Our Wish List for Tax Policy in 2008

Now that all the presents have been unwrapped and the holiday festivities are over, people's thoughts will soon turn to New Year's resolutions. Even those who don't make resolutions probably have some ideas about things they would like to do differently in the New Year.

We at the Tax Foundation have some thoughts about an area in which federal and state policymakers could use some improvement in 2008: tax policy. With this in mind, we have compiled a wish list for tax policy in the new year. This list can be viewed here and below.

Since 2008 is an election year in which a predicted economic slowdown could put pressure on some government budgets, reporters and politicians are likely to give the public a double dose of tax policy. 

Special interests will, as always, push tax policies that favor themselves at the expense of other taxpayers. Social engineers will continue pushing tax policies that redistribute money based upon health, age, income, and other demographics. And finally, gimmicks like tax holidays and tiny, overhyped tax cuts will be featured in legislatures and political campaigns. Champions of sound tax policy like yours truly at the Tax Foundation will view all these policies with a skeptical eye.

Our Wish List for Tax Policy in 2008

1. Politicians will stop playing word games, and call taxes "taxes" and not "fees," "surcharges," or "profits." Any assessment that raises money in excess of what is needed to defray costs is a tax.

2. Politicians will stop using the tax code to give even more preferential treatment to sectors like housing and healthcare that are already tax-pampered. This includes using the tax code as a bailout for homeowners.

3. Elected officials in state governments seeking to give property tax relief to homeowners will not do so merely by shifting to some other source of tax revenue like sales or income (which usually ends up as a tax increase) or by shifting it all to commercial property owners.

4. Members of Congress will finally realize that two oceans can't protect us from the tax competition sweeping the rest of the world. China is now the latest country to cut its corporate tax rate.

5. Politicians will stop raising taxes on arbitrarily targeted items like cigarettes, alcohol, bottled water, soda, tasty food, adult entertainment, gambling, etc. just because they want to raise revenue for some government program that is supposed to provide broad public benefits.

6. State officials will stop obstructing our national market by attempting to export taxes to "out-of-staters." States should attract investment with pro-growth policies, not by protectionist penalties on the productive.

7. At least one of the states that have recently considered lottery privatization will go through with a sale (not a lease!). That will reverse the domino effect of state governments going into the business of promoting gambling.

8. States will eliminate gimmicks like sales tax holidays and instead lower sales tax rates for the entire year.

9. TaxReformPanel.gov and TaxFoundation.org will be the most visited web sites of 2008, and our ultimate wish...

10. Congress will avoid another AMT ping-pong match in late 2008, instead acting in the public interest by passing fundamental tax reform that merges the good features of the AMT (a broader tax base and lower tax rates) into the regular tax code.

Go to the original author's site:

Today's Wall Street Journal has an editorial piece discussing the Quill physical presence rule. That's the constitutional bar which prevents states from forcing out-of-state businesses to collect each state's sales tax on purchases. Overturning Quill would mean that retailers would have to collect taxes based on where the seller lives (not where the business is), an obligation that would next extend to brick-and-mortar businesses. The editorial recognizes this:

[S]mall merchants could potentially have to keep track of 86,000 different tax rates, depending on what they sell and to whom. But what about nine-digit zip codes? Could governments create different rates within each one? Yes indeed.

Believe it or not, it gets worse. The board of state and local tax collectors that administers the "streamlined" plan recently amended the agreement. Now the plan would allow some states to choose whether to tax online purchases at the seller's address or the buyer's, depending on whether they're in the same state. The end result will be different tax rates for in-state and out-of-state vendors—a clear Constitutional violation.

As I explained in Why the Quill Physical Presence Rule Shouldn't Go The Way of Personal Jurisdiction and in a recent commentary, overturning Quill will create uncertainty and discrimination:

While some constitutional principles surely must be revisited to apply them to new circumstances, the idea that parochial state interests cannot burden interstate commerce remains a timeless principle regardless how sophisticated technology may be.

The effort to kill Quill is nothing more than states attempting to boost their tax revenues at the expense of the national economy.

Go to the original author's site:

Press release from the Internal Revenue Service today on the delay in refunds caused by Congress's procrastination on passing a patch for AMT:

The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax "patch."

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January.  However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

In an odd way, it will not affect all of those filing Form 6251, which is the AMT form. People filing other forms, however, will be affected. These changes, according to the IRS, take longer for the IRS to reprogram their computers compared to the mere change in exemption levels. Specifically, here are the forms that could cause delays:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

Go to the original author's site:

Every time you turn around, some ridiculous tax policy is being proposed in Wisconsin. Whether it's Governor Doyle's proposed tax on oil companies, Governor Doyle's proposed tax on hospitals, a proposal to tax soft drinks put forth by some legislators, a gigantic payroll tax hike to pay for universal healthcare within the state that would basically double the state's tax burden, or the state's continuous support of tax credits for specific industries and companies, the state is a bastion of bad tax policy. (It actually makes you appreciate the federal tax system.)

