Published: Sun, 30 Apr 2017 00:00:00 -0400
Last Build Date: Sun, 30 Apr 2017 11:03:20 -0400
Sat, 29 Apr 2017 11:30:00 -0400Of 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 of flexibility that once was possible only for those people with such specialized, and highly valued, skills. That's something that states should keep in mind when trying to attract talented workers, whether on the football field or in the office[...]
Fri, 28 Apr 2017 15:10:00 -0400Have 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 it didn't, because, as she explained, tips count as 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: [...]
Wed, 26 Apr 2017 19:24:00 -0400In 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-tax states. And not just in those Democratic-bubble strongholds like New York, California, and Illinois—according to this WalletHub analysis, vying for worst American state/local tax burden are the deep red states of Nebraska and Iowa (ranked 50[...]
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.
Wed, 26 Apr 2017 12:00:00 -0400Virginia 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 Lynchburg would only save $277 dollars (a year) under Gillespie's tax plan," said the Virginia Democratic Party before a GOP candidates' debate there. A former Democratic candidate for the General Assembly said average Lynchburg families would [...]
Mon, 24 Apr 2017 12:00:00 -0400You 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 tells suppliers that they should ship more batteries to the affected area, even if it means extra work, because they will make a lot more money if they do. That's what makes anti-price-gouging laws so foolish: They short-circuit those important mark[...]
Tue, 18 Apr 2017 10:20:00 -0400
(image) Undocumented immigrants pay state taxes—a lot of taxes, as it turns out. So says the Oregon Center for Public Policy (OCPP), a left-leaning think tank. In a policy analysis released Monday, the OCPP found that the estimated 116,000-strong population of undocumented Oregonians paid a rough $81 million into state coffers.
Most of what the undocumented pay, says the OCPP report, was from property and income taxes which make up about $66 of the overall $81 million. The other $15 million comes from excise taxes paid on gasoline and alcohol (hopefully not purchased at the same time).
These numbers fit closely with much of the research done on the national level about the effect of undocumented workers on state and local budgets.
A March 2017 study released by the Institute on Taxation & Economic Policy (on whose numbers the OCPP study is largely derived) estimated that of the 11 million undocumented workers in the United States pay an average of 8 percent of their income to their state and local governments, for a grand national total of $11.74 billion a year.
The effective tax rate between states varies considerably however. The OCPP finds that Oregon's unauthorized workers pay a more modest 5.5 percent of their income in state and local taxes, likely thanks in part to that state's lack of a sales tax. The state of Illinois in contrast eats up about over 10 percent of income produced by undocumented residents.
These numbers clash with much of the rhetoric about illegal immigrants emanating from President Trump, who has long complained about the supposed free ride undocumented immigrants are getting in America.
As far back as October 2015, Trump had suggested that only 5 to 10 percent of illegal immigrants paid taxes, while costing the United State economy an alleged $300 billion a year.
Trump has since ridden that message all the way to the White House, repeatedly promising both on the campaign trail and in office to save Americans' tax dollars by deporting those who entered the country illegally.
In his January joint address to Congress, he promised "billions and billions of dollars" would be saved by stricter enforcement of immigration laws.
The numbers coming from the OCPP report and others suggest that the opposite approach might actually be more of a budget winner.
"When previously undocumented workers become authorized, they tend to earn and spend more," writes OCPP policy analyst Janet Bauer. This she says would in turn boost tax revenue, saying that " a path to citizenship would result in about a 48 percent increase in the tax contributions of Oregonians who are currently undocumented."
Whether the possibility of bilking aspiring Americans of more of their hard-earned income will get many immigration skeptics to come around to the idea of reform is certainly an open question. On whether undocumented immigrants do indeed pay into state coffers however, the research leaves little doubt.
Mon, 17 Apr 2017 19:46:00 -0400
(image) I'll be on Fox Business's Kennedy show tonight, talking about tax deadlines, the possibility of systemic reform, and what the function of taxes should be. Hint: I argue that taxes should be less about gulling people into certain types of behavior (such as buying homes or insurance) and more about paying for the government services that we agree should be provided.
