Published: Sat, 24 Sep 2016 00:00:00 -0400
Last Build Date: Sat, 24 Sep 2016 19:14:03 -0400
Thu, 22 Sep 2016 15:45:00 -0400Residents of Chicago already pay for water and sewer services—like anyone else does. Starting next year, though, they'll be paying an extra 30 percent for the privilege of having indoor plumbing. Draining those dollars out of resident's wallets isn't a response to a sudden increase in the price of water and won't pay for upgrades to the city's sewers. In fact, not a single dollar of revenue from the new tax will be spent on any aspect of Chicago's public infrastructure. What it will do—maybe—is shore up a municipal employee pension system that's woefully underfunded and in danger of going bankrupt within the next few years. Right now, the Municipal Employees' Annuity and Benefit Fund of Chicago has only enough assets to cover 32 cents of every dollar owed to retirees and current employees. Since the Illinois Supreme Court ruled in March that retirement benefits are sacrosanct and cannot be reduced, Chicago is left with only one option: find a way to pay for promises that probably never should have been made in the first place. Mayor Rahm Emanuel pushed the tax through the city council with the promise that it would, within 50 years, close the pension plan's deficit. It's going to cost the average Chicago household about $53 in 2017, but will increase over the next four years. "Chicago's pension funds are now off the road to bankruptcy and on the path to solvency," Emanuel declared last week after the city council approved the new tax. Before getting into how the money will be spent and whether it will do what Emanuel says, you have to understand how the city got into this mess in the first place. The short answer: lots of bad decisions made over many years. The longer answer requires a bit of math, but I've tried to simplify things as much as possible. Chicago finds itself here because the city has failed to adequately fund the cost of its municipal pension plan. Going back to at least 2006, Chicago has never come close to fully funding its annual pension obligation—in most years, it hasn't even put in half of what would be required to keep the fund stable. Here's what that looks like. The blue line on the chart below is called the ADT—that's the amount of money the actuaries say the city should be putting into the fund each year. It's based on a lot of different factors, including investment performance, benefits due to retirees and benefits promised to current employees who will one day retire and have to be paid. If anything, the blue line represents the bare minimum that a city should be paying into the pension fund each year to keep up with its long-term obligations. It's the mortgage bill. The yellow line represents how much money Chicago has actually put into the pension fund each year. As you can see, the gap is huge. The big grey wall in the background represents the level to which the pension system is funded. A system funded at 100 percent has all the money necessary to pay for the retirement benefits promised to all current employees and living beneficiaries. Chicago isn't even close to being able to do that. It's not hard to see the relationship between the contributions and the funding level. There are other factors that affect the funding level—like investment returns—so it's not exactly that straightforward, but there's no doubt that failing to meet your annual obligations results in larger future obligations and a retirement system that is less well funded than it ought to be. If you enjoy gallows humor, you might get a laugh out of the MEABF's 50-year projection. This is something the fund is required by law to produce each year, but last year it was actually more of a nine-year projection because the fund is on pace to be completely out of money by 2025. (If you want to see this spelled out in black and white, it's on page 48 of the fund's 2015 annual report.) As you can see, the system isn't going to pull out of this funding nosedive anytime soon—and the ground is getting close. City officials say the new tax on water and sewer service will refill the pension fund to 90 percent withi[...]
Thu, 08 Sep 2016 13:15:00 -0400
(image) It seems likely that Californians in November will vote to legalize the recreational use of marijuana, along with a massive raft of state regulation and taxation schemes. We bribe our government to secure permission to do what we want with our own bodies. Go figure.
In any event, the regulations don't stop on the state level. Proposition 64—the initiative that will legalize recreational growth, manufacture, possession, and use—also permits municipalities to set up their own regulations, just like they do for most other businesses.
So in preparation for the likelihood that Prop. 64 passes, there are a whole bunch of municipalities that are putting up local regulations for vote as well. Brooke Edwards Staggs at the Orange County Register looked through the filings and determined that there were 62 marijuana-related local measures under consideration in California cities and counties. She notes the complex issues cities are facing:
Should cities welcome marijuana dispensaries but not farms, or vice versa? Should their fees be fixed or increase over time? Should they tax marijuana patients less than those who just want to get high? Would that encourage continued abuse of the medical system?
Some initiatives would place caps on the number of dispensaries permitted. Some propose additional local tax rates that vary wildly. One county (Sierra County) wants to ban commercial cultivation entirely.
Obviously, the possibility of cities making money off of marijuana sales is heavily influencing this rush of new regulation (maybe that explains the sudden lack of resistance to seriously curtailing police civil asset forfeiture in California). The state would add a 15 percent sales tax, plus a tax on cultivation, plus whatever municipalities convince voters to approve. San Jacinto council members say they want to make the tax very high in order to discourage the marijuana industry from settling in their city.
That's a misguided idea, because what actually happens when taxes get extremely high on a product people want to consume is that you get the same kind of black market you'd get if you banned it entirely. Not for nothing do states with very high cigarette taxes also struggle with black markets for cigarettes that require police intervention and enforcement (with sometimes terrible outcomes). Is a pot shop worse for the city than the shadowy way people in San Jacinto get marijuana now, or is the problem that the city's leadership can't just pretend it's not there?
Read more here.