Now one state senator is proposing a special tax on video games to fund the juvenile detention system in the state. Here's the story from DailyTech:

This week, Wisconsin state Senator Jon Erpenbach proposed a bill that would add an additional tax on video games and gaming equipment, like consoles and accessories.

The new tax would levy a 1% surcharge on the sale of video games and related equipment, with funds applied towards the cost of moving non-violent, delinquent 17-year-olds into the juvenile detention system, as they are currently treated, prosecuted, and incarcerated as adults.

According to Erpenbach, the tax has nothing to do with dissuading gamers or casting videogames in an undesirable light; rather the idea is that the tax is "a kind of kids-kids thing," with gamers helping out fellow youth stuck behind bars in an adult prison system.

Despite the fact that the bill's emphasis is on moving non-violent youth offenders into the juvenile court system, gamers have latched onto the tax as an unfair attack on their hobby. Justin Sallows, an adult Wisconsin gamer speaking to WISC-TV, thinks that the tax is "a real problem ... even if that's not what the intention is, it creates the impression that there's something wrong with the video games because we need to put some extra tax on there to try to dissuade people from playing them."

Erpenbach's logic is this: kids should have to pay a tax on video games to help out other kids their age that engage in bad behavior. There are many problems with this logic. First, the move that Erpenbach is suggesting within the juvenile detention system would benefit everyone in the state, not just children who play video games. His ridiculous "kids-kids logic" could be extended to every program that sends government funds to children. Maybe a video game tax and a tax on other products that children disproportionately buy should pay for public schools too.

But even if one buys the "kid-kids" argument, there are many more industries where young people buy products at a disproportionately higher rate than others. Why not put taxes on certain types of music, clothes, or entertainment? Or why not go directly at the source and put a special tax within the income tax system on people who work at ages 16 or 17, or raise the drivers license fees on people those ages? This may sound stupid and discriminatory, but that's exactly what this proposal is.

Go to the original author's site:

Our Wish List for Tax Policy in 2008

Now that all the presents have been unwrapped and the holiday festivities are over, people's thoughts will soon turn to New Year's resolutions. Even those who don't make resolutions probably have some ideas about things they would like to do differently in the New Year.

We at the Tax Foundation have some thoughts about an area in which federal and state policymakers could use some improvement in 2008: tax policy. With this in mind, we have compiled a wish list for tax policy in the new year. This list can be viewed here and below.

Since 2008 is an election year in which a predicted economic slowdown could put pressure on some government budgets, reporters and politicians are likely to give the public a double dose of tax policy. 

Special interests will, as always, push tax policies that favor themselves at the expense of other taxpayers. Social engineers will continue pushing tax policies that redistribute money based upon health, age, income, and other demographics. And finally, gimmicks like tax holidays and tiny, overhyped tax cuts will be featured in legislatures and political campaigns. Champions of sound tax policy like yours truly at the Tax Foundation will view all these policies with a skeptical eye.

Our Wish List for Tax Policy in 2008

1. Politicians will stop playing word games, and call taxes "taxes" and not "fees," "surcharges," or "profits." Any assessment that raises money in excess of what is needed to defray costs is a tax.

2. Politicians will stop using the tax code to give even more preferential treatment to sectors like housing and healthcare that are already tax-pampered. This includes using the tax code as a bailout for homeowners.

3. Elected officials in state governments seeking to give property tax relief to homeowners will not do so merely by shifting to some other source of tax revenue like sales or income (which usually ends up as a tax increase) or by shifting it all to commercial property owners.

4. Members of Congress will finally realize that two oceans can't protect us from the tax competition sweeping the rest of the world. China is now the latest country to cut its corporate tax rate.

5. Politicians will stop raising taxes on arbitrarily targeted items like cigarettes, alcohol, bottled water, soda, tasty food, adult entertainment, gambling, etc. just because they want to raise revenue for some government program that is supposed to provide broad public benefits.

6. State officials will stop obstructing our national market by attempting to export taxes to "out-of-staters." States should attract investment with pro-growth policies, not by protectionist penalties on the productive.

7. At least one of the states that have recently considered lottery privatization will go through with a sale (not a lease!). That will reverse the domino effect of state governments going into the business of promoting gambling.

8. States will eliminate gimmicks like sales tax holidays and instead lower sales tax rates for the entire year.

9. TaxReformPanel.gov and TaxFoundation.org will be the most visited web sites of 2008, and our ultimate wish...

10. Congress will avoid another AMT ping-pong match in late 2008, instead acting in the public interest by passing fundamental tax reform that merges the good features of the AMT (a broader tax base and lower tax rates) into the regular tax code.

Go to the original author's site::

Press release from the Internal Revenue Service today on the delay in refunds caused by Congress's procrastination on passing a patch for AMT:

The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax "patch."

