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Published: Mon, 26 Jun 2017 00:00:00 -0400

Last Build Date: Mon, 26 Jun 2017 13:28:06 -0400


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—the state created arguably one of the largest loopholes that could be found in any state tax code and exempted[...]

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 estimates that ending the tax exemption on municipal bonds will make stadium projects between 20 and 33 percent more [...]

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, and Washington—have a statewide gross receipts tax. Four other states—Indiana, Kentucky, Michigan, and [...]

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 phase-outs and marriage penalties can create all kinds of perverse incentives, as the University of Chicago econo[...]

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 intimacy with our feelings, it is always preaching." (Szasz got these quotes from R. L. Johannesen, R. Stricklan[...]

The Base Rhetoric of Mainstream Taxation Talk: New at Reason

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


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 selfless and noble. Over the next two decades federal spending is set to soar from 20 percent of GDP to 28 per[...]

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 at 90 MPH. Still, technology is making it possible for ever-larger segments of the workforce to have the kind [...]

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: [...]

Forget Reagan: Trump’s Tax Plan Is More Like George W. Bush

Wed, 26 Apr 2017 19:24:00 -0400

In the run-up to today's big White House tax-reform announcement, the question among many analysts was: Would President Donald Trump's ideas look more like Ronald Reagan in 1981 (when he and a bipartisan congressional majority cut rates) or 1986, when they simplified the code? While Treasury Secretary Steven Mnuchin, flanked by National Economic Director Gary Cohn, bragged that the administration's plan was both "the biggest tax cut" and the "largest tax reform" in U.S. history—1981 and 1986 at the same time, only more!—the more apt and less comforting historical precedent might be the guy who Trump never tires of bashing: George W. Bush. The second President Bush pushed through tax cuts in 2001 and 2003, each of which passed with fewer than the 60 Senate votes required by an amendment to the 1974 Congressional Budget Act that demanding a supermajority for any piece of legislation seen as worsening the federal deficit 10-plus years down the road. How did the Bush cuts pass with only 58 and 51 votes, respectively? By including sunset provisions right at that 10-year mark. You can't be accused of affecting the year-11 deficit if you die at age 10! In word and deed, President Trump appears poised to follow down Bush's path of temporary tax reform through budget reconciliation; i.e., passing it on a party-line, simple-majority vote. "I hope [Democrats] don't stand in the way," Mnuchin said at the press conference. "And I hope we see many Democrats who cross the aisle and support this. Having said that, if they don't, we are prepared to look at the reconciliation process." House Speaker Paul Ryan (R-Wisc.) echoed the sentiment: "We want to look at every avenue, but we think reconciliation is the preferred process, we think that's the most logical process to bring tax reform through," Ryan told reporters Wednesday. There are exactly two ways you can sidestep the 60-vote rule. The first is to make sure the tax changes project to being deficit-neutral a decade from now. Given that Trump's campaign tax-reform framework, upon which today's announcement was largely based, had previously produced revenue estimates from conservative outfits showing a decrease of around $3.5 trillion over 10 years, it's damn near impossible to imagine the Congressional Budget Office or the Joint Committee on Taxation (Congress' go-to economic projection shops) torturing those 13-figure numbers out of existence, no matter how "dynamic" their scoring. Worsening those prospects—though arguably making the policy world a better place—the Mnuchin/Cohn duo swatted away one of the main proposed revenue-generators of 2017 tax reform: Paul Ryan's treasured and troublesome "border adjustment tax," a tariff by any other name that the speaker was counting on to offset the revenue hits by $1 trillion. Americans for Tax Reform President Grover Norquist, no fan of either taxes or tariffs, told me last week that he was in favor of the Border Adjustment Tax as the price for getting a $2.5 trillion tax cut. Without it? "There are two options to that," Norquist said. "You could have a smaller tax cut, not get rid of the death tax, not take the individual rates down or the corporate rates down as much. But you have to find a trillion dollars in less tax-cutting. Or you could have a tax that replaced it, some tax somewhere else. I'm not sure there's one that's an improvement." Well, Mnuchin and Cohn did include a big revenue generator in today's press conference, in the form of eliminating the federal tax deductions that Americans can take on their state and local taxes, a change that the Washington Post says "could save more than $1 trillion over 10 years." This idea, which makes intuitive sense, would nonetheless be heavily disruptive to those of us who live in high-t[...]

