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Published: Tue, 28 Mar 2017 00:00:00 -0400

Last Build Date: Tue, 28 Mar 2017 09:46:54 -0400


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

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

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

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

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

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

Food Taxes Should Die, but Won't

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

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

Gender 'Injustice' Behind Call to Reduce Taxes on Tampons

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

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

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

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

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

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

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

It's one of those basic laws of economics: when you tax something, you get less of it. Philadelphia is getting a crash course in what that looks like. A little less than two months after the city imposed a new tax on sugary drinks, sales of those beverages are down—way, way down—and revenue collections are too. It's hard to have much sympathy for the city, which probably deserves to come up short on the revenue side as punishment for implementing such an obviously misguided policy. Unfortunately, the soda tax is doing more than just wrecking Mayor Jim Kenney's budget projections—it's also going to cost some Philadelphia residents their jobs. One of the city's largest beverage distributors is planning to cut 20 percent of its workforce, reports, and grocery stores across the city are also planning to shed jobs to make up for declining sales. It appears that the tax is causing some shoppers to drive beyond the city's borders in order to do their grocery shopping (who could have seen that coming, right?). "In 30 years of business, there's never been a circumstance in which we've ever had a sales decline of any significant amount," Jeff Brown, chief executive officer of Brown's Super Stores, told Bloomberg. "I would describe the impact as nothing less than devastating." For now, Kenney and other city officials seem unfazed—dismissive, even—of the problems caused by the new tax. A city spokesman told that no one knows whether low sales figures and predicted job losses are anything more than "fear-mongering to prevent this from happening in other cities." Kenney put an even finer point on it. "I didn't think it was possible for the soda industry to be any greedier," Kenney said in an emailed statement to reporter Julia Terruso. "They are so committed to stopping this tax from spreading to other cities, that they are not only passing the tax they should be paying onto their customer, they are actually willing to threaten working men and women's jobs rather than marginally reduce their seven figure bonuses." It's not the first time Kenney has tried to ignore basic economics when it comes to the soda tax. A few weeks ago, he blamed grocery stores and restaurants for "price gouging" when they increased prices for sugary drinks to make consumers pay for the cost of the tax (the tax is technically applied on the transaction between distributors and retailers, but, like all other taxes, it gets passed along). If Kenney's right, then soda manufacturers and distributors are engaged in a massive conspiracy with grocery stores and eating establishments to lie to city tax collectors, fire workers, and craft a fake narrative about the devastating effects of the Philadelphia soda tax. I suppose that's possible—all those groups did oppose the tax before it was passed, after all—but it seems far more likely that all those groups, and the city itself, are experiencing a first-hand lesson in how economic incentives work. Consumers who don't want to pay an extra 1.5 cents per ounce for their favorite sugary drinks have a strong incentive to avoid buying soda (or juice, or iced tea, or sports drinks) in Philadelphia. They're leaving the city to buy soda, and doing the rest of their grocery shopping outside the city too. That leaves grocery stores with less revenue and creates an incentive to cut costs, which could mean laying off workers. Or, as Pennsylvania State Rep. Stephen Bloom, a Republican, put it on Twitter: Economics is to Politics as Gravity is to Jumping. — Rep. Stephen Bloom (@RepBloom) February 22, 2017 Philadelphia planned to use the money from the tax to fund a new pre-K program in the city's public schools. That program launched even before the tax went into effect, but revenue projections after the first two months suggest the city might be left with a deficit. Per month, Philadelphia expects to collect about $7.6 million [...]

Energy Efficiency Mandates Are Worse for Poor Americans Than Energy Taxes

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

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

Which Is Worse for Poor Americans: Energy Efficiency Mandates or Energy Taxes?: New at Reason

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

(image) U.S. automakers are asking the Trump administration to relax the vehicle efficiency standards imposed on them by the Obama Administrtion. Ratcheting up the mandatory energy efficiency standards for vehicles and appliances was a major part of Obama's effort to reduce greenhouse gas emissions. The Department of Energy calculated that the Obama administration's energy efficiency standards would save consumers more than $520 billion on electricity costs by 2030.

But not all consumers are alike. In a new study contrasting the effects on consumers of energy efficiency standards versus energy taxes, the Georgetown economist Arik Levinson notes that both energy efficiency standards and energy taxes function as a regressive tax, taking a larger percentage of a lower income and a smaller percentage of a higher income. His analysis aims to find out which is more regressive—in other words, which is worse for poor Americans.