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January.  However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

In an odd way, it will not affect all of those filing Form 6251, which is the AMT form. People filing other forms, however, will be affected. These changes, according to the IRS, take longer for the IRS to reprogram their computers compared to the mere change in exemption levels. Specifically, here are the forms that could cause delays:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

Go to the original author's site::

Every time you turn around, some ridiculous tax policy is being proposed in Wisconsin. Whether it's Governor Doyle's proposed tax on oil companies, Governor Doyle's proposed tax on hospitals, a proposal to tax soft drinks put forth by some legislators, a gigantic payroll tax hike to pay for universal healthcare within the state that would basically double the state's tax burden, or the state's continuous support of tax credits for specific industries and companies, the state is a bastion of bad tax policy. (It actually makes you appreciate the federal tax system.)

Now one state senator is proposing a special tax on video games to fund the juvenile detention system in the state. Here's the story from DailyTech:

This week, Wisconsin state Senator Jon Erpenbach proposed a bill that would add an additional tax on video games and gaming equipment, like consoles and accessories.

The new tax would levy a 1% surcharge on the sale of video games and related equipment, with funds applied towards the cost of moving non-violent, delinquent 17-year-olds into the juvenile detention system, as they are currently treated, prosecuted, and incarcerated as adults.

According to Erpenbach, the tax has nothing to do with dissuading gamers or casting videogames in an undesirable light; rather the idea is that the tax is "a kind of kids-kids thing," with gamers helping out fellow youth stuck behind bars in an adult prison system.

Despite the fact that the bill's emphasis is on moving non-violent youth offenders into the juvenile court system, gamers have latched onto the tax as an unfair attack on their hobby. Justin Sallows, an adult Wisconsin gamer speaking to WISC-TV, thinks that the tax is "a real problem ... even if that's not what the intention is, it creates the impression that there's something wrong with the video games because we need to put some extra tax on there to try to dissuade people from playing them."

Erpenbach's logic is this: kids should have to pay a tax on video games to help out other kids their age that engage in bad behavior. There are many problems with this logic. First, the move that Erpenbach is suggesting within the juvenile detention system would benefit everyone in the state, not just children who play video games. His ridiculous "kids-kids logic" could be extended to every program that sends government funds to children. Maybe a video game tax and a tax on other products that children disproportionately buy should pay for public schools too.

But even if one buys the "kid-kids" argument, there are many more industries where young people buy products at a disproportionately higher rate than others. Why not put taxes on certain types of music, clothes, or entertainment? Or why not go directly at the source and put a special tax within the income tax system on people who work at ages 16 or 17, or raise the drivers license fees on people those ages? This may sound stupid and discriminatory, but that's exactly what this proposal is.

Go to the original author's site::

Today's Wall Street Journal has an editorial piece discussing the Quill physical presence rule. That's the constitutional bar which prevents states from forcing out-of-state businesses to collect each state's sales tax on purchases. Overturning Quill would mean that retailers would have to collect taxes based on where the seller lives (not where the business is), an obligation that would next extend to brick-and-mortar businesses. The editorial recognizes this:

[S]mall merchants could potentially have to keep track of 86,000 different tax rates, depending on what they sell and to whom. But what about nine-digit zip codes? Could governments create different rates within each one? Yes indeed.

Believe it or not, it gets worse. The board of state and local tax collectors that administers the "streamlined" plan recently amended the agreement. Now the plan would allow some states to choose whether to tax online purchases at the seller's address or the buyer's, depending on whether they're in the same state. The end result will be different tax rates for in-state and out-of-state vendors—a clear Constitutional violation.

As I explained in Why the Quill Physical Presence Rule Shouldn't Go The Way of Personal Jurisdiction and in a recent commentary, overturning Quill will create uncertainty and discrimination:

While some constitutional principles surely must be revisited to apply them to new circumstances, the idea that parochial state interests cannot burden interstate commerce remains a timeless principle regardless how sophisticated technology may be.

The effort to kill Quill is nothing more than states attempting to boost their tax revenues at the expense of the national economy.

Go to the original author's site::

Wisconsin Legislator Proposes Tax on Video Games

Every time you turn around, some ridiculous tax policy is being proposed in Wisconsin. Whether it's Governor Doyle's proposed tax on oil companies, Governor Doyle's proposed tax on hospitals, a proposal to tax soft drinks put forth by some legislators, a gigantic payroll tax hike to pay for universal healthcare within the state that would basically double the state's tax burden, or the state's continuous support of tax credits for specific industries and companies, the state is a bastion of bad tax policy. (It actually makes you appreciate the federal tax system.)

Now one state senator is proposing a special tax on video games to fund the juvenile detention system in the state. Here's the story from DailyTech:

This week, Wisconsin state Senator Jon Erpenbach proposed a bill that would add an additional tax on video games and gaming equipment, like consoles and accessories.

