cutting is a gross oversimplification. As with many economic policy issues, the reality is a lot more complex than the headlines let on. In order to understand what's the matter with Kansas in 2017, one needs to go back to 2010, the year Sam Brownback was elected governor. Brownback had pledged to reform the state's tax code, but offered no concrete plan. A year later, Brownback finally presented what would be dubbed "the great Kansas tax cut experiment." He proposed phasing out state income taxes over several years and eliminating taxes for certain businesses—specifically, pass-through entities, which pay taxes through the individual tax code instead of the corporate tax code. Brownback promised that some revenue would be recouped through the elimination of deductions, exemptions, and tax credits. Those tax cuts eventually passed—though the exemptions, deductions, the income-tax credit were left intact, largely for political reasons—and the state began to limp from one budget crisis to another as tax revenue caved and failed to cover the state's spending. In 2014, the state's bond rating was downgraded as the crisis escalated. All the while Brownback remained publicly unfazed, and went on to win a contentious battle for reelection that same year. But while Brownback got a second term, his experiment won't. A $900 million budget hole finally convinced Kansas legislators that the grand experiment must come to an abrupt end. What went wrong? First, the legislature failed to eliminate politically popular exemptions and deductions, making the initial revenue drop more severe than the governor planned. The legislature and the governor could have reduced government spending to offset the decrease in revenue, but they also failed on that front. Government spending per capita remained relatively stable in the years following the recession to the present, despite the constant fiscal crises. In fact, state expenditure reports from the National Association of State Budget Officers show that total state expenditures in Kansas increased every year except 2013, where expenditures decreased a modest 3 percent from 2012. It should then not come as a surprise that the state faced large budget gaps year after year. In addition to a failure to control government spending, Kansas officials failed to ditch one of the worst elements of the tax plan: the total elimination of taxes on pass-through entities. Pass through entities are, to put it simply, businesses that pay taxes through the individual income tax code as opposed to the corporate code. It's particularly bizarre that this provision survived because even those who supported Brownback's other tax cuts, such as the Tax Foundation, felt this part of the plan went too far and encouraged tax avoidance. Instead of policies like eliminating tax loopholes, lowering tax rates, and broadening the tax base—the most common elements of tax reform—t[...]



Congress Could Make It Harder for Local Pols to Blow Your Money on Stadiums

Thu, 15 Jun 2017 09:34:00 -0400

When New York City agreed to build a new stadium for the most valuable baseball team in the country, the Yankees, they partially paid for the project by issuing more than $1.6 billion in municipal bonds. That means Red Sox fans in Boston ended up indirectly helping to build their rivals' new home. A bipartisan bill introduced this week in Congress proposes to close the federal tax loophole that made that possible. The bill, sponsored by Sens. Cory Booker (D–N.J.) and James Lankford (R–Okla.), would not be the end of government-subsidized stadiums, but it would stop local officials from shoveling part of the cost onto the backs of taxpayers well outside their own jurisdictions. The $1.6 billion in municipal bonds issued for the construction of the new Yankee Stadium is a record. But New York isn't the only city to take advantage of a loophole that ropes taxpayers from all across America into subsidizing stadiums. According to a recent analysis by the Brookings Institution, a centrist think tank, since 2000, 45 major professional sports stadium projects have been financed in part by more than $13 billion in municipal bonds. Those bonds are meant to be used to pay for roads, sewer systems, schools, and other municipal infrastructure needs. They are exempt from federal taxes as a way of encouraging investors to buy them at lower interest rates, saving cities money. Those $13 billion in untaxed bonds for stadium projects have reduced federal tax revenue by $3.2 billion since 2000, according to the Brookings' estimate. "It's an unseen subsidy," Victor Matheson, a sports economist at the College of the Holy Cross, told Reason on Wednesday. "It's a tax break that we never get to vote on, and it's one that don't even think about and don't see." The bill introduced by Booker and Lankford would end the federal tax exemption for municipal bonds issued for stadium projects. Bonds issued to pay for infrastructure and other public projects would still be sheltered from taxation. "It's not fair to finance these expensive projects on the backs of taxpayers, especially when wealthy teams end up reaping most of the benefits," said Booker in a statement. He pointed to the fact that decades of economic research shows little or no correlation between stadium projects and overall economic growth. On that point, Booker is correct. The last three decades have been a sprawling cross-country experiment in the grand promises of economic growth spurred by building stadiums. The reality is you can build it, but the promised payoff rarely comes. The Yankees got $492 million through the backdoor subsidy created by the federal tax exemption for municipal bonds, the Brookings study says. The New York Mets scored the second largest subsidy from taxpayers, $214 million for the construction of Citi Field, which opened in 2009 at a cost $815 million, more than $600 million of that funded by the public. "Using billions of federal taxpayer dollars for the subsidization of private stadiums when we have real infrastructure needs in our country is not a good way to prioritize a limited amount of funds," said Lankford. "Everyone likes free federal money to build their expensive stadiums, but with $20 trillion in federal debt, this is waste that needs to be eliminated." President Barack Obama proposed eliminating tax exemptions for municipal bonds attached to stadium projects as part of his 2015 budget plan, but Congress didn't bite. There are plenty of reasons to be skeptical that Booker's and Lankford's proposal will get through the legislative process—sports teams and wealthy bond-buyers are likely to lobby against it—but bipartisan support is a step in the right direction. Even if the bill does pass, though, it won't be the end of subsides for sports stadiums. It will just make it more expensive for cities to hand-over millions of taxpayer dollars to billionaire team owners. Matheson estimate[...]