By failing to account for the full cost of government, I suggest that people are willing to buy more government. If the government is borrowing 20 or 25 or even 30 cents on each dollar of what it spends, it makes government seem less expensive than it really is (even as it grows the national debt which will eventually need to be paid or inflated away).
The show starts at 8:00 P.M. Eastern Time and will be rerun later in the evening. Check your local cable listings for more information.
Mon, 17 Apr 2017 19:30:00 -0400
The best way to solve the problem of too many people on an airplane is to "offer a price to get people to voluntarily give up a seat," says Reason Senior Editor Brian Doherty. "But it only works really well if they keep raising the price until they get the volunteer."
On today's podcast, Doherty joins Nick Gillespie and Katherine Mangu-Ward to talk about why busting heads and not overbooking was to blame for last week's United Airlines crisis, the libertarian case for free trade and immigration, how to convince non-libertarians that one person's gain isn't necessarily another person's loss, Arkansas' legal fight to execute eight men, filing taxes, and the virtues of recreational testosterone.
Subscribe, rate, and review the Reason Podcast at iTunes. Listen at SoundCloud below:
src="https://w.soundcloud.com/player/?url=https%3A//api.soundcloud.com/tracks/318164628%3Fsecret_token%3Ds-8BRPo&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&visual=true" width="100%" height="450" frameborder="0">
Don't miss a single Reason podcast! (Archive here.)
Mon, 17 Apr 2017 13:25:00 -0400
Just in time for the filing deadline, here are a few tips and facts you may not know about America's Rube Goldberg hellscape of a tax code.
Written by Austin Bragg, Meredith Bragg, and Andrew Heaton. Produced by Austin Bragg.
Fri, 07 Apr 2017 00:01:00 -0400Gov. Jerry Brown and Democratic legislators have caused a stir with their plan, which passed the legislature on Thursday, to increase taxes to pay for the state's unquestionably decrepit infrastructure of roads and bridges. Instead of thinking of this as a new transportation tax, however, Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees. Consider this sobering news from the CalMatters' Judy Lin in January: "New projections show the state's annual bill for retirement obligations is expected to reach $11 billion by the time Brown leaves office in January 2019—nearly double what it was eight years earlier." That's the state's "annual bill," i.e., the direct costs taken from the general-fund budget. That number doesn't even include those "unfunded" pension liabilities that according to some estimates top $1 trillion. That's more than double the $5.2 billion a year the Brown administration hopes to raise from a plan that would boost gas taxes by 12 cents a gallon, raise the vehicle-license fee by $25 to $175 a year (depending on the value of the vehicle), impose a $100 annual fee on electric cars because they don't currently pay gas taxes and include a large hike on diesel fuel. Money is fungible, so if the state overspends on pensions, it has to make it up somewhere else. The story refers to the Public Employees' Pension Reform Act of 2013, which was the governor's only attempt in his administration to rein in pension costs. Because that reform applies to new state hires, it won't produce noticeable savings for years, the article explains. As I've often noted, it also was unnecessarily modest and exceedingly cynical. The governor's original plan included some serious reform ideas, including a proposed hybrid system that nudged public employees away from the debt-laden "defined-benefit" plans they now enjoy toward a mixed plan that included some elements of a 401/k program. But he didn't push for it. Instead, he caved in to his union allies. Here's where cynicism comes in: The transparent goal was not to fix the broken pension system, but to woo voter support for Proposition 30, the laughably titled "Temporary Taxes to Fund Education" initiative. The measure raised sales and income taxes. The "temporary" moniker is laughable because Prop. 30 backers asked voters to extend the income-tax portion of the taxes by a dozen years in 2016, and they obliged. (It's a safe guess those taxes won't just expire in 2030—at least not without another union-backed attempt to extend them.) At the time, the state budget crisis was in the news, as were soaring public-pension liabilities. Polling looked dismal for Brown's pet tax increase, which was the linchpin of his effort to bring the state out of its deficit. He had to convince voters that the state was serious about reforming itself. And, voilà, the PEPRA legislation was born. Voters obliged by OK'ing the tax hike, and then legislators and the governor quickly moved past the pension issue. Fast forward five years and the state has another big problem. Its general-fund budgets have remained balanced. But Democrats and Republicans alike have been complaining about the estimated $130-billion backlog in infrastructure of all types, especially after the crumbling emergency spillway at Oroville Dam caused the evacuation of 188,000 people in the Sacramento Valley this year. And once again the governor turns to a tax-increase plan. Polling shows the public dubious of the tax plan. Californians oppose the myriad tax-hike proposals, but overwhelmingly agree (61 percent) with Republicans that instead of raising taxes, the California Department of Transportation,Caltrans, should "make better use of revenue." Instead of seeking voter approval[...]