The new tax would levy a 1% surcharge on the sale of video games and related equipment, with funds applied towards the cost of moving non-violent, delinquent 17-year-olds into the juvenile detention system, as they are currently treated, prosecuted, and incarcerated as adults.

According to Erpenbach, the tax has nothing to do with dissuading gamers or casting videogames in an undesirable light; rather the idea is that the tax is "a kind of kids-kids thing," with gamers helping out fellow youth stuck behind bars in an adult prison system.

Despite the fact that the bill's emphasis is on moving non-violent youth offenders into the juvenile court system, gamers have latched onto the tax as an unfair attack on their hobby. Justin Sallows, an adult Wisconsin gamer speaking to WISC-TV, thinks that the tax is "a real problem ... even if that's not what the intention is, it creates the impression that there's something wrong with the video games because we need to put some extra tax on there to try to dissuade people from playing them."

Erpenbach's logic is this: kids should have to pay a tax on video games to help out other kids their age that engage in bad behavior. There are many problems with this logic. First, the move that Erpenbach is suggesting within the juvenile detention system would benefit everyone in the state, not just children who play video games. His ridiculous "kids-kids logic" could be extended to every program that sends government funds to children. Maybe a video game tax and a tax on other products that children disproportionately buy should pay for public schools too.

But even if one buys the "kid-kids" argument, there are many more industries where young people buy products at a disproportionately higher rate than others. Why not put taxes on certain types of music, clothes, or entertainment? Or why not go directly at the source and put a special tax within the income tax system on people who work at ages 16 or 17, or raise the drivers license fees on people those ages? This may sound stupid and discriminatory, but that's exactly what this proposal is.

Go to the original author's site::

Today's Wall Street Journal has an editorial piece discussing the Quill physical presence rule. That's the constitutional bar which prevents states from forcing out-of-state businesses to collect each state's sales tax on purchases. Overturning Quill would mean that retailers would have to collect taxes based on where the seller lives (not where the business is), an obligation that would next extend to brick-and-mortar businesses. The editorial recognizes this:

[S]mall merchants could potentially have to keep track of 86,000 different tax rates, depending on what they sell and to whom. But what about nine-digit zip codes? Could governments create different rates within each one? Yes indeed.

Believe it or not, it gets worse. The board of state and local tax collectors that administers the "streamlined" plan recently amended the agreement. Now the plan would allow some states to choose whether to tax online purchases at the seller's address or the buyer's, depending on whether they're in the same state. The end result will be different tax rates for in-state and out-of-state vendors—a clear Constitutional violation.

As I explained in Why the Quill Physical Presence Rule Shouldn't Go The Way of Personal Jurisdiction and in a recent commentary, overturning Quill will create uncertainty and discrimination:

While some constitutional principles surely must be revisited to apply them to new circumstances, the idea that parochial state interests cannot burden interstate commerce remains a timeless principle regardless how sophisticated technology may be.

The effort to kill Quill is nothing more than states attempting to boost their tax revenues at the expense of the national economy.

Go to the original author's site::

Press release from the Internal Revenue Service today on the delay in refunds caused by Congress's procrastination on passing a patch for AMT:

The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax "patch."

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January.  However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

In an odd way, it will not affect all of those filing Form 6251, which is the AMT form. People filing other forms, however, will be affected. These changes, according to the IRS, take longer for the IRS to reprogram their computers compared to the mere change in exemption levels. Specifically, here are the forms that could cause delays:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

Go to the original author's site::

An excellent Washington Post oped by Sally Pipes ("Brave New Diet") warns the public against scaremongering about our weight. She shines a light on the faults of the government's BMI Index by pointing out that Kobe Bryant, Tom Brady and other superfit athletes are overweight according to their BMIs. Oh, to be overweight like Kobe!!

And even if the BMI Index (ratio of height to weight) were an accurate measure of healthy weight, what was the validity of the 1998 government decision to lower the definition of overweight from a BMI of 27 to 25, making 25 million Americans suddenly "overweight"?

It might be partly to justify new taxes. Proposals for so-called fat taxes on soda and snacks are all the rage now, and the higher those obesity numbers are, the more likely we might be to relent and start letting legislators count our calories. We've written about such proposals in New Mexico and Colorado and more generally nationwide. Here was a fat tax lesson from Australia, and here's a humorous commentary from England.

Pipes is worried about the "nanny state" in general, that is, a government that conceives of its role as telling everyone what to do, supposedly for their own good. That's something Harvard scholar Kip Viscusi is also concerned with.

Go to the original author's site::

A Merrier Christmas in Oregon

A Merrier Christmas in Oregon

I hope Santa Claus brought you exactly what you wanted this morning. Oregon residents might have us beat, though, in that the state refunded part of their income tax payments just before the holiday:

Checks have arrived in mailboxes all over the state, thanks to an only-in-Oregon law that requires rebates to taxpayers when income tax collections top projections by more than 2 percent.