Trump’s Tax Plan: Lower Tax Rates, Fewer Tax Breaks

Wed, 26 Apr 2017 15:45:00 -0400

(image) Under President Donald Trump's proposed tax reforms, individuals and corporations would see lower tax rates, and the number of tax brackets would be reduced, but the reforms would also eliminate most other deductions beyond the standard deduction, charitable contributions, and deductions for mortgage interest.

The standard deduction would be doubled, corporate income taxes would drop to 15 percent, and Trump wants to repeal the alternative minimum tax and the estate tax (a.k.a. death tax). The information available right now is basic. So basic, in fact, that I can toss up an image of the one-page release handed out to journalists who attended the White House rollout, courtesy of Lachlan Markay of The Daily Beast:


There will be plenty to analyze, so stay tuned. One potential point of contention: It would eliminate deductions people claim for paying state and local income taxes, which could impact people who live in states like California and New York. Treasury Secretary Steve Mnuchin said it wasn't the federal government's job to "subsidize" these states.

Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center of George Mason University, had a quick initial response:

I am glad to see that the president seems committed to his campaign promise of lowering the corporate income tax rate to 15 percent. He is correct to want to do without being constraint by the fake concept of revenue neutrality. First, deficit neutrality should be achieved through spending cuts rather than revenue increases. Second, experiences around the world have shown that a reduction of the corporate rate pays for itself. Canada and England have dramatically cut their rates and their revenue to GDP have stayed the same. Also, we know that the payoff in term of economic growth will be huge.

I am not too crazy about the president's plan to increase the standard deduction. While it will indeed simplify filing one's taxes for many, I think it is a problem to exclude more people from the tax rolls.

Cutting the capital gain tax rate is good and so is his proposal to end many deductions. Plus ending the death tax and the AMT is excellent. I like the individual tax reform based on what I have seen but where are the spending cuts?

"Where are the spending cuts?" is going to likely be a refrain we'll be hearing a lot from both libertarian and small government conservatives who otherwise have positive feelings about these changes.

As to whether these reforms have a chance to get anywhere, reporters asked Mnuchin whether Trump was going to release his tax returns. Mnuchin's response: he has "no intention." While there shouldn't be a relationship between tax reform and Trump's lack of transparency, it seems clear that his opponents will attempt to use his secrecy as a way of trying to block these changes.

Virginia Gubernatorial Candidate Wants to Cut Taxes, But Not Enough

Wed, 26 Apr 2017 12:00:00 -0400

Virginia Lt. Gov. Ralph Northam is losing most of the celebrity endorsements to his Democratic rival in the governor's race, Tom Perriello—who can count Bernie Sanders and Elizabeth Warren in his corner. Northam isn't going to be able to top that. He also can't out-crazy other candidates in the race, like Republican contender Corey Stewart, who tweeted Monday morning that the removal of Confederate monuments in New Orleans was proof "ISIS has won." Not that Northam would want to try. He is a centrist sans brio or bombast, which is what you want in a pediatric neurologist but not necessarily what you want to get out the vote on Election Day. So while he has the backing of Virginia's Democratic establishment, he might need something to elevate his profile in the public mind. The other day he proposed cutting the state's food tax for the poor, according to a story by Travis Fain of The Daily Press. This is an excellent idea. Virginia's food tax is only 1.5 percent, compared with 4.3 percent for other goods. But that is still too much given that the state budget, now $107 billion, has roughly doubled in real terms over the past two decades. Northam's proposal also has the virtue of brevity. "No Food Tax" is just one letter longer than the "No Car Tax!" proposal on which Jim Gilmore rode into the Executive Mansion in 1997—and would fill the same space on a placard if you tweak the font size a hair. Gilmore's car-tax cut turned out to be a complicated affair: It gradually reduced the local property tax on the first $20,000 of a vehicle's worth, and used state dollars to compensate localities for the loss of revenue. This turned the tax cut into a state budget appropriation. It quickly grew beyond projections (imagine that)—until state lawmakers decided to cap the amount at $950 million. Lawmakers had their own plans for the money, and letting taxpayers have it back was getting in the way. Northam's people say they want to avoid similar complexities, but they haven't yet spelled out exactly how the food-tax cut would work. Northam's likely opponent—assuming he beats Perriello in the primary—is Ed Gillespie. He also has rolled out a tax-cut proposal that would give the state's individual income tax rates a haircut. This has led to the usual knee-jerk objections. The Washington Post tagged Gillespie "Mr. Free Lunch" and demanded to know which programs would be "slashed" to "pay for" the tax cut. Perriello blasted him for "unfunded" tax cuts that "largely benefit the rich." Those complaints look rather feeble when Gov. Terry McAuliffe (D) is issuing press releases boasting that "January 2017 General Fund Revenue Collections Up 7.4 Percent From the Previous Year" and that "February 2017 General Fund Revenue Collections are Up 3.6% From the Previous Year" and that "March 2017 General Fund Revenue Collections Up 5.7 Percent From the Previous Year" and so on. As the Gillespie campaign points out, his tax plan would simply reduce the growth of state revenue from a projected $3.4 billion to $2 billion over five years. Apparently some folks feel it's not enough for tax revenues to rise; they must rise at an ever-accelerating rate, and anything less calls for a "The End Is Near" sandwich board. Similar considerations apply to Northam's proposal. A 2014 legislative subcommittee report on the food tax noted that the state forgoes $526.7 million a year in revenue by not taxing food at the same rate as other goods. People earning $30,000 or less reap 15 percent of that benefit, or about $80 million. That is a rounding error in the overall scheme of the state budget. Critics of Gillespie's plan also knocked it, somewhat incongruously, for not being generous enough. "Average families in[...]