Trump Definitively Forsakes His Promise to Release His Tax Returns

Mon, 23 Jan 2017 09:10:00 -0500

After repeatedly promising to release his tax returns, Donald Trump has definitively reneged on that commitment. "He's not going to release his tax returns," presidential counselor Kellyanne Conway said in an interview on ABC's This Week yesterday. "We litigated this all through the election. People didn't care. They voted for him." President Trump has no legal obligation to let Americans see his tax returns, but in refusing to do so before the election he broke with the practice of every major-party presidential nominee since 1980. Now he has abandoned any pretense of sticking to the promises he made on this subject while running for president: February 25, 2015: "I would release tax returns....I would certainly show tax returns if it was necessary....I have no objection to certainly showing tax returns." January 24, 2016: "We're working on that now. I have very 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....We're working on it right now, and at the appropriate time you'll be very satisfied." February 25, 2016: "I will absolutely give my return, but I'm being audited now for two or three years, so I can't do it until the audit is finished, obviously." May 10, 2016: "I'll release. Hopefully before the election I'll release." September 26, 2016: "I don't mind releasing—I'm under a routine audit. And it'll be released....As soon as the audit's finished, it will be released." October 9, 2016: "As soon as my routine audit is finished, I'll release my returns. I'll be very proud to. They're actually quite great." As Peter Suderman noted last summer, the audit excuse was always bogus: Trump was free to release his tax returns whenever he wanted. But after Trump accepted his party's nomination in July, Suderman wrote, his campaign manager "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." Or afterward, it turns out. Although Conway claimed "people didn't care" about Trump's tax returns, the fact that he won the election despite refusing to release them does not mean they contain no information of public interest. A CNN poll conducted in late September and early October found that 73 percent of voters thought he should release his tax returns. Last week an ABC News/Washington Post poll found that 74 percent of American adults still thought the public should be able to see the president's returns. It's not clear what exactly Trump is hiding. Perhaps the returns would show that the billionaire developer pays no federal income tax (something he has repeatedly hinted), that he does not give much to charity, or that his earnings are not as robust as he would like people to believe. Maybe the returns would reveal potential conflicts of interest. Or maybe the most revealing thing is how readily Trump has forsaken his unambiguous pledge of transparency. Update: Supplying alternative facts on Twitter this morning, Kellyanne Conway said her statement that Trump is "not going to release his tax returns" did not mean that Trump is not going to release his tax returns. Rather, his position is the "same [as] from [the] campaign: POTUS is under audit and will not release until that is completed." I predict this audit will take at least four more years, possibly eight.[...]

Protesting This New-Fangled Sales Tax

Fri, 06 Jan 2017 12:18:00 -0500

When states started enacting general sales taxes in the 1930s, it wasn't long before there were songs complaining about the new levies. In 1934, the Mississippi Sheiks recorded "Sales Tax," which starts with a spoken skit in which the band is alarmed to learn that they now need to pay three cents more for their cigarettes.

"They say that's the government's rule," one of the Sheiks explains.

"The government's rule?" another replies. "Well, there's lots of things sold that the government knows anything about." And then the bluesmen break into a song where even the bootleggers and prostitutes are now charging extra for their services:

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You might be curious why anyone would still be buying liquor from a bootlegger in 1934, a year after the Prohibition Amendment was repealed. Answer: These were the Mississippi Sheiks, and Prohibition in Mississippi lasted a lot longer than Prohibition nationwide. It was the last place to keep a statewide alcohol ban on the books, eliminating it not in 1933 but in 1966:


(For past editions of the Friday A/V Club, go here. If you want to see one about repealing alcohol regs in the South, go here.)