Wed, 07 Sep 2016 11:00:00 -0400New Jersey Gov. Chris Christie delivered an unpleasant surprise to some Pennsylvanians over Labor Day weekend. Starting next year, New Jersey will be taking a larger share of the fruits of their labor. Christie announced on Friday that he will terminate a 39-year-long deal between the two states that allowed residents of Pennsylvania who work in New Jersey to pay The Keystone State's comparatively lower income tax rate. The change in policy affects about 125,000 Pennsylvanians—most of them in Philadelphia and the city's suburbs, according to the Associated Press. When the tax deal was struck in 1977, New Jersey had a 2.5 percent top income tax rate and Pennsylvania had a 2 percent top income tax rate. Today, things are quite different. Pennsylvania uses a flat income tax rate of 3.07 percent. New Jersey has a progressive tax, with rates ranging from 1.4 percent to 8.97 percent. Practically, that means a Pennsylvanian who works in New Jersey and earns the average per capita income of $50,000 will see their their effective tax rate nearly double next year. Christie, a Republican, did not even try to hide the fact that he's ending the longstanding tax deal in order to pad his state's bottom line. The Christie administration hopes to collect $180 million annually by dumping the tax agreement with Pennsylvania (it was one of several tax reciprocal agreements that exist between states, like the one that allows workers in Washington, D.C., to pay taxes in whichever state they live). "In the longer team, it's just one more example of New Jersey not having a welcoming tax environment," said Joseph D. Henchman, vice president of legal and state projects for the Tax Foundation, a nonpartisan think tank based in Washington, D.C. At least the change won't drop New Jersey any further down the Tax Foundation's annual rankings of state tax climates. For 2016, it was already ranked dead last among the 50 states. Pennsylvania ranked a mediocre 32nd in the nation. Pennsylvanians who are unhappy with their higher tax bills can perhaps find solace in the fact that they will be helping to pay for the retirements of New Jersey state workers and to close a budget gap created by years of questionable spending on corporate welfare. That's because—despite Christie's claims that he needs more revenue to balance the budget—New Jersey remains a classic example of a state with a spending problem, not a revenue problem. On a per capita basis, only five states collected more revenue in 2013 than New Jersey's state and local governments did (two of them are Alaska and North Dakota, where tiny populations and a reliance on oil and natural gas excise taxes skew per capita measurements like this). Meanwhile, spending has increased almost every year during Christie's administration: the state spent $29 billion in 2010 when he took over the governorship but the budget Christie signed in July spends $34.5 billion. Christie blames the spending increases on the state's escalating pension costs. New Jersey's unfunded pension obligations total more than $80 billion, and mandatory state bond disclosures say the two main retirement funds could be completely out of money by the mid-2020s. To be fair, New Jersey's pension crisis predates Christie's time in office—and it will still exist when he departs. Still, Christie shares in the blame for failing to bring those problems under control. In 2011, Christie reached a deal with Democratic lawmakers that would have curtailed state spending in favor of increasing contributions to the pension system (state employees would have to pay more into the system too). In theory, the deal could have closed the unfunded pension gap within a decade. In reality, Christie couldn't follow through. Facing political pressure and revenue shortfalls, the governor reduced pension contributions in favor of spending that money in other places. One of Christie's favorite ways to spend money is by handing out tax breaks to some of his state's biggest businesses. In his first two year[...]
Mon, 05 Sep 2016 16:00:00 -0400America can return to prosperity and robust economic growth by looking to the Kennedy-Reagan model of income tax cuts and a strong, stable dollar, a new book argues. JFK and the Reagan Revolution: A Secret History of American Prosperity, by Lawrence Kudlow and Brian Domitrovic, will be published this week by Penguin Random House's Portfolio imprint. It tells the story of how the tax and monetary policies of Presidents Kennedy and Reagan triggered impressive economic growth. As Kudlow and Domitrovic describe it in their introduction, "the combination of a strong and stable dollar with big, permanent, across-the-board tax rate cuts" can lead to a near-utopia. "Budget deficits, the retirement crisis, student loans, unaffordable health care, poor schools, [problems of] inner cities—all these things will fade away as lasting economic growth takes hold." Kudlow couldn't have been more gracious three years ago when my own book JFK, Conservative was published, and part of what I want to do here is repay the kindness. My own suggestions that the Kennedy tax cuts might be a useful model today have been met consistently and predictably by liberal objections that today's top income tax rates are considerably lower than the 91 percent top federal rate that obtained before Kennedy won a reduction to 70 percent. There's less room to cut now, the argument goes, and the effects on incentives and growth would be concomitantly less powerful. What's more, neither the Democratic presidential candidate, Hillary Clinton, nor the Republican one, Donald Trump, has been campaigning on a Kennedy-Reagan-Kudlow-Domitrovic platform. Clinton, while talking some about both economic growth and tax simplification, has also been calling for increased taxes on top earners and on some capital gains. Trump, while proposing some substantial income tax rate reductions, has also threatened to increase tariffs on imports. If that is more than just a negotiating threat, it would create a sharp contrast with Kennedy, who, Kudlow and Domitrovic write, "spurred the biggest round of tariff reductions of modern times." So are the Kennedy and Reagan examples irrelevant? Not quite. JFK and the Reagan Revolution doesn't really get into it, but it's worth mentioning that both presidents also spent heavily on arms buildups, pursuing a peace-through-strength approach to national security. They were fighting a Cold War against the Soviet Union, but some might argue that a similar strategy is in order now against the Islamic State or other manifestations of militant Islam. As for the argument that marginal rates today are lower than the ones that either Reagan or Kennedy began paring, I'd argue that there's still plenty of room to cut. State and local income taxes piled atop the federal ones mean marginal top rates for Californians or New York City residents are more than 50 percent. That means various governments take more than half of every additional dollar earned. At lower levels, phase-outs of benefits and subsidies create even steeper effective marginal rates. At 39.6 percent, the top federal rate is considerably higher than the 28 percent rate that Reagan left it at. Remember, too, the Sixteenth Amendment that gave the government the power to levy a federal income tax was only ratified in 1913, well more than a century after the country was founded. One useful contribution of JFK and the Reagan Revolution is to remind readers that Kennedy and Reagan didn't necessarily start off as tax-cutters, either. Reagan raised taxes as governor of California. When he ran for president in 1976, he insisted that tax cuts needed to be offset by spending cuts. As a congressman, Kennedy voted against tax cuts championed by Senator Robert Taft of Ohio. Kudlow and Domitrovic remind us, too, that even the Wall Street Journal editorial page, under the leadership of Vermont Royster and then Robert Bartley, was initially skeptical of tax cuts in the absence of a balanced budget. "It took a while for Bartley t[...]