It Costs a Lot When Government Sets Prices

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

You probably couldn't get New York Mayor Bill de Blasio and President Trump to agree on the time of day. But on the question of prices they are of one mind. Both of them think they know better than others what stuff should cost. De Blasio recently boasted he will raise (apparently by decree) the price of a pack of cigarettes to $13—"the highest price in the country." The New York Times said his goal "is to persuade or coerce 160,000 of the 900,000 New York City residents who smoke to stop doing so by 2020." De Blasio clearly understands the law of supply and demand: When you raise prices, demand falls. But he evidently hasn't applied that lesson to labor; he supports raising the minimum wage to $15 (which, incidentally, would help the poor afford cigarettes again). Advocates of minimum wage hikes like to claim raising the price of labor doesn't affect the demand for it. They're about as convincing as skeptics of climate change. Trump also wants to raise the price of many things—particularly those things imported from China, for which he has proposed steep tariffs. The trouble with Chinese goods, as he sees it, is that they cost too little, so Americans like buying them, and that hurts domestic producers. To protect producers, it's important to deny the American consumer what she wants. And the simplest way to do that is to raise prices. On the other hand, Trump thinks prescription drugs cost too much. He says the prices must come down "immediately," and he summoned drug company leaders to the White House for a lecture on the topic. Certain drugs do cost a great deal. One stellar example is Sovaldi, a hepatitis cure that costs $75,000. But the price for Sovaldi actually has plunged from a decade ago, when it was essentially infinite because the compound didn't yet exist. Prices for certain goods—a gigabyte of computer storage or a megawatt of solar-generated electricity, for instance—have plunged in recent years. And in historic terms, the relative prices of most consumer goods has fallen sharply too. As the Federal Reserve Bank of Dallas noted 20 years ago, "If modern Americans had to work as hard as their forebears did for everyday products, they'd be in a continual state of sticker shock—$67 scissors, $913 baby carriages, $2,222 bicycles, $1,202 telephones." Prices for some goods do keep going up, however. Two obvious examples are college tuition and health care. By a remarkable coincidence, those also happen to be two areas of the economy in which the government is most heavily involved. Federal and state politicians keep increasing subsidies for college attendance, which encourages colleges and universities to raise prices. Two years ago the Federal Reserve Bank of New York issued a study showing that every dollar of federal student aid hikes tuition by 50 to 65 cents. Health care has suffered from a similar phenomenon. Exempting employer-sponsored health insurance from income taxation while treating it as income for collective-bargaining purposes encouraged employers to substitute overly generous health plans for salary and wages, leading to medical inflation and wage stagnation. All of this price-fixing produces a raft of unintended consequences, not least among them the gunking up of market efficiency. Too many politicians fail to understand that prices are not just charges, they are also signals. Among other things, they signal the need for conservation. When the price of batteries spikes after a hurricane knocks out the power, that tells consumers at least two things: (a) They should not waste batteries on frivolous purposes and (b) they should not buy more than they truly need, so that shortages will be mitigated. It also tel[...]