Fri, 31 Mar 2017 00:01:00 -0400Economists sometimes talk about a fictional $1 million tax on, say, beagles to illustrate the perverse effects of a poorly designed tax code. In theory, the tax could bring in $20 billion, given there are about 20,000 registered members of the breed. But in reality, the tax would yield little, because few people would claim to own such dogs, suddenly "discovering" that their beagles were really something else, maybe mixed breeds or schmeagles. That idea is useful when discussing what's benignly referred to as the "estate tax." Critics refer to it by the ominous-sounding "death tax," given that it imposes a 40 percent hit on accumulated wealth after its owner heads to that great estate in the sky. It's really the "Tax on Your Dead Neighbor's Family," given it's all about grabbing others' inheritance. In the United States, the tax is imposed on estates valued at $5.5 million or more, which sounds like a lot of money until one starts thinking about the value of businesses. A nice house in Newport Beach can be worth millions of dollars, and the value of land in a bustling Central Valley nut farm can be worth many times that amount. It can be tough enough to keep a business going after the owner dies without giving Uncle Sam a big share of the operation. Just because a business operation has great value doesn't mean that it is operating on huge margins. It's therefore common for longtime family-owned businesses to be put to auction after the founder's death. Supporters argue that few estates pay very much for reasons that go back to our tariff on beagles. Wealthy folks spend an enormous amount of money on accountants and tax lawyers to shield their assets from the tax man. But obviously, some people cough up the money, or else officials wouldn't be so eager to maintain the tax. Liberals love the tax for ideological reasons. They are egalitarian, so they bristle at inherited wealth. "Our nation cannot survive morally or economically when so few have so much while so many have so little," said Democratic presidential candidate Sen. Bernie Sanders (Vt.), expressing the view of the class-warrior left. He and Hillary Clinton had both proposed dramatically increasing tax rates on people's estates. But conservatives find the tax particularly unproductive and unfair. It's unproductive to be forced to spend so much time and money sheltering assets. And it's unfair to tax something multiple times. It also quashes business development, since killing businesses has a perverse effect on working-class jobs. Fortunately, the Trump administration understands the problem. "No family will have to pay the death tax," Trump said on the campaign trail. "It's just plain wrong and most people agree with that. We will repeal it." It's an area where the new president has spoken with unusual clarity, and Republican members of Congress are moving bills that would do just that. California's Legislature, however, remains a hotbed of progressivism. Sen. Scott Wiener, a San Francisco Democrat who ironically has a reputation as being pro-business, has introduced Senate Bill 726. If approved by the legislature and then voters, it would impose a California estate tax that's identical to the federal one, but only if the federal tax is repealed. His goal, according to a statement, is "recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems." It's the latest example of Trump-spite in the state Capitol, but it sends a clear message that California isn't in any danger of becoming a business-friendly state any time soon. And I chuckle at the idea of "investing" in the state's governmental operations. Pick any government agency or project and the waste is rampant. Infrastructure is[...]