All told, the state has doled out $1.1 billion in rebates.[...]

"It is pretty well spent," said Portland resident Linda Stockton, who got a check for about $600. "And I bought $100 worth of canned goods, and gave it to the food bank. I bought about 20 pairs of mittens for foster kids."

The rest, she said, was spent on "clothes for me."[...]

"I don't trust (government) to spend our money wisely," said Paul Hansen of Portland, whose family got a check for $1,161. "The private sector is smart enough to spend the money more wisely and more efficiently."

Hansen said about 20 percent of his check will go to charity, and the rest is earmarked for his daughter's private school tuition.

Charities could be particular beneficiaries of the kicker, since many families are accustomed to making their donations at Christmas time. Greg Chaille, president of the Oregon Community Foundation, which tracks charitable giving in the state, said the rebate checks could increase donations by $100 million or so this year.

Oregon's tax refund rebate system has been around since 1979, and is similar to Alaska's Permanent Fund dividends and Colorado's TABOR refunds (which was suspended in 2005):

The Oregon rebate, known locally as the "kicker," also is written into the state constitution.

In the national consciousness, Oregon is firmly classified as a liberal state, whose residents were among the first in the nation to approve medical marijuana, and support strict environmental policies.

But when it comes to taxes, the state's residents are decidedly libertarian. Voters have shot down just about every proposal for a new tax in the last decade, from sales to gas to cigarettes.

That predisposition has made the "kicker" an untouchable sacred cow, especially because its backers timed the rebate to appear in mailboxes at Christmas, when bills are pilling up.

The refunds have their opponents, of course, in this case interestingly from the same person who sent her overcollected income taxes to charity and clothes for herself::

"As a former teacher, I don't get why the money isn't just reallocated to an area that has a tremendous need," Stockton said. "There are cheerleaders out in front of the supermarket begging for money to keep their sports program alive."

Oregon residents have that option, too. According to the AP, 12,000 residents sent $6.7 million in rebate checks to the state schools fund. It's a choice left to each taxpayer to decide the best use of their refund check.

Wisconsin Legislator Proposes Tax on Video Games

Every time you turn around, some ridiculous tax policy is being proposed in Wisconsin. Whether it's Governor Doyle's proposed tax on oil companies, Governor Doyle's proposed tax on hospitals, a proposal to tax soft drinks put forth by some legislators, a gigantic payroll tax hike to pay for universal healthcare within the state that would basically double the state's tax burden, or the state's continuous support of tax credits for specific industries and companies, the state is a bastion of bad tax policy. (It actually makes you appreciate the federal tax system.)

Now one state senator is proposing a special tax on video games to fund the juvenile detention system in the state. Here's the story from DailyTech:

This week, Wisconsin state Senator Jon Erpenbach proposed a bill that would add an additional tax on video games and gaming equipment, like consoles and accessories.

The new tax would levy a 1% surcharge on the sale of video games and related equipment, with funds applied towards the cost of moving non-violent, delinquent 17-year-olds into the juvenile detention system, as they are currently treated, prosecuted, and incarcerated as adults.

According to Erpenbach, the tax has nothing to do with dissuading gamers or casting videogames in an undesirable light; rather the idea is that the tax is "a kind of kids-kids thing," with gamers helping out fellow youth stuck behind bars in an adult prison system.

Despite the fact that the bill's emphasis is on moving non-violent youth offenders into the juvenile court system, gamers have latched onto the tax as an unfair attack on their hobby. Justin Sallows, an adult Wisconsin gamer speaking to WISC-TV, thinks that the tax is "a real problem ... even if that's not what the intention is, it creates the impression that there's something wrong with the video games because we need to put some extra tax on there to try to dissuade people from playing them."

Erpenbach's logic is this: kids should have to pay a tax on video games to help out other kids their age that engage in bad behavior. There are many problems with this logic. First, the move that Erpenbach is suggesting within the juvenile detention system would benefit everyone in the state, not just children who play video games. His ridiculous "kids-kids logic" could be extended to every program that sends government funds to children. Maybe a video game tax and a tax on other products that children disproportionately buy should pay for public schools too.

But even if one buys the "kid-kids" argument, there are many more industries where young people buy products at a disproportionately higher rate than others. Why not put taxes on certain types of music, clothes, or entertainment? Or why not go directly at the source and put a special tax within the income tax system on people who work at ages 16 or 17, or raise the drivers license fees on people those ages? This may sound stupid and discriminatory, but that's exactly what this proposal is.

Don't Let the Nanny Staters Scare You (or Tax You) By Calling You Obese

An excellent Washington Post oped by Sally Pipes ("Brave New Diet") warns the public against scaremongering about our weight. She shines a light on the faults of the government's BMI Index by pointing out that Kobe Bryant, Tom Brady and other superfit athletes are overweight according to their BMIs. Oh, to be overweight like Kobe!!