Seattle Passes Regressive Soda Tax

Tue, 06 Jun 2017 14:30:00 -0400

(image) Seattle's city council passed a new soda tax yesterday over the loud opposition of local business owners, teamsters, and other citizens. At 1.75 cents per ounce—that $2.52 per 12-pack—the new rate will be eight times higher than the levy on beer.

"I think after this tax my store is going to be closed," one business owner told the council before the vote. The storekeeper operates his shop on the edge of Seattle, and now will have to compete with neighboring communities that have no soda tax.

"It is going to be very hard on small businesses," said another shopkeeper. "I just want to let you know that we are barely surviving on the minimum wage increase." Seattle passed a $15 minimum wage bill in 2014.

The council was unmoved, passing the measure by a vote of 7-1. The tax will go into effect after Mayor Ed Murray signs the bill.

When Murray and Councilmember Tim Burgess introduced the tax in April, they presented it as a way to encourage healthier lifestyles among minorities and to fund programs that will help close Seattle's racial achievement gap. (Among the recipients: early childhood education and subsidies to farmers markets.) The original proposal also included a tax on diet beverages, on the theory that this would make a regressive tax more equitable. In the mayor's words, "the data showed that the diet drinks were consumed by more middle-class white people." But the ordinance that passed yesterday left out the diet drinks.

Several activists who spoke on behalf of the measure acknowledged that the tax is regressive but argued that this would be mitigated by the spending it will allow. "We understand this is a regressive tax," said a dietitian with the group Got Green. "We only support it because we know and are pushing for it to go back and serve the community." Mackenzie Chase of the Save the Children Action Network echoed the point: "Early learning is a smart investment. We have a dramatic need for an investment and this is a smart way to do that."

Yet 80 percent of the revenue from the tax will go straight into Seattle's general fund, with no restrictions on how it can be spent. For the other 20 percent, the spending will follow a weak and non-exclusive list of priorities, including the administration of the tax and, perhaps most insultingly, training for workers who lose their jobs as a result of the tax. So even if it made sense to tax low-income Seattleites so that supposedly smarter officials could then give the money back to them in the form of services the government thinks they need, there's no guarantee that the soda tax will do even that.