Tue, 30 Aug 2016 12:50:00 -0400
(image) Congress will be returning to session next week after Labor Day with a busy agenda that nobody actually wants to deal with because this year's elections seem so crazy.
At the top of mind of small-government conservatives (and obviously libertarians) is the intense pressure to pass a spending bill to keep the government in operation. The omnibus spending bill approved last December funds the government to the end of September. So they've got to pass something.
Several activist groups that support reducing the size of government and lowering taxes are putting forward an organized effort to try to discourage Congress from kicking the can down the road to December's lame duck session and then pushing through a last-minute, post-election, must-pass spending bill influenced by members of Congress who are on their way out the door and don't have to worry about accountability. (We're looking at you, Sen. Harry Reid.)
Some of the groups involved—like Americans for Prosperity, FreedomWorks, and Americans for Task Reform—are heavy-hitters in small-government and Tea Party activism. They, and several dozen other organizations, are calling on Congress to avoid a last-minute push to fund government all the way through 2017 and quietly include all sorts of cronyist regulations that benefit certain influential parties that lobby the government. In a teleconference with the media this morning, participants noted efforts to re-establish the loan authority of the cronyist Export-Import Bank as a concern. In a letter, the groups note how last year's last-minute, must-pass omnibus spending bill turned out:
Congress already considered the matter of expiring tax provisions a little under a year ago. The $680 billion package signed into law last December made some of these items permanent and allowed more than two dozen others to expire at the end of 2015, laying the groundwork for comprehensive tax reform. Included in the nearly $20 billion in tax provisions that are set to expire are provisions pertaining to small-scale wind power, geothermal heat pumps, race horses, film production—provisions that distort our tax laws and narrowly benefit favored industries over the rest of the tax base. These provisions were made temporary for a reason. It makes no sense to come back just one year later and selectively extend certain provisions in a lame duck.
Reason noted some of the secret stuff buried in that Omnibus legislation earlier in our April issue (not all of it was bad—but it was certainly not transparent). In a press call this morning, representatives from three of the groups involved in this push said they're specifically focused on making sure spending legislation is not approved at the last minute, and only spending and tax-related legislation. They're going to stay focused on that goal and not other types of bills that could get pushed through in December. That may matter in the event that heavily negotiated criminal justice and sentencing reforms finally make it through Congress before the end of the year.
But clearly something does need to be passed in order to prevent a government shutdown. What some Republicans are pushing for is a continuing resolution to fund the government through March of next year. That would put the new president and a new Congress into place. Read more about the push behind that six-month plan here.