And even if the BMI Index (ratio of height to weight) were an accurate measure of healthy weight, what was the validity of the 1998 government decision to lower the definition of overweight from a BMI of 27 to 25, making 25 million Americans suddenly "overweight"?

It might be partly to justify new taxes. Proposals for so-called fat taxes on soda and snacks are all the rage now, and the higher those obesity numbers are, the more likely we might be to relent and start letting legislators count our calories. We've written about such proposals in New Mexico and Colorado and more generally nationwide. Here was a fat tax lesson from Australia, and here's a humorous commentary from England.

Pipes is worried about the "nanny state" in general, that is, a government that conceives of its role as telling everyone what to do, supposedly for their own good. That's something Harvard scholar Kip Viscusi is also concerned with.

Go to the original author's site::

Press release from the Internal Revenue Service today on the delay in refunds caused by Congress's procrastination on passing a patch for AMT:

The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax "patch."

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January.  However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

In an odd way, it will not affect all of those filing Form 6251, which is the AMT form. It will affect those who file for other credits whose structure within the 1040 and the AMT was set to revert to 1993 law unless a patch was passed. (Structure refers to whether credits are pre-or-post AMT.) These changes, according to the IRS, take longer for the IRS to reprogram their computers compared to the mere change in exemption levels. Specifically, here are the forms that could cause delays:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

Go to the original author's site::

Now that all the presents have been unwrapped and the holiday festivities are over, people's thoughts will soon turn to New Year's resolutions. Even those who don't make resolutions probably have some ideas about things they would like to do differently in the New Year.

We at the Tax Foundation have some thoughts about an area in which federal and state policymakers could use some improvement in 2008: tax policy. With this in mind, we have compiled a wish list for tax policy in the new year. This list can be viewed here and below.

Since 2008 is an election year in which a predicted economic slowdown could put pressure on some government budgets, reporters and politicians are likely to give the public a double dose of tax policy. 

Special interests will, as always, push tax policies that favor themselves at the expense of other taxpayers. Social engineers will continue pushing tax policies that redistribute money based upon health, age, income, and other demographics. And finally, gimmicks like tax holidays and tiny, overhyped tax cuts will be featured in legislatures and political campaigns. Champions of sound tax policy like yours truly at the Tax Foundation will view all these policies with a skeptical eye.

Our Wish List for Tax Policy in 2008

1. Politicians will stop playing word games, and call taxes "taxes" and not "fees," "surcharges," or "profits." Any assessment that raises money in excess of what is needed to defray costs is a tax.

2. Politicians will stop using the tax code to give even more preferential treatment to sectors like housing and healthcare that are already tax-pampered. This includes using the tax code as a bailout for homeowners.

3. Elected officials in state governments seeking to give property tax relief to homeowners will not do so merely by shifting to some other source of tax revenue like sales or income (which usually ends up as a tax increase) or by shifting it all to commercial property owners.

4. Members of Congress will finally realize that two oceans can't protect us from the tax competition sweeping the rest of the world. China is now the latest country to cut its corporate tax rate.

5. Politicians will stop raising taxes on arbitrarily targeted items like cigarettes, alcohol, bottled water, soda, tasty food, adult entertainment, gambling, etc. just because they want to raise revenue for some government program that is supposed to provide broad public benefits.

6. State officials will stop obstructing our national market by attempting to export taxes to "out-of-staters." States should attract investment with pro-growth policies, not by protectionist penalties on the productive.

7. At least one of the states that have recently considered lottery privatization will go through with a sale (not a lease!). That will reverse the domino effect of state governments going into the business of promoting gambling.

8. States will eliminate gimmicks like sales tax holidays and instead lower sales tax rates for the entire year.

9. TaxReformPanel.gov and TaxFoundation.org will be the most visited web sites of 2008, and our ultimate wish...

10. Congress will avoid another AMT ping-pong match in late 2008, instead acting in the public interest by passing fundamental tax reform that merges the good features of the AMT (a broader tax base and lower tax rates) into the regular tax code.

Go to the original author's site::

I hope Santa Claus brought you exactly what you wanted this morning. Oregon residents might have us beat, though, in that the state refunded part of their income tax payments just before the holiday:

Checks have arrived in mailboxes all over the state, thanks to an only-in-Oregon law that requires rebates to taxpayers when income tax collections top projections by more than 2 percent.

All told, the state has doled out $1.1 billion in rebates.[...]

"It is pretty well spent," said Portland resident Linda Stockton, who got a check for about $600. "And I bought $100 worth of canned goods, and gave it to the food bank. I bought about 20 pairs of mittens for foster kids."

The rest, she said, was spent on "clothes for me."[...]

"I don't trust (government) to spend our money wisely," said Paul Hansen of Portland, whose family got a check for $1,161. "The private sector is smart enough to spend the money more wisely and more efficiently."