Thu, 30 Mar 2017 00:01:00 -0400William Safire said that as a speechwriter for Richard Nixon, he would sometimes urge the president, "Take the easy way!" Nixon could then give a speech saying he had rejected advice from his aides to take the easy way, preferring to do what was right. Politicians may pretend to make hard choices, but they rarely do. Those in office now won't be inspired to heroic deeds by the failure to repeal Obamacare. Just the opposite. The lesson of this episode is that it's hard to reach agreement on taking things away from the voters. The corollary is that it's easy to reach agreement on giving things to the voters. The obvious next step is a fiscal binge that serves the selfish interests of everyone except posterity. Here's how it may play out: Congressional Republicans pass tax cuts. Democrats join them on a big infrastructure bill. President Donald Trump's proposed spending cuts come to little or nothing. The deficit balloons, and not many people in Washington care. Robert Bixby, executive director of The Concord Coalition, a nonpartisan budget watchdog, tells me, "There's a political logic to it: 'You get what you want. We get what we want. And the future will pay for it.'" Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, agrees: "The risk of irresponsibility is high." Having lost on overhauling health care, Trump indicated he is ready to move on to tax reform. This choice evoked chortles from skeptics, who say a major revision of the Internal Revenue Code will be an even harder challenge. But why assume Republicans will balk at anything short of a comprehensive overhaul? If they can't get that—and there is no reason to think they can—they will almost certainly settle for tax cuts, even if it means bigger budget deficits. That's been their default option for decades. Trump couldn't care less about the deficit. So GOP members will meet no particular resistance from him if they want to cut rates, scrap the estate tax or the alternative minimum tax, or increase the standard deduction. House Speaker Paul Ryan has in mind a border adjustment tax, which would bring in enough revenue to make up all or most of what the other changes would lose. But neither Trump nor congressional Republicans are likely to approve a measure that would raise consumer prices and be hard to explain. The path of least resistance involves dropping the proposal and not bothering to pay for the tax cuts. Paying for them holds little allure because it would mean either killing tax breaks cherished by millions of people or curtailing outlays. Trump has proposed some $54 billion in spending reductions, taken from agencies ranging from the Environmental Protection Agency to the National Endowment for the Arts, but those couldn't be used to offset tax cuts. The money saved is supposed to go for Trump's military buildup. But rest assured, it won't be saved in the first place. "Some of Trump's closest allies said his budget has virtually no chance in Congress," reported The Washington Post. "Even those fiscal conservatives who do want to cut spending don't necessarily think slashing major domestic programs is the answer." The only other place where spending could be cut much is in the biggest entitlements—Social Security, Medicare and Medicaid. But Trump the candidate promised not to go after Social Security and Medicare. Leaving Obamacare alone means Medicaid escaped the ax. The president should have more luck boosting outlays. He envisions a $1 trillion program aimed at "revitalizing our country's ruined roads, crumbling bridges and outdated airports," Press Secretary Sean Spicer explained. Trump told The New York Times he intends to "prime the pump to some extent. In other words: Spend money to m[...]
Fri, 24 Mar 2017 00:01:00 -0400This year's California legislative session has been thus far dominated by two persistent themes: the desire to stand up to the Trump administration and the pursuit of new tax dollars to fund infrastructure and other spending programs. Democrats have supermajorities in both houses of the Legislature, so Republicans have been able to do little more than complain. A recent proposal by a new state senator from San Francisco captures both of these concepts in one measure. In late February, Sen. Scott Wiener, D-San Francisco, introduced S.B. 726, a direct response to a proposal by President Donald Trump. (Ironically, Wiener has been viewed as a "pro-business" Democrat, at least by Bay Area standards.) The president wants to eliminate the federal estate tax, which imposes a 40 percent tax on estates valued at $5.5 million or more. A couple of Republican-backed bills to repeal the tax are currently making their way through Congress. Wiener's measure would institute a California estate tax that's identical to the federal estate tax. Under Wiener's bill, the tax would only go into effect if Congress does away with the federal version. Such estate taxes, often referred to as "death" taxes, don't apply to a huge number of estates, given the large exemption, but they have earned the wrath of the president and many Republicans. Trump called the tax "just plain wrong." President Barack Obama had proposed eliminating an estate-tax "loophole." And Hillary Clinton had proposed raising the estate tax to an unprecedented 65 percent, according to a Forbes analysis. Republicans dislike such taxes on grounds of "fairness," since many of these estates often are taxed twice and even three times. Such taxes can have a negative effect on small businesses, especially