Fri, 26 Aug 2016 01:15:00 -0400In most of the country, a region's "big" industry—think automotive companies in Michigan's heyday, the oil business in Houston and entertainment in Los Angeles—is treated with deference by locals. Sometimes that attitude morphs into support for subsidies or even indifference to pollution or other problems. But it's rare to see city leaders purposefully stifle companies that produce a large share of good-paying jobs and tax revenues. Enter San Francisco, where officials often don't play by the normal economic rules. No metropolitan area is more closely identified with the burgeoning high-tech economy than the Bay Area. Yet in June, three of the city's 11 supervisors proposed a 1.5-percent payroll tax that would be imposed specifically on technology companies that earn $1 million in gross receipts. This "tech tax" was designed to raise money to battle the city's homeless problem. But the economic rationale was epitomized in a statement by the bill's author, Supervisor Eric Mar: "The rapid tech boom in our city and region threatens our city's ability to thrive and prosper," he said, in a Guardian report. "Five years after the boom, it's time for San Francisco to ask the tech companies to pay their fair share." Earlier this month, the measure that would have placed the tax proposal on a citywide ballot was defeated in committee. Enough San Francisco legislators apparently understand an idea that goes back to Aesop's day: Strangling a golden goose is a quick route to poverty. But this won't be the last San Franciscans will hear about such a tax increase, nor is it the only example of increasing hostility by city officials and local activists to the tech industry. "Corporate buses that Google and other tech companies (use) to ferry their workers from the city to Silicon Valley, 30 or 40 miles to the south, are being targeted by an increasingly assertive guerrilla campaign of disruption," according to a 2014 Guardian article. Protesters have blocked buses. A window was busted on one of them. As the article put it, protesters complain that "the tech sector has pushed up housing prices in the city and made it all but unaffordable for anyone without a six-figure salary." The Google buses make it easier for tech workers to live in beautiful San Francisco, rather than in the more mundane San Jose area. Likewise, San Francisco supervisors recently passed a law that legalizes short-term rentals in the city, but imposes restrictions on them. Property owners can only rent out their entire house 90 days a year. It must be their primary residency. They must pay hotel taxes. They must follow the city's rent-control laws. The most controversial element: Hosting sites, such as Airbnb and HomeAway, would be responsible for making sure hosts—i.e., the people who post their homes for rent on company sites—are registered with the city. Airbnb filed a lawsuit arguing the law violates the First Amendment and Communications Decency Act. The latter is a 1996 federal law that protects websites from being held accountable for what individuals post on them. Advocates for the short-term rental law use a similar argument as those who defend the "tech tax" proposal. They blame these rentals for depleting the city's housing stock and driving up the cost of apartments. "It is ultimately about corporate responsibility," according to Supervisor David Campos, quoted in the San Francisco Chronicle. "About an industry that has made and continues to make tens of millions of dollars in this line of work taking responsibility for the negative impact that they are having on the housing stock." Once again, many San Francisco officials see thriving tech companies as a problem. They blame their success for driving up housings costs. Apparently, the best way to drive down housing costs is to drive businesses—and residents—out of the city. It's the kind of zero-sum rationale that's fashionable in San Francisco. Yes, demand d[...]
Wed, 24 Aug 2016 10:30:00 -0400
(image) When is a live musical performance not a live musical performance? When it takes place in Chicago and the genre is rap, rock, country, or electronica. According to local officials, such concerts don't fall under the category of either "music," "fine art," or "culture"—and hence bars that host them must pay up.
See, under the law in Cook County—which includes the city of Chicago—all event venues are subject to a three percent tax on ticket sales unless the event in question is a "live theatrical, live musical or other live cultural performance." County code later defines cultural performances as "any of the disciplines which are commonly regarded as part of the fine arts, such as live theater, music, opera, drama, comedy, ballet, modern or traditional dance, and book or poetry readings." Most area venues that host live musical performances of any kind took themselves to be exempt.
But the county has recently been trying to squeeze more amusement-tax money out of local businesses by insisting that some live musical performances don't count for tax-exemption purposes because they're not artistic enough. The Chicago Reader reported last week on Cook County's attempt to ring more than $200,000 in back taxes out of Beauty Bar, along with money from around half a dozen other venues "that routinely book DJs or electronic music."
Pat Doerr, president of Chicago's Hospitality Business Association, said the move likely stems from a 2014 appeals court ruling allowing the county to go after the Chicago Bears for $4 million in unpaid amusement taxes. "My suspicion makes me think they wanted to look at every possible way to collect amusement taxes," he told the Reader, "and that's where we're at today."
At an administrative hearing on Monday, Cook County officials clarified their position: it's not just DJ or electronica music that is suspect but rap, rock, and country music also. "Rap music, country music, and rock 'n' roll" do not fall under the purview of "fine art,'" Anita Richardson, an administrative hearing officer for the county, explained.
Under Richardson's interpretation of the code, it's not enough for a performance to merely contain theater, music, comedy, dance, or literature. No, only specific works which live up to county culture cops' standards get a pass. As Bruce Finkelman, managing partner of one of the company that owns Beauty Bar, complained, such a position essentially requires a performance venue to check in with the county for every show it books to see what state art critics think.
Even Cook County Commissioner John Fritchey seems flabbergasted by the position. "No pun intended," he told the Reader, "but I think the county is being tone deaf to recognize opera as a form of cultural art but not Skrillex."
The next administrative hearing for Beauty Bar and co. is scheduled for October. The administrative hearing officer told owners they should bring musicologists to "further testify the music you are talking about falls within any disciplines considered fine art."