Hansen said about 20 percent of his check will go to charity, and the rest is earmarked for his daughter's private school tuition.

Charities could be particular beneficiaries of the kicker, since many families are accustomed to making their donations at Christmas time. Greg Chaille, president of the Oregon Community Foundation, which tracks charitable giving in the state, said the rebate checks could increase donations by $100 million or so this year.

Oregon's tax refund rebate system has been around since 1979, and is similar to Alaska's Permanent Fund dividends and Colorado's TABOR refunds (which was suspended in 2005):

The Oregon rebate, known locally as the "kicker," also is written into the state constitution.

In the national consciousness, Oregon is firmly classified as a liberal state, whose residents were among the first in the nation to approve medical marijuana, and support strict environmental policies.

But when it comes to taxes, the state's residents are decidedly libertarian. Voters have shot down just about every proposal for a new tax in the last decade, from sales to gas to cigarettes.

That predisposition has made the "kicker" an untouchable sacred cow, especially because its backers timed the rebate to appear in mailboxes at Christmas, when bills are pilling up.

The refunds have their opponents, of course, in this case interestingly from the same person who sent her overcollected income taxes to charity and clothes for herself::

"As a former teacher, I don't get why the money isn't just reallocated to an area that has a tremendous need," Stockton said. "There are cheerleaders out in front of the supermarket begging for money to keep their sports program alive."

Oregon residents have that option, too. According to the AP, 12,000 residents sent $6.7 million in rebate checks to the state schools fund. It's a choice left to each taxpayer to decide the best use of their refund check.

Go to the original author's site::

Today's Wall Street Journal has an editorial piece discussing the Quill physical presence rule. That's the constitutional bar which prevents states from forcing out-of-state businesses to collect each state's sales tax on purchases. Overturning Quill would mean that retailers would have to collect taxes based on where the seller lives (not where the business is), an obligation that would next extend to brick-and-mortar businesses. The editorial recognizes this:

[S]mall merchants could potentially have to keep track of 86,000 different tax rates, depending on what they sell and to whom. But what about nine-digit zip codes? Could governments create different rates within each one? Yes indeed.

Believe it or not, it gets worse. The board of state and local tax collectors that administers the "streamlined" plan recently amended the agreement. Now the plan would allow some states to choose whether to tax online purchases at the seller's address or the buyer's, depending on whether they're in the same state. The end result will be different tax rates for in-state and out-of-state vendors—a clear Constitutional violation.

As I explained in Why the Quill Physical Presence Rule Shouldn't Go The Way of Personal Jurisdiction and in a recent commentary, overturning Quill will create uncertainty and discrimination:

While some constitutional principles surely must be revisited to apply them to new circumstances, the idea that parochial state interests cannot burden interstate commerce remains a timeless principle regardless how sophisticated technology may be.

The effort to kill Quill is nothing more than states attempting to boost their tax revenues at the expense of the national economy.

Go to the original author's site::

IRS: About 3-4 million Refunds Will Likely Be Delayed Due to Congress Procrastination

IRS: About 3-4 million Refunds Will Likely Be Delayed Due to Congress Procrastination

Press release from the Internal Revenue Service today on the delay in refunds caused by Congress's procrastination on passing a patch for AMT:

The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax "patch."

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January.  However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

In an odd way, it will not affect all of those filing Form 6251, which is the AMT form. It will affect those who file for other credits whose structure within the 1040 and the AMT was set to revert to 1993 law unless a patch was passed. (Structure refers to whether credits are pre-or-post AMT.) These changes, according to the IRS, take longer for the IRS to reprogram their computers compared to the mere change in exemption levels. Specifically, here are the forms that could cause delays:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

A Merrier Christmas in Oregon

I hope Santa Claus brought you exactly what you wanted this morning. Oregon residents might have us beat, though, in that the state refunded part of their income tax payments just before the holiday:

Checks have arrived in mailboxes all over the state, thanks to an only-in-Oregon law that requires rebates to taxpayers when income tax collections top projections by more than 2 percent.

All told, the state has doled out $1.1 billion in rebates.[...]

"It is pretty well spent," said Portland resident Linda Stockton, who got a check for about $600. "And I bought $100 worth of canned goods, and gave it to the food bank. I bought about 20 pairs of mittens for foster kids."

The rest, she said, was spent on "clothes for me."[...]

"I don't trust (government) to spend our money wisely," said Paul Hansen of Portland, whose family got a check for $1,161. "The private sector is smart enough to spend the money more wisely and more efficiently."

Hansen said about 20 percent of his check will go to charity, and the rest is earmarked for his daughter's private school tuition.

Charities could be particular beneficiaries of the kicker, since many families are accustomed to making their donations at Christmas time. Greg Chaille, president of the Oregon Community Foundation, which tracks charitable giving in the state, said the rebate checks could increase donations by $100 million or so this year.