Don’t Fund California Single-Payer Health Care With a Gross Receipts Tax

Mon, 05 Jun 2017 15:42:00 -0400

California's single-payer health care proposal would eliminate premiums, deductibles, and co-pays for residents of the state, but would require massive tax increases—including the creation of a new, more complex version of a sales tax that would drive up the cost of living or doing business there. There's still no fully formed plan to finance the California single-payer proposal, which cleared the state Senate with a 23-14 vote on Thursday and is headed to the state House. Implementing the so-called Healthy California Act, or HCA, would likely cost the state as much as $400 billion annually (that's more than California currently spends on its entire state government), and would require at least $200 billion in new revenue, if not more. The bill is silent about how the plan would be funded, but an analysis published last month by the state Senate Appropriations Committee envisioned a 15 percent payroll tax increase to generate the necessary revenue. A new analysis released last week by researchers at the University of Massachusetts-Amherst, suggests that California pay for the single-payer health care plan with a new gross receipts tax of 2.3 percent, along with a 2.3 percent increase the state's sales tax (currently 7.25 percent), "along with exemptions and tax credits for small business owners and low-income families to promote tax-burden equity." Those two tax hikes would generate an estimated $106 billion annually—far short of the $330 billion price tag attached to the HCA by the Amherst economists, so other tax hikes would also be required. Still, the idea of funding a single-payer health care system with a new gross receipts tax should be a point against the creation of such a system, not one in its favor—no matter how much revenue the tax might produce. Unlike regular sales taxes, which are imposed only at the final point of sale when a consumer purchases a product from a retailer, gross receipts taxes are applied at each and every transaction along a supply chain. In practical terms, you pay a sales tax when you purchase a widget from a store, and that's the only tax paid on the sale of that widget. Under a gross receipts tax, the widget-maker would pay 2.3 percent on the cost of the raw materials used to make those widgets, then the distributor would pay 2.3 percent when it buys widgets from the manufacturer, the retailer would pay 2.3 percent when it buys from a distributor, and so on. The taxes get rolled into the cost at each additional level and the consumer who makes the final purchase ends up paying for them all. "Gross receipts taxes lead to higher consumer prices, lower wages, and fewer job opportunities, as the tax pyramids throughout the production cycle," explains Nicole Kaeding, an economist with the Tax Foundation's Center for State Tax Policy, a Washington D.C. tax policy think tank. A gross receipts tax is particularly problematic for businesses that operate with high volumes and low margins—think fast food joints or any other company that relies on selling lots of cheap goods—because of how the taxes can cascade quickly and make profits impossible. They also distort the economy by favoring businesses that have in-house supply chains versus those that have to buy raw materials or products from someone else, because only the latter of the two businesses in that example would be hit with the tax. Gross receipts tax proposals get tossed around periodically because governments are enticed by the promise of large, relatively stable (at least, more stable than income tax revenue, which can rise and fall with markets) amounts of revenue. But the trade-offs are not worth the benefits, Kaeding says, because "gross receipts taxes create economic problems that cripple growth, conceal true tax burdens, and breed inefficiency." That's why only five states—Delaware, Nevada, Texas, Ohio[...]



The New York Times' Tax Coverage Goes Off the Rails

Mon, 15 May 2017 16:00:00 -0400

Binyamin Appelbaum is one of the more fair-minded and accurate reporters at The New York Times. For an example of his best work, one might look back to his reporting from Hazleton, Pa., in October of 2016. So it was particularly dismaying to read Appelbaum's dispatch over the weekend in the Times, under the headline "Trump Tax Plan Will Not Bolster Growth, Economists Say." The Times news columns have been openly campaigning against Trump's tax cuts, from the moment they were rolled out. The paper's day one front page headline was "Tax Overhaul Would Aid Wealthiest." Its day two headline was "Trump's Plan Shifts Trillions To Wealthiest." Even by that low standard, though, the Appelbaum story was something to behold. It's worth taking a careful look at as an example of the techniques that the press uses with the effect of distorting the debate about the tax cut. The first ingredient is a headline that goes beyond what the story itself says. Buried in the penultimate paragraph of Appelbaum's article are two estimates of how tax cuts might bolster growth. "The Tax Foundation thinks 0.4 percent is a reasonable estimate of the best case. Mr. Holtz-Eakin said that he regarded 0.5 percent as an upper bound on the potential benefits," the story says. It's not clear whether these estimates are of any tax cuts or of Trump's tax cuts in particular. But the Tax Foundation blog carries an article that says just a cut in the corporate tax rate to 15 percent—without the individual rate cuts Trump is also proposing—would generate "something more like 0.4 percent over the budget window: a sustained period of 2.3 percent growth instead of 1.9 percent growth, until the economy is eventually about 4 percent larger." So the headline about "will not bolster growth" is inaccurate. The cuts would bolster growth, at least by some estimates, just not by the amount that Appelbaum has arbitrarily set up as a goalpost. The way the Times describes these growth numbers—as decimal percentages—is itself a kind of spin. Using language like "0.4 percent" makes the growth sound small. But higher annualized growth rates compound over time. When, in other articles, the Times talks about other percent-based fees—say, those charged by money managers to public pension funds—it uses real dollar figures to make the numbers sound larger: "almost $750 million in direct investment expenses," "an additional $1.8 billion over five years and almost $8 billion after 15 years." The U.S. annual gross domestic product is about $18 trillion, so a "4 percent larger" economy means $720 billion—or $720,000,000,000—more goods and services produced each year. That is nothing to sneeze at. At that is just the effect of a corporate tax reduction, not other growth-inducing steps such as personal income tax reductions, deregulation, increased energy exploration and production, a stable dollar, or (if you buy the idea that this is stimulative) a military buildup. Nor are the growth numbers the only way that this Times article uses numerals in a misleading way. The newspaper is also spinning when it comes to tax rates. The article says: "there is little evidence that current rates are high enough to discourage people from earning as much money as they can. When Mr. Reagan took office, the top tax rate was 70 percent; now, it is 39.6 percent." The Times-chosen comparison of "70 percent" and "39.6 percent" makes the current rate appear low. It would have been accurate, however, to write, "When Mr. Reagan left office, the top individual income tax rate was 28 percent; now, as the Times reported on its front page back in 2013, in California the combined top state and federal income tax rate is 51.9 percent, while in New York City it is 51.7 percent. Even for lower-income individuals, the combined effects of means-tested benefit phas[...]