Wed, 24 Aug 2016 08:05:00 -0400If California voters back Proposition 64 to legalize marijuana in November, the state will have the lowest statewide excise taxes on weed in the country. Aside from the obvious response—cheaper legal weed!—this is an important development that shows California policymakers have learned from the mistakes made in some other states that went down the legalize-and-tax-it route in recent years. Lawmakers in Colorado, Washington and Oregon have already considered reductions to their states' marijuana taxes after finding that high tax rates—each of those states have rates of at least 30 percent for recreational marijuana—did not shut down black markets for weed. California has a robust black market for marijuana, of course. With that in mind, Proposition 64 contains a more modest 15 percent excise tax on recreational marijuana and would do away with the existing use taxes on medical marijuana. There would be no tax on marijuana grown for personal consumption but a per-ounce cultivation tax applies to buds and leaves sold by growers to distributors. Even with a lower rate—or perhaps because of it, depending on how the Laffer curve applies to marijuana—California could be looking at more than $1 billion in weed-related revenue within a few years after legalization, the Los Angeles Times reported this week. That's more than six times the amount that Colorado collected in 2015, a sign of just how large the marijuana market in California could be. Here's how the statewide taxes break down, courtesy of a new report from CalCann Holdings LLC, which helps marijuana-related businesses navigate California's legal and regulatory framework: But the state excise tax is only one part of the story, as the CalCann Holdings report details. Cities across California already have a myriad of taxes on medical marijuana and a similar patchwork of local taxes for recreational weed could be possible if Prop 64 passes. There are essentially three types of cities looking to tax marijuana, according to the analysts at CalCann. Progressive cities likely to welcome the marijuana industry will set low rates, like the 2.5 percent tax rate on medical marijuana currently found in Berkeley and Stockton. Other governments less welcoming to the end of marijuana prohibition might be inclined to pile on the taxes in the hope of keeping marijuana businesses out of the area—effectively outlawing legal marijuana and letting the black market continue to operate (it should be noted that Prop 64 also allows local governments to outlaw weed even if it is legalized statewide). The third group is probably the most interesting—and potentially the most worrisome. CalCann Holdings says deeply indebted cities could welcome marijuana-related businesses as sources of much-needed tax revenue. But high local taxes could offset the benefits of California's comparatively low statewide tax rate, something that is already worrying supporters of Prop 64. "If we're getting up to 30, 35 percent tax, yeah that's when people are going to stay in the illicit underground market," says Lynne Lyman, California state director for the Drug Policy Alliance, who discussed the taxation issue in a wide-ranging interview with Reason TV earlier this week. She says the message advocates are sending to local govenrments is "we know you need money for everything. Don't go crazy. Start low." Assuming, as all this does, that Proposition 64 is approved in November, that's good advice for cities in California to follow. On top of concerns about keeping some or all of the marijuana market in the shadows, high taxes will limit the potential economic growth from new investment in the cannibis industry--bringing growth and jobs that California sorely needs. src="https://www.youtube.com/embed/69ndkRkbMBk" allowfullscreen="allowfullscreen" frameborder="0" height="340" width="560">[...]
Thu, 18 Aug 2016 15:10:00 -0400Hillary Clinton recently laid out her plan for the economy, which boils down to more government, more spending, more taxes, more regulations, and more red tape. It translates into more debt and less growth. Some of the most outrageous provisions of her plan are those that target U.S. corporations abroad. To be fair, Clinton's policies are very similar to those of President Barack Obama. They both want to prevent U.S. companies from leaving the country through a process called inversion. They both also fundamentally misunderstand the reasons behind inversions and try to fix the perceived problem by treating the symptoms rather than the causes. The reason companies engage in inversions (usually by merging with a foreign firm to pay taxes abroad instead of at home) is obvious to most economists: U.S. companies doing business overseas are put at a terrible disadvantage because of our punishing corporate income tax system. The United States has the highest rate of all the Organization for Economic Cooperation and Development countries (35 percent at the top federal level and close to 40 percent when you add state taxes), including all the big welfare states in Europe. The United States also taxes income on a worldwide basis. This means that a U.S. company operating in Ireland pays the Irish rate first on its Irish income and then will pay the U.S. rate minus the tax paid in Ireland when it brings the income back to the United States. Contrast that with a French competitor doing business in Ireland. The French company pays the low Irish rate of 12.5 percent, period. To cope with the penalty or to try to remain competitive, U.S. companies are either not bringing their income back to the United States (there's supposedly $2 trillion of earned U.S. income abroad) or performing inversions. As it happens, there is wide bipartisan support to reform the corporate income tax. But it wouldn't happen under a President Clinton. Her plan would change a key rule to make it more difficult to invert. Another portion of her plan would limit the deductibility of interest when it is supposedly used as a tool to avoid American taxes. Never mind that it would be up to the government to decide when the use of such a deduction would be appropriate or not. Another provision is an "exit tax" on companies that relocate outside the United States without first repatriating earnings kept abroad. This one is particularly awful because it amounts to demanding a ransom from companies when they decide that enough is enough and that the survival of their business requires them to effectively change their citizenship. Interestingly, Clinton may have gotten this authoritarian idea from her husband, who enacted a law in 1996 that imposes an exit tax on people who decide to move abroad and change their citizenship to avoid the same punishing tax system. It's worth noting that the United States is one of the very few countries taxing individuals on worldwide income. What's stunning is that Clinton's refusal to reform the corporate income tax doesn't fit well with her claim that she wants to help American workers and that she cares about rejuvenating left-behind communities, such as Detroit. The economic literature shows that workers are shouldering the burden of the corporate income tax. Writing in The Wall Street Journal, the American Enterprise Institute's Kevin Hassett and Aparna Mathur note, "Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 22 years, confirmed that the corporate tax is for the most part paid by workers." In a piece appropriately called "The Cure for Wage Stagnation," they also cite works by the University of Michigan and Harvard University, among others. For instance, they write, "In (a) 2009 paper, (Kansas City Fed economist Alison) Felix and co-author J[...]