Outrage in Philadelphia as New Soda Tax Doubles Drink Prices

Thu, 05 Jan 2017 10:35:00 -0500

A new tax on soda and other sugary drinks that took effect in New Year's Day in Philadelphia is already generating outrage from some residents and businesses in the city. Meanwhile, in New York and elsewhere, lobbyists and public officials are looking to duplicate the dubious policy. When it was passed last year, Philadelphia became the largest city in the nation to create a specific tax for soda and sugary beverages, a policy that had previously been contained to progressive enclaves like Berkeley, California. The tax is levied at a rate of 1.5 cents per ounce, which makes it 24 times more expensive than Pennsylvania's taxes on beer. Practically, that means that some drinks end up being nearly twice as expensive after the tax is applied, turning $2 sodas into $4 sodas. That's causing quite a stir in the city, as social media posts this week have revealed. In one photo that went viral after being posted to Facebook, a receipt shows more than $3 in tax added to the cost of a $5.99 12-pack of Propel, an energy drink. From a Facebook post, the Philadelphia sugary drink tax implemented today damn, between that & Pennsylvania gas tax no wonder folk revolted — SalenaZito (@SalenaZito) January 2, 2017 The Tax Foundation posted photos from inside grocery stores in Philadelphia and confirmed the ridiculously high taxes on products like Propel and other sports drinks. With the tax added, the 12 pack of Propel ends up costing more than a 12-pack of cheap beer, the organization noted. City officials told KYW-3 that the tax was intended to hit distributors of sugary drinks. In a shocking twist, the TV station reported on Wednesday night that the tax "is being passed onto the customer." After the tax was passed, some economists suggested that it would hurt businesses in the city by giving customers a good incentive to buy beverages outside city limits. Small businesses interviewed by Reason in October expressed similar concerns, since the tax is applied not only to cans and bottles of soda, but to soda fountains (like the ones found in many pizza places and cheesesteak joints across Philadelphia) too. Already, those predictions seem to be coming true, at least anecdotally. @ctemp153 @MeosoFunny @GayPatriot @ChrisLoesch @liars_never_win @chadfelixg @ChrisStigall Weekend grocery shopping trips. — Gay Penn Patriot (@GayPennPatriot) January 2, 2017 Congrats, @PhiladelphiaGov. You've made sure my grocery shopping will be done outside the city with this ridiculous #sodatax. — Dan Baker (@Nadrekab) January 3, 2017 Finks Hoagies in Northeast Phila is outraged with unfair soda tax and posted a nasty note. Hope more outrage 2 follow — Howard Eskin (@howardeskin) January 5, 2017 Rather than nudging people to make heather decisions about what they drink—as the tax is supposed to, even though the health benefits of soda taxes are overrated—it might just nudge Philadelphians to shop outside the city whenever possible. Businesses in the city might suffer from the tax, but they also get to deal with more paperwork too. Marisa Waxman, Philadelphia's first deputy revenue commissioner, tells WHYY that city retailers need to keep their bills to show their compliance, since there won't be a tax stamp or sticker on the beverages. "Even if you are compliant," said Waxman, "make sure you are hanging on to all your invoices and records so if we show up at your establishment you can show us yep I am doing what I need to be doing." The city will be hiring additional tax collectors to make sure everything is paid up, WHYY reports. About the only people happy with the new tax are, predictably, the city officials who will have an estimated $90 million in new annual revenue to spend. Officials in Phi[...]

Bitcoin Exchange User Tries to Stop IRS From Forcing Coinbase to Give Up Customer Information

Thu, 15 Dec 2016 08:30:00 -0500

The IRS is in the process of trying to force Bitcoin exchange Coinbase to give up the identities of its clients, in a quest, the IRS says, to find tax cheats. I reported on this IRS attack earlier this month, and explained the IRS's attitude toward taxing bitcoin profits back in 2014. (It considers the alt-coin legally property, not currency, but you still owe taxes on any profits made by selling bitcoin.) A motion to quash the IRS's subpoena against Coinbase was filed this week in U.S. District Court for the Northern District of California in the name of the anonymous John Does the IRS is trying to track down, by Coinbase customer Jeffrey K. Berns. Berns wants the IRS stopped, the motion says: on the grounds that the IRS has no legitimate purpose in seeking the requested documents from Coinbase concerning its users, enforcement of the IRS Summons would constitute an abuse of process as the IRS does not currently have the ability to enforce compliance with its 2014 virtual currency guidance, and the categories of requested documents are so overbroad such that the IRS Summons would require the disclosure of a substantial amount of information and documents that are not relevant to the IRS's stated purpose in issuing the IRS Summons.... The motion, filed by lawyers with the firm Berns Weiss LLP, relies on some precedent: More than 40 years ago, the Supreme Court stated that the duty of the District Court with respect to an IRS summons was "to see that a legitimate investigation was being conducted and that the summons was no broader than necessary to achieve its purpose." United States v. Bisceglia.... The Supreme Court expounded on the District Court's role by stating, "[o]nce a summons is challenged it must be scrutinized by a court to determine whether it seeks information relevant to a legitimate investigative purpose and is not meant 'to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation.'" The summons at issue here was not sought by the IRS with respect to any "particular investigation," and the IRS has made no attempt to narrow the information covered by the summons to reflect its stated goal of confirming compliance with the tax laws. Instead, based on three isolated incidents and scant other facts, the IRS seeks that Coinbase identify over 1 million American citizens that have transacted in virtual currency and to provide data on every single transaction by those 1 million clients over a 3-year period. The IRS Summons is certainly not what the Supreme Court envisioned. Further, the breadth of the summons, which seeks substantial personal information that is not at all relevant to tax compliance issues, and which could expose these clients to significant risk of having their identity and funds stolen by hackers who have succeeded previously in hacking the federal government, including the IRS, numerous times, makes it easy to conclude that the IRS is engaging in abuse of process. Berns' lawyers note that Coinbase is also trying to fight the IRS, but that its customers have an independent interest in the matter, obviously. The motion makes much of the fact that, despite ample proof in a public comment period that many citizens find the IRS's existing rules regarding virtual currencies confusing, that: Despite the demonstrable need for clarifying virtual currency tax guidance, the IRS has opted not to issue a single word of virtual currency guidance since promulgating admittedly insufficient guidance more than two years ago. Having been unable, or unwilling, to issue such new guidance, it is hard to believe that the IRS has now issued the IRS Summons for a legitimate investigatory purpose. After all, if t[...]