The Base Rhetoric of Mainstream Taxation Talk

Sun, 14 May 2017 10:15:00 -0400

Lenin reportedly said, "The best way to destroy the capitalist system [is] to debauch the currency." If by "capitalist system"* we mean only what Adam Smith called "the obvious and simple system of natural liberty," we could improve on the quote: the best way to destroy it is to debauch the currency of rational communication, the language. George Orwell of course understood this well and made it the centerpiece of Nineteen Eighty-Four. In a book on the German liberal social-critic Karl Kraus (Anti-Freud: Karl Kraus's Criticism of Psychoanalysis and Psychiatry), Thomas Szasz distinguished between noble and base rhetoric and rhetoricians—that is, those who use language to reveal (e.g., Kraus) and those who use it conceal their value judgments (e.g., Freud). Szasz pointed out that the conservative "radical" intellectual Richard Weaver, lamenting the neglect of rhetoric as an academic subject, described what Szasz called "the movement away from the value-laden language of theology, poetry and prose, in short of the 'humanities,' and toward the ostensibly value-neutral languages of the 'sciences.' This attempt to escape from, or to deny, valuation is, for obvious reasons, especially important and dangerous in … the so-called social sciences. Indeed, one could go so far as to say that the specialized languages of these disciplines serve virtually no other purpose than to conceal valuation behind an ostensibly scientific and nonvaluational semantic screen." Szasz here was referring to scientism, which Kraus despised and attempted to expose in his work. Base rhetoric is what social engineers must engage in or else they would be, in Oscar Wilde's words, "found out." We can see the base rhetoricians in action whenever they talk about taxation. From the terms of their discussion, you would never know that the money in question actually belongs to particular individuals, who obtained it through voluntary exchange or gift. Rather, the terms suggest that it belongs collectively to society, with the government being its agent of distribution. The only question, then, is: what's the fairest distribution? How else are we to explain the routine designation of tax cuts and repeals as "tax breaks?" We don't usually call letting someone keep his justly acquired possession a break. And how are we to explain why people are chided about paying their "fair share" without a standard of fairness ever being proffered? And, finally, how else are we to explain the term "tax expenditure," which is attached to any policy that enables people to reduce their tax "liability" by jumping through one legal hoop or another? These hoops are often called "loopholes," though that term can mean both deliberate and inadvertent features of legislation that provide opportunities for people to keep some money out of the government's hands. The concept tax expenditure implies that the government's budget is the entire GDP. When anyone calls for a new tax or a tax increase, that person wants government personnel to threaten force against others who fails to surrender their money to the state. But almost no one speaks in those terms. If tax advocates did that, their rhetoric at least would be value-laden and honest (and only in that sense noble). Instead, such people engage in base rhetoric. They speak in ostensibly value-neutral language when in fact their meaning is value-laden: they implicitly claim that their plans for the money are superior to the plans of those who now possess it. Weaver wrote that "language … is … sermonic. We are all of us preachers in private or public capacities. We have no sooner uttered words that we have given impulse to other people to look at the world, or some small part of it, in our way…. Language is intended to be sermonic. Because of its nature and its in[...]



The Base Rhetoric of Mainstream Taxation Talk: New at Reason

Sun, 14 May 2017 08:00:00 -0400

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In a book on the German liberal social-critic Karl Kraus (Anti-Freud: Karl Kraus's Criticism of Psychoanalysis and Psychiatry), Thomas Szasz distinguished between noble and base rhetoric and rhetoricians—that is, those who use language to reveal (e.g., Kraus) and those who use it conceal their value judgments (e.g., Freud). Base rhetoric is what social engineers must engage in or else they would be, in Oscar Wilde's words, "found out."