Wed, 17 Aug 2016 12:21:00 -0400A couple of nights back, while watching the Olympics, I saw these two expensive-to-air commercials in rapid succession. The first is the brainchild of New York Gov. Andrew Cuomo, the second is a campaign ad for presidential nominee Hillary Clinton. This is your Democratic Party on economics: src="https://www.youtube.com/embed/uC7WVvmHUTE" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0"> Making our economy work for everyone starts by making sure those at the top pay their fair share in taxes.https://t.co/uDdkrzKL9O Making our economy work for everyone starts by making sure those at the top pay their fair share in taxes.https://t.co/uDdkrzKL9O — Hillary Clinton (@HillaryClinton) August 3, 2016 I can think of no better snapshot of major-party economics as practiced in 2016. We need incentives to reward companies for moving in, and penalties to punish them for moving away! Let's waive taxes for a decade on one politically acceptable category of businesses, while raising taxes permanently on a disfavored class right next door! And no matter what, it is government that will help your business grow, and create millions of new jobs. At least Clinton's intelligence-insulting ad was paid for by her own campaign. Cuomo, on the other hand, has poured more than $200 million of taxpayer money into promoting New York like this since 2012, including north of $50 million for Start-Up NY, a program that the governor promised would "supercharge" the Empire State economy. So how many jobs has Start-Up NY produced, in exchange for all this advertising, and an estimated $100 million in waived taxes? Uh, 408. Cuomo, meanwhile, insists that the many critics of the ad campaign's desultory return on investment are "wrong," because the advertising is generic. "Come to New York," and "We will help your business grow if you come to New York," and "New York is not the frightful place that you thought it was," "We're not a high-tax state — we'll eliminate taxes." So that's what the advertising did. We had a very anti-business reputation, and if you asked any company, we actually did — you ask companies around the country, "Would you ever move to New York?" They'd say, "Oh no no no — New York is anti-business. It's very high tax, it's very high regulations." So we had a bad reputation that we had to correct to even be considered. And the quote-unquote Start-Up ads are really generic. Start-Up means, "Come to New York and we will help you start up your business—no taxes, but usually we'll also give you a loan, we'll give you an incentive, we'll invest in your business and take an equity participation." But if a state wants to be competitive now, it's going to take more than just no taxes. That's sort of the opening bid. But most often you're going to have to put an additional investment package on the table to be competitive with what the other states are offering. What a godawful mess. And as for why New York has a bad enough business/regulatory reputation that it needs to spend eight figures counteracting that impression, look no further than Cuomo's own speech at the recent Democratic National Convention: [O]ur progressive government is working in New York. We raised the minimum wage to $15, the highest in the nation because we insist on economic justice! We enacted paid family leave because all workers deserve dignity! We are rebuilding our middle class and we're working hand in hand with organized labor because the middle class is the backbone of this society! We are protecting the environment by banning fracking because this is the only planet we have. There is a better way, one that both 19th-century political parties have long since abandoned. And that is this: Make the rules—including tax levels—few, simple, and fair, and then please get the hell out of the[...]
Mon, 15 Aug 2016 16:00:00 -0400When the senior senator from New York, Charles Schumer, and the president of Americans for Tax Reform, Grover Norquist, are on the same side of an issue in Washington, it's worth taking a moment to figure out what is going on. Schumer, a tax-and-spend Democrat, and Norquist, a small government, low-tax Republican, are usually policy foes. But when it comes to a special tax break for U.S. Olympic medalists, the two have emerged as unlikely allies. Schumer this month launched what a press release from his office described as a "major push" to win passage of a bill known as the United States Appreciation for Olympians and Paralympians (USA Olympians and Paralympians) Act. The bill would make Olympic medals and the cash prizes that the U.S. Olympic Committee awards with them tax-free to U.S. Olympians. Norquist's Americans for Tax Reform, meanwhile, is hosting a petition to "stop the IRS from taxing our Olympians." ATR warns that an Olympic Gold medalist could face as much as $9,900 in taxes on a $25,000 award from the U.S. Olympic Committee. The Senate passed the tax break for Olympic medalists by unanimous consent on July 12. Sponsors of the bill included not only Schumer but also some prominent Republicans such as Senators John Thune (R-South Dakota) and Orrin Hatch (R-Utah). A companion bill awaits action in the House of Representatives. I hesitate to get in the way whenever anyone is talking about lowering taxes of any kind. Even more so when the tax-cutting involves an unusual example of bipartisan cooperation. But the more one gets into the reasoning behind this particular tax break, the more—well, to use an out-of season Winter Olympics metaphor—it looks like the senators and Norquist are skating on some thin logical ice. This was brought to my attention by a post at the conservative website Hot Air that began, "Without the teeniest sense of irony, Sen. Chuck Schumer (D-NY) has proposed that America's Olympic medal winners should not have to pay taxes on the cash prizes they are awarded with their medals. Schumer's reasoning behind lifting the tax? Because 'hard work' and excellence shouldn't be punished. Seriously." The point is that a whole lot of other income subject to federal taxation is also the result of hard work. Sen. Schumer seems to value the hard work of Olympic medalists enough to deem it worthy of tax-free treatment. But what about the hard work of the Wall Street investment banker or lawyer working through the weekend to close a merger or acquisition deal? Or of the plumber answering a call on a holiday weekend to fix a flooding toilet? Or a pro football player risking concussions, or a pro baseball player facing a 100-mile-an-hour fastball? What about the hard work of the surgeon who worked 90-hour overnight shifts as a hospital resident and fellow before breaking into the ranks of million-dollar earners? In choosing a particular class of individuals whose hard work deserves to be tax free, Senators Schumer and Thune are engaging in a time-honored and troubling political game of picking favorites. When politicians established favored classes of those whose hard work gets better treatment than those of others, it not only adds complexity to an already egregiously complex tax code, it creates a beneficiary class of grateful recipients who now have politicians to thank for their special tax treatment. It breeds legalized corruption, as the beneficiary class then says "thank you" with campaign contributions or by hiring lobbyists with ties to the politicians who can keep the tax break on the books. In choosing the "hard work" and "excellence" arguments to justify the Olympic tax break, supporters do touch on a key point about taxation; as much as possible, it should be crafted so as not to punish success associated with morally virt[...]