Bouncy Houses and American Idol: How Local Governments in Pennsylvania Blew Drilling Tax Revenue

Tue, 13 Dec 2016 09:46:00 -0500

Gas drilling companies tapping into the rich Marcellus shale formation that lies beneath wide swaths of Pennsylvania have to pay an "impact fee"—basically a tax, based on how much gas each well produces—to the state. As the name suggests, the fee is supposed to help the government mitigate the potential environmental impacts of gas drilling. The state government skims some money off the top and the rest gets redistributed to counties and municipalities in parts of the state where gas drilling is taking place, theoretically to fund government-run ecology efforts or to rebuild infrastructure stressed by the influx of drilling companies and the people who work for them. You can debate whether handing money to the state government is really the best way to counteract the potential environmental consequences of drilling for natural gas, but that's for another day. For today, let's focus on how governments in Pennsylvania have handled some of that money that they've demanded from gas drilling companies. In the name of protecting the environment, remember. An audit of impact fee revenue released earlier this month shows that North Strabane Township spent more than $32,000 of its impact fee revenue on what basically amounts to a giant party. Impact fee money was used to rent a bouncy house ($4,250) and to pay for a performance by former American Idol contestant Adam Brock ($1,200). (As an aside: It says something about your status as a reality television singing sensation when you're three-and-a-half times less expensive than a bouncy house.) "I'm pro-people having fun at the holidays," Eugene DePasquale, the state's auditor general said, according to State Impact PA, a project of NPR. "But the impact fee was used for a bouncy house. Come on, that's crazy." Township officials told State Impact PA they believed spending money on fireworks, a bouncy house and a former American Idol contestant was acceptable because the law creating the impact fee lets towns use the money for "parks and recreation," and they were apparently using a generous definition of recreation. The bouncy house might have been the most ridiculous expense, but state auditors say Pennsylvania counties and municipalities wasted millions of dollars in impact fee revenue. DePasquale said 24 percent of all impact fee spending by local governments was considered "questionable" by state auditors. Other misuses of the impact fee revenue might not be known because some municipalities didn't fill out forms saying how they planned to use their cut of the dough. Bradford County used $2.4 million in impact fee revenue to cover operating expenses of a correctional facility, including paying employees' salaries and buying office supplies. The same county used $90,000 of impact fee cash to build a portable boat dock. Susquehanna County used $5.2 million on payroll for the county district attorney's office and bought the DA a new car (valued at $29,000). Thanks to Pennsylvania's gas drilling fee, judges in Lycoming County got newly refurbished offices, Green County built a new swimming pool, and Cumberland County built baseball fields. There's nothing wrong with swimming pools and baseball fields, of course, and one could argue that it might be better for those things to be paid for with tax dollars coming from gas drilling firms instead of from the pockets of local residents. Still, the whole point of the so-called "impact fee" was that it would be an, you know, impact fee—not a slush fund for local officials to blow on parties and new cars for prosecutors. When there is a real need for those dollars—in the event, say, of a well blowout or a massive spill of fracking fluid—the state will have to find more money to deal with the actual impacts of[...]