We can see the base rhetoricians in action whenever they talk about taxation, suggests Sheldon Richman. From the terms of their discussion, you would never know that the money in question actually belongs to particular individuals, who obtained it through voluntary exchange or gift. Rather, the terms suggest that it belongs collectively to society, with the government being its agent of distribution. The only question, then, is: what's the fairest distribution?




The Moral Case for Tax Cuts

Mon, 01 May 2017 12:01:00 -0400

Say you walk into a store one day and there's a big sign inside: "Everything Now 20 Percent Off." What is your reaction? (a) "This is great! I am going to save some money today!" (b) "This is terrible! I demand to know how the store is going to make up the revenue. And I am outraged, because people who are richer than I am buy more stuff, which means they will save more money than I do!" If you are a normal person, your reaction is more likely to resemble (a). But a lot of people—including most members of the media—apparently have a reaction more like (b), at least when the subject turns to taxes. On Wednesday, President Trump laid out some general themes for tax reform, including cuts in the rates for corporations and small businesses and a hike in the standard deduction for individuals. The reactions were telling—and even a bit surreal. Much discussion revolved around how much the tax cuts would cost. That is a funny question to ask, from the taxpayer's perspective. From the taxpayer's perspective, a tax cut doesn't cost anything. Like a price cut at a department store, it saves you money. The only entity for whom a tax cut could be considered a cost is the federal government. But an impressive number of people in the media also see it that way, which tells you much about where their sympathies lie. Along the same lines, debate erupted over whether Trump's plan would "pay for itself," a discussion Republicans foolishly invited with the Laffer Curve. So you get policy wonks arguing over whether the Congressional Budget Office should judge tax proposals using static scoring or dynamic scoring, and just how much we can expect the economy to grow under scenarios A, B, and C, and so on. All great fun for those who see politics as a team sport. The trouble with such an approach, though, is that it turns taxation into a purely utilitarian issue, and one in which every perspective is just as valid as any other. Which is simply not the case. Imagine a stranger walked up to you on the street and said, "Let's talk about the best way to spend your paycheck, shall we?" You would be entirely justified in replying, "Buddy, that's none of your damn business. Now go away before I call the police." Most discussions of tax policy overlook a crucial initial condition: the ownership of the money before the government confiscates it. That is a moral consideration, or at least it ought to be. Pundits go on at great length debating whether the government can afford to let people keep a bit more of their own money. Very few ever ask whether the taxpayer can afford the high cost of government. Sure, partisan hypocrisy enters the equation. Republicans don't care much about deficits unless Democrats are in charge, and vice versa. Let's take that as a given and set it aside for another time. Any discussion of tax policy ought to start with the recognition that taxation entails taking the earnings of some people for the benefit of others. We need some level of taxation; government can't function without it. But the level should be kept as low as possible. The standard objection here involves noting that tax cuts benefit the rich. Well, yes—they do. That is because the rich pay most of the taxes in the first place. The wealthiest 20 percent of American households earn 51 percent of all U.S. income but pay 66 percent of all income taxes. The bottom 45 percent of Americans pay no income tax at all. It is hard to cut taxes for people who don't pay them. This is, indeed, a question about greed. But not in the way it is normally framed. As George Mason University economics professor Donald Boudreaux once said, it's an odd value set that considers "I want what's mine" to be selfish and greedy but "I want what's yours" to be s[...]



Are High Taxes to Blame for Minnesota’s Championship Drought?