Wed, 27 Jul 2016 12:31:00 -0400More than a year ago, in February of 2015, Donald Trump—who was not yet running for president—said he would "certainly" release his personal tax returns. "I would release tax returns," he told conservative radio host Hugh Hewitt, reiterating later in the interview that, "I have no objection to certainly showing tax returns." In January of this year, as Trump was leading in the GOP primary polls, he again said that the returns were forthcoming. "We're working on that now. I have big returns, as you know, and I have everything all approved and very beautiful and we'll be working that over in the next period of time," he said on MSNBC. In May, after he had effectively locked up the nomination, he said once again that he planned to release them—though perhaps not until after the election. "So, the answer is, I'll release. Hopefully before the election I'll release," he said on Fox News. "And I'd like to release." The hold-up, he explained, was that he was under audit by the Internal Revenue Service. Trump formally accepted the Republican party's nomination for president last week. And this morning, his campaign manager, Paul Manafort, confirmed what Trump's year-plus-long dodge on the matter has always implied: Donald Trump won't release his tax returns before the presidential election this November. "Mr. Trump has said that his taxes are under audit and he will not be releasing them," Manafort said this morning. This isn't a violation of any rule. But as with so much of Trump's campaign, it's a violation of norms and expectations. He will be the first major party nominee in more than 40 years to not make any returns public. There's no modern precedent for his refusal to release this information; instead, Trump is setting a precedent, paving the way for candidates of the future to avoid transparency. There's lots of speculation about why, exactly, Trump won't release the information. Would it show financial connections to Russia? Would it reveal that he paid no taxes, or that he made very little money? Would it suggest that Trump is not nearly as rich as he says he is? These sorts of guessing games, while interesting, don't get us far. But the refusal to release the returns is telling enough. It's more evidence that his word isn't worth a damn, and neither are his excuses. Trump's vows to release his tax returns, like so many of his promises, were totally worthless. And his stated reason—that he is under audit by the IRS—doesn't hold up either. There's no rule whatsoever prohibiting Trump from releasing returns, even in the midst of an audit, presuming that he is, in fact, being audited (and there's some question about whether this is even true). He could do so if he wanted. Indeed, there's a precedent for a presidential candidate releasing his returns even as an audit is ongoing. In 1973, Richard Nixon was embroiled in a tax scandal over a charitable donation on his personal tax returns. As a result of the scandal, according to tax historian Joseph Thorndike, Nixon's taxes were scrutinized by the Joint Committee on Taxation, which found that he owed nearly half a million dollars more than he had paid. The IRS eventually agreed. Despite all this, Nixon still managed to make his tax returns public. That's how shady Trump is: He makes Nixon look like a model of transparency and accountability. (Correction: Nixon wasn't running for re-election in 1973! Apologies for the error.) [...]
Sat, 02 Jul 2016 07:35:00 -0400Earlier this month, Philadelphia adopted a penny-and-a-half-per-ounce soda tax. The revenue from the tax will be used in large part to expand pre-kindergarten opportunities—a potentially dubious pursuit. A critic might note that spending tens of millions of dollars to expand pre-K in a city where even the most optimistic reports show city schools already fail to educate children and are routinely broke may not be the best idea. Philadelphia's soda tax isn't the nation's first—that dishonor belongs to Berkeley—and it likely won't be the last. That's because such taxes, once touted as an evidence-free way to reduce obesity, are now seen by cash-strapped cities as a fix-all for their often self-imposed budgetary woes. Soda taxes won't just reduce obesity rates, advocates claim, but also fill city coffers. Despite the shift from rhetoric about soda taxes as an anti-obesity tool to soda taxes as a revenue-raising mechanism, the public-health crowd, which openly detests soda—New York University Prof. Marion Nestle's book Soda Politics: Taking on Big Soda (and Winning), published last fall, paints the soda industry as "the enemy," while former Bloomberg administration health commissioner Thomas Farley, the brains behind New York City's short-lived soda ban and the current Philadelphia health department head, has called soda "weaponize[d]"—is still on board (and behind) soda taxes. Farley's old boss, former New York City mayor Michael Bloomberg, for example, a leading opponent of both soda and food freedom, in a statement sent to me and others after Philadelphia's tax became law, said he'll "continue working to ensure that cities and nations pursuing these anti-obesity strategies get the support they need to level the playing field with the soda industry." Indeed, activists like Bloomberg are also funding efforts to place soda tax initiatives on ballots in a dozen other U.S. cities later this year, including San Francisco, which already voted down a tax. These funding efforts in Philadelphia drew criticism. Philadelphia magazine lamented the influence of "dark money" from Bloomberg and others to bankroll a group supporting the tax. In addition to activist support, some legal academics also praise soda taxes. Recently, for example, two tax law faculty argued that such taxes aren't regressive if they help pay for things that benefit low-income Americans. But who do such taxes really benefit—if anyone? What negative impact will Philadelphia's soda tax have on employment at groceries and convenience stores, and on their suppliers? Won't the soda tax increase alcohol consumption, since six-pack of soda will now cost about the same as a six-pack of beer? Won't higher-income Philadelphians simply drive outside the city (or even the state) to buy soda at places like Costco (meaning the tax burden will likely be borne more by low-income consumers)? What if families pay more for soda and as a result can afford to buy fewer fruits and vegetables? Consider, too, that there is little or no evidence that soda taxes reduce obesity. Soda accounts for about five percent of the calories Americans consume. Recent research suggests soda taxes may cut that already small consumption rate by about 10 percent. Even if we don't replace soda calories with calories from candy, pizza, beer, or cookies—though research suggests we will—then soda taxes will eliminate 10 calories a day from our diet, or about one pound per year. In other words, soda taxes won't make anyone thinner. Even absent taxes, reducing soda consumption hasn't dented America's obesity problem. Soda consumption has fallen in the United States by 25 percent since the 1990s. But data suggests Americans are as obese as ever. That means people drank [...]