California’s Gift to Its Neighbors: Expanded Cigarette Smuggling Opportunities

Tue, 13 Dec 2016 00:01:00 -0500

Thank you, California! For too many years, Arizona has led the pack—or at least taxed the hell out of it—with among the higher cigarette taxes in the West. "A cigarette tax higher than in neighboring states and cheaper prices on American Indian reservations have helped fuel a growing black market for cigarettes in Arizona," the Cronkite News Service reported in 2014. It's true that few of us actually paid that $2.00 per pack tariff for a pack of smokes; with every single state bordering us stealing less from smokers and a long, handy border with Mexico, half of all of the cigarettes sold in the state are smuggled from elsewhere, according to research by the Mackinac Center for Public Policy and the Tax Foundation. Many Arizonans avoid getting mugged by enjoying life on the receiving end of smuggling routes. But we could be benefiting by running goods in the other direction. And then Californians went to the polls on Election Day and hiked their cigarette taxes by $2.00 per pack. Business opportunities, here we come. California will rake in "[a]dditional net state revenue of $1 billion to $1.4 billion in 2017-18, with potentially lower revenues in future years" according to the state Legislative Analyst's Office. Potentially lower revenue? The analysis acknowledges that "revenue losses would occur due to lower consumption of tobacco products due to the higher excise taxes" although the decline in smoking "appears to have stalled in recent years." So legislative analysts acknowledge that a dramatic tax hike from 87 cents per pack to $2.87 is high enough to depress revenue over time. Actually, that's kind of a feature to the hike's sponsors, who sold it as a social-engineering measure to "save lives" by "getting people to quit or never start this deadly and costly habit" (which they deliberately make more costly, of course). That's a goal that inherently works against any promises of billions of dollars in raised revenue. But "revenue losses" might also result from Californian smokers purchasing cigarettes on the black market where higher taxes don't apply. After all, even at the old 87 cents per pack tax, a third of cigarettes consumed in the state have been smuggled in from elsewhere. There's no particular reason to assume that the black market in affordable smokes is going to shrink now that voters have self-righteously increased the cost of every pack by two bucks. And when that black market grows, it really should come as no surprise to state officials or California voters. "If Proposition 56 passes, California may open itself up as a more desirable cigarette smuggling destination as neighboring Oregon, Nevada, and Arizona all impose cigarette tax rates nearly $1 lower than the proposed California rate," the Tax Foundation's Morgan Scarboro warned before the measure's passage. "While California is no stranger to cigarette smuggling," noted Bloomberg BNA's Audryana Camacho after the election "the upcoming $2 increase may spur more activity as neighboring states have tax rates more than $1 lower than California's new tax." It's really not that hard to figure out. At a tax of 87 cents per pack, one-third of California's cigarettes are smuggled. At $1.66 per pack, 46 percent of New Mexico's cigarettes are smuggled. At $2.00 per pack, half of Arizona's cigarettes are smuggled. At a whopping $4.35 tax per pack of cigarettes, 58 percent of New York's smokes come from the black market where sticky fingered politicians can be avoided. It's almost like there's some sort of pattern here. California officials aren't entirely in the dark on the issue. "[T]he measure would provide additional funding…to support increased enforcement efforts to reduce tax evasion, counterfeiting, [...]

Court Allows IRS to Order Bitcoin Exchange Coinbase to Give Up Their Customers' Identities

Fri, 02 Dec 2016 21:11:00 -0500

Bad news for patriotic Americans who want to keep their bitcoin business to themselves this week from the Department of Justice: A federal court in the Northern District of California entered an order today authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015. The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California. "As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance," said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department's Tax Division. "Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.".... The court's order grants the IRS permission to serve what is known as a "John Doe" summons on Coinbase. There is no allegation in this suit that Coinbase has engaged in any wrongdoing in connection with its virtual currency exchange business. Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown. This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions. The actual order from U.S. District Court for the Northern District of California. The actual summons. As Ars Technica quoted from that summons, the government wants: Account/wallet/vault registration records for each account/wallet/vault owned or controlled by the user during the period stated above including, but not limited to, complete user profile, history of changes to user profile from account inception, complete user preferences, complete user security settings and history (including confirmed devices and account activity), complete user payment methods, and any other information related to the funding sources for the account/wallet/vault, regardless of date. A Coinbase spokesman via email said earlier this week when the DOJ announcement was issued: Although Coinbase's general practice is to cooperate with properly targeted law enforcement inquiries, we are extremely concerned with the indiscriminate breadth of the government's request. Our customers' privacy rights are important to us and our legal team is in the process of examining the government's petition. In its current form, we will oppose the government's petition in court..... We are aware of, and expected, the Court's ex parte order today. We look forward to opposing the DOJ's request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our U.S. customers' legitimate privacy rights in the face of the government's sweeping request. Jim Harper at Cato noted when the news of the summons broke: Equally shocking is the weak foundation for making this demand. In a declaration submitted to the court, an IRS agent recounts having learned of tax evasion on the part of one Bitcoin user and two companies. On this basis, he and the IRS claim "a reasonable basis for believing" that all U.S. Coinbase users "may fail or may have failed to comply" with the internal revenue laws. If that evidence is enough to create a reasonable basis to believe that all Bitcoin users[...]