Sat, 29 Apr 2017 11:30:00 -0400

Of the 13 metropolitan areas in the United States currently hosting teams in each of the four major professional sports leagues, none have been waiting longer to celebrate a championship than the Twin Cities. One possible reason why? Minnesota's high personal income tax rate. "You get a lot of complaining about professional sports in Minnesota, because this problem is especially acute there," Dr. Erik Hembre, told The Washington Post this week. "People complain about, 'Oh, we can't get good free agents. It really hurts us.'" Hembre, an economist at the University of Illinois at Chicago, claims to have found a direct relationship between state tax rates and the success of professional teams based in those states. His research shows that, since the mid-1990s, a ten percentage point increase in income taxes correlates with a 2-3 percentage point decline in team's winning percentage. The effect is greatest in the National Basketball Association (where signing one major free agent arguably has a greater impact on a team's success than in any other major sport) and smallest in Major League Baseball, according to Hembre. Minnesota's high tax rate, Hembre says, costs the Minnesota Timberwolves a total of 4.5 victories per season when compared to pro basketball teams in low-tax states like Florida or Texas. Minnesota's state income tax is one of the highest in the country. The top marginal rate of 9.85 percent applies to anyone making more than $157,000 annually (or married couples making more than $262,000). That high rate might force teams in Minnesota to pay higher rate for the same talent, or might give highly-sought-after free agents a reason to play somewhere else. The Twin Cities last celebrated a major sports championship in 1991, when the Twins claimed the World Series with a dramatic extra inning victory in the seventh and final game. Since then, not a single Minnesota-based team has reached the final round of their respective league playoffs. Bad luck may be part of the answer. The Vikings of the National Football League reached the final round before the Super Bowl in 1998, 2000, and again in 2009, only to lose all three times (twice in overtime). The Minnesota Twins made regular playoff appearances during the 2000s, but only advanced past the first round on one occasion, which might say more about the comparatively random nature of Major League Baseball's playoff system than anything else. The Twin Cities' professional basketball and hockey teams have been occasionally competitive but never considered strong championship contenders since joining the National Basketball Association and the National Hockey League in 1989 and 2000, respectively. (It should be noted that the Minnesota Lynx are something of a dynasty in women's professional basketball, having won WNBA championships in 2011, 2013, and 2015.) Other metropolitan areas with all four major professional sports have higher taxes than Minnesota does—the Los Angeles area and the San Francisco Bay Area in California, for example—but professional athletes might be willing to pay a premium, in the form of higher taxes, to live in places like that. As great as the Twin Cities can be (full disclosure: I lived there for three years and loved it), they have a hard time competing with South Beach and Hollywood for celebrity culture. "Professional athletes are paid very well and therefore they have large incentives to consider the tax implications of the teams they choose to play for," Hembre told the Post. Well-paid professional athletes are a particularly mobile sector of the workforce, and can more easily make decisions about where to live and work than most of us who can't slam dunk a basketball or throw a baseball a[...]



I Gave My Waitress a 'Libertarian Tip': Taxation Is Theft!

Fri, 28 Apr 2017 15:10:00 -0400

Have you seen the viral "libertarian tip"? Someone in Missouri left a cash tip with a note explaining it was actually a personal gift and so not subject to state and federal income taxes, and wrote "taxation is theft" in the tip line on the check. Who knows if the note is authentic? "Taxation is theft," an old libertarian bromide, has in the last year or so become a fairly popular internet meme. By some accounts, the meme wars were an important aspect of the 2016 election and its outcome—and you can expect the trend of political memes to grow. Maybe the "libertarian tip" was staged by someone who wants to promote libertarianism or encourage others to leave libertarian tips, or even just someone who wanted to play with the "taxation is theft" meme. Nevertheless, I went out to lunch today to replicate the meme so I could give you an authentic photo of an authentic non-tip left as an untaxable personal gift. Here it is: Some tips for you: the original photo looked like a note, not an envelope. I thought putting the money in an envelope would more clearly separate it from a tip. A note is better to show off how much you've tipped—I put the money in the envelope after snapping the photo. You should probably make sure to have the change you need to give the tip you want. Asking for change from the wait staff might strengthen the case your untaxable non-tip is actually a taxable tip. Afterward, I asked my waitress if my ploy would work. She seemed as if she wanted to tell me it would, even though she knew that it wouldn't, because, as she explained, tips are based off sales. She said that the tips that bring her wage up to the minimum wage (waiters and waitresses are generally exempt from minimum wage laws under the assumption tips get them to at least the minimum wage) get taxe like income, and that "40 to 50 percent" of tips beyond that get declared. The intersection of libertarianism and wait staff is not new. During the 2012 election, then Rep. Ron Paul (R-Tex.), a Republican presidential candidate, became an "unlikely hero" (the New York Post's words) to wait staff for his efforts to pass the Tax Free Tips Act. In 2013, The New Yorker appeared to discover and bemoan that wait staff were hiding tips from the taxman. The horror. Meanwhile, wait staff are also among workers most negatively impacted by higher minimum wages—they are often asked to do more work as restaurants look to mitigate the costs of a higher minimum wage in an already low-margin business. Just last month, Eric Boehm reported that San Diego had lost 4,000 restaurant jobs in the year-plus since they raised their minimum wage at an even faster pace than the state, which has so far only seen a slowdown in the growth of restaurant jobs. And while we're so directly on the "taxation is theft" topic, here's one of my favorite chyrons ever on FreedomWatch with Judge Napolitano, a show I produced for. Thanks go to Media Matters for preserving the screen cap: [...]