Wed, 01 Jun 2016 12:00:00 -0400
Five women are challenging New York's sales tax on feminine hygiene products. Like most states, New York charges a base sales tax rate and then exempts certain products, such as unprepared food, from it. The class action lawsuit claims that it's discriminatory not to include tampons and sanitary napkins on the exemption list.
"New York already exempts a whole long list of medical necessities. Everything from bandages and gauze to Rogaine, dandruff shampoo, and Chapstick," the plaintiffs' attorney, Zoe Salzman, told the Associated Press. "There's no question in my mind or in anyone's mind that if men had to use these products every month, they would already be tax exempt."
Salzman doesn't mention it, but the state also exempts many things that aren't medical necessities, such as shoe shining, newspapers, and wine sold at wine tastings. There are even partial exemptions for tickets to amusement parks and musical performances.
Forty states charge sales tax on feminine hygiene products. (Five of the remaining 10 exempt these products from their sales tax, while the others do not have a sales tax at all.) According to the New York Daily News, New York brings in $14 million annually from the tax on tampon and sanitary napkin sales.
Sat, 14 May 2016 06:00:00 -0400Many very rich people in America—including a certain presidential front-runner on the Republican side—were born into their wealth. But others started with nothing and, through talent and effort, worked their way to the top of the heap. From Andrew Carnegie to Sam Walton to Oprah Winfrey, our history is bursting with rags-to-riches stories of people who achieved "the American dream." Winfrey was born dirt poor to unwed teenage parents. She suffered abuse, had to leave her home, and got pregnant at 14, only to lose the child. None of that stopped her from rising to head a multimillion-dollar media operation. The idea that anything is possible here has attracted millions of immigrants to U.S. shores—but increasingly the political left has fretted that "income mobility," or the ability to rise from modest beginnings, is faltering in America. In response, Democratic politicians such as Hillary Clinton and Bernie Sanders are calling for policies to address the absence of "opportunity" through higher taxes on the rich and more wealth redistribution to the poor. So how does the U.S. actually compare to the rest of the world? In November 2015, Manhattan Institute economist Scott Winship published a two-part series addressing that very question, summarizing his findings like this: "The new evidence does not suggest that the U.S. has especially high economic mobility, but it does indicate that America is not the international laggard that has been portrayed by earlier studies." That's hardly a ringing endorsement of the status quo. But as Winship says in an email, "Proceeding from the mistaken view that there is no opportunity for anyone will lead policy makers to misdirect scarce resources—including money and attention—away from those who really do face long odds against success." While Americans are better off than their counterparts in other countries on a number of metrics, in some areas, such as mobility among black men, our progress is abysmal. We ought to be concerned when a segment of the population falls behind. But it turns out that many of the policies Clinton and Sanders demand in the name of helping the less fortunate would very likely make the problem worse. Clinton plans to raise taxes mostly on the top 1 percent of Americans. Sanders' plan meanwhile would significantly increase the rates of federal income, payroll, business, and estate taxes, and impose new excise taxes on financial transactions and carbon. He also wants to tax capital gains and dividends at ordinary income rates for households that make over $250,000. Under his plan, all income groups would feel the pinch, though most of the money would come from high-income households. But the candidates' ambitions may not produce the benefits they expect. As the liberal Tax Policy Center notes, for example, Sanders' "proposals would raise taxes on work, saving, and investment, in some cases to rates well beyond recent historical experience in the U.S." Increasing taxes on savings and investments has the unfortunate effect of hurting poor people while rich folks benefit. That's because when you raise taxes on something, you usually get less of it. When fewer people are willing to save or invest their money, it reduces the capital stock (that is, the amount of factories and equipment available to workers). This makes people less productive over time—imagine trying to do your job without access to a computer!—which eventually depresses wages. And since there's now less capital, the return on what capital remains increases. As Andrew Lundeen from the Tax Foundation notes, the result is that "wage earners make less and capital owners make more." Stated otherwise, workers' mobili[...]