farms, which often struggle to stay afloat after the passing of the owner. Democrats see the tax as a way to find government revenue. They also make social-justice arguments for taxing larger shares of inherited wealth, which they view as exacerbating inequality. "If Donald Trump and congressional Republicans are hell-bent on cutting taxes for our wealthiest residents, we should counterbalance those tax cuts by recapturing the lost funds and investing them here at home in our schools, our health-care system, and our roads and public-transportation systems," Wiener said in a statement. Even if his bill passes both houses of the Legislature and is signed into law by Gov. Jerry Brown, it still faces a large hurdle; it would need to be approved by voters on a statewide ballot. That's because voters in 1982 approved two slightly different statewide ballot initiatives (Propositions 5 and 6) that repealed the state's then-existing inheritance and gift taxes and prohibited state or local governments from imposing them in the future. If Congress repeals the estate tax and Californians impose a new estate tax at the ballot box, then the "death" taxes currently flowing to Washington, D.C., would head to Sacramento instead—to the tune of around $4.5 billion annually. Californians pay 26 percent of the nation's total estate and inheritance taxes, according to Wiener's statements. "Considering that California is generally a donor state to the federal government, that would mean significantly more money would remain in California for critical investments," his office explained. "A foolish, unnecessary tax," said Jon Coupal, president of the Howard Jarvis Taxpayers Association. "At least they have to go to the voters to do this and I suspect citizens will be skeptical." Wiener's approach, Republicans say, would leave California, which already has among the highest income-tax rates in the nation, at an even greater competitive disadvantage. California [...]
Thu, 23 Mar 2017 00:01:00 -0400The deadline for filing federal income tax returns is approaching fast. While this is understandably a frustrating time for many, it's also the one time during which many taxpayers are confronted with just how much of their earnings are captured by the government. Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT), think that is one time too many. They want the Internal Revenue Service to prepare tax returns on behalf of taxpayers instead of leaving it as an individual responsibility. This idea is pitched as a "simplification." And, to be fair, the complexity of our tax code is undeniable. It results in tax-compliance costs that can reach nearly $1 trillion annually, according to my colleague Jason Fichtner. However, the solution to this complexity isn't to add to the opacity of the system and make the cost of government even less visible to those picking up the tab. There's already too much of that. First, automatic tax withholding has gone a long way to hide the amount of taxes we pay annually. Also hidden is the fact that the burden of any tax falls on—and is paid by—people, whether they be consumers, investors or workers. Different types of taxes—individual, corporate, capital gains, dividends, estate, gift, etc.—are all borne by people but not necessarily by the person who cuts the check to the IRS. It results in a fiscal death by a thousand cuts without taxpayers noticing. For example, consider payroll taxes, which are withheld from paychecks. Few people realize that this is likely the biggest tax they pay. It's also sold as something other than an income tax by taxing only qualified wages. Yet, because it's withheld from wages, the same ones that are used as part of the individual income tax base when filing your taxes in April, it's just a clever way to double-tax you without you even knowing. Furthermore, its full burden is hidden by pretending that half of the burden is carried by employers (employers pay 7.65 percent; workers pay 7.65 percent; and the self-employed pay the full 15.3 percent), when in reality, the burden of the employee share is shifted to workers in the form of lower salaries. As a result, without putting serious time and effort into figuring it out, it's all but impossible to tally how much is truly coming out of your pocket. The solution to this cost, however, is not to let the IRS prepare our tax returns and require nothing but a signature of approval from the taxpayer. For one thing, the government's incentive is to maximize tax collection, whereas individuals generally prefer to pay the lowest amount legally possible. And second, the IRS isn't particularly good at understanding its own rules, yet taxpayers would still be held responsible for the errors. Considering the tremendous and one-sided power held by the IRS, many would be scared to question the accuracy of an IRS-created return even if it's warranted. Automatic withholding was first proposed in the midst of World War II. It was considered an emergency wartime measure to fund a greater percentage of war costs with current taxes than was done during World War I, in hopes of avoiding the same degree of inflation seen during the prior war. Free market economist Milton Friedman was a young Treasury Department employee at the time, and he even helped develop the program. Friedman would later lament, "It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom." He did it by accident, as he never wanted the program to exist during peacetime. Sens. Warren and Sanders seek to do the same today but delibe[...]