Oregon's tax refund rebate system has been around since 1979, and is similar to Alaska's Permanent Fund dividends and Colorado's TABOR refunds (which was suspended in 2005):

The Oregon rebate, known locally as the "kicker," also is written into the state constitution.

In the national consciousness, Oregon is firmly classified as a liberal state, whose residents were among the first in the nation to approve medical marijuana, and support strict environmental policies.

But when it comes to taxes, the state's residents are decidedly libertarian. Voters have shot down just about every proposal for a new tax in the last decade, from sales to gas to cigarettes.

That predisposition has made the "kicker" an untouchable sacred cow, especially because its backers timed the rebate to appear in mailboxes at Christmas, when bills are pilling up.

The refunds have their opponents, of course, in this case interestingly from the same person who sent her overcollected income taxes to charity and clothes for herself::

"As a former teacher, I don't get why the money isn't just reallocated to an area that has a tremendous need," Stockton said. "There are cheerleaders out in front of the supermarket begging for money to keep their sports program alive."

Oregon residents have that option, too. According to the AP, 12,000 residents sent $6.7 million in rebate checks to the state schools fund. It's a choice left to each taxpayer to decide the best use of their refund check.

Wisconsin Legislator Proposes Tax on Video Games

Every time you turn around, some ridiculous tax policy is being proposed in Wisconsin. Whether it's Governor Doyle's proposed tax on oil companies, Governor Doyle's proposed tax on hospitals, a proposal to tax soft drinks put forth by some legislators, a gigantic payroll tax hike to pay for universal healthcare within the state that would basically double the state's tax burden, or the state's continuous support of tax credits for specific industries and companies, the state is a bastion of bad tax policy. (It actually makes you appreciate the federal tax system.)

Now one state senator is proposing a special tax on video games to fund the juvenile detention system in the state. Here's the story from DailyTech:

This week, Wisconsin state Senator Jon Erpenbach proposed a bill that would add an additional tax on video games and gaming equipment, like consoles and accessories.

The new tax would levy a 1% surcharge on the sale of video games and related equipment, with funds applied towards the cost of moving non-violent, delinquent 17-year-olds into the juvenile detention system, as they are currently treated, prosecuted, and incarcerated as adults.

According to Erpenbach, the tax has nothing to do with dissuading gamers or casting videogames in an undesirable light; rather the idea is that the tax is "a kind of kids-kids thing," with gamers helping out fellow youth stuck behind bars in an adult prison system.

Despite the fact that the bill's emphasis is on moving non-violent youth offenders into the juvenile court system, gamers have latched onto the tax as an unfair attack on their hobby. Justin Sallows, an adult Wisconsin gamer speaking to WISC-TV, thinks that the tax is "a real problem ... even if that's not what the intention is, it creates the impression that there's something wrong with the video games because we need to put some extra tax on there to try to dissuade people from playing them."

Erpenbach's logic is this: kids should have to pay a tax on video games to help out other kids their age that engage in bad behavior. There are many problems with this logic. First, the move that Erpenbach is suggesting within the juvenile detention system would benefit everyone in the state, not just children who play video games. His ridiculous "kids-kids logic" could be extended to every program that sends government funds to children. Maybe a video game tax and a tax on other products that children disproportionately buy should pay for public schools too.

But even if one buys the "kid-kids" argument, there are many more industries where young people buy products at a disproportionately higher rate than others. Why not put taxes on certain types of music, clothes, or entertainment? Or why not go directly at the source and put a special tax within the income tax system on people who work at ages 16 or 17, or raise the drivers license fees on people those ages? This may sound stupid and discriminatory, but that's exactly what this proposal is.

A Merrier Christmas in Oregon

I hope Santa Claus brought you exactly what you wanted this morning. Oregon residents might have us beat, though, in that the state refunded part of their income tax payments just before the holiday:

Checks have arrived in mailboxes all over the state, thanks to an only-in-Oregon law that requires rebates to taxpayers when income tax collections top projections by more than 2 percent.

All told, the state has doled out $1.1 billion in rebates.[...]

"It is pretty well spent," said Portland resident Linda Stockton, who got a check for about $600. "And I bought $100 worth of canned goods, and gave it to the food bank. I bought about 20 pairs of mittens for foster kids."

The rest, she said, was spent on "clothes for me."[...]

"I don't trust (government) to spend our money wisely," said Paul Hansen of Portland, whose family got a check for $1,161. "The private sector is smart enough to spend the money more wisely and more efficiently."

Hansen said about 20 percent of his check will go to charity, and the rest is earmarked for his daughter's private school tuition.

Charities could be particular beneficiaries of the kicker, since many families are accustomed to making their donations at Christmas time. Greg Chaille, president of the Oregon Community Foundation, which tracks charitable giving in the state, said the rebate checks could increase donations by $100 million or so this year.

Oregon's tax refund rebate system has been around since 1979, and is similar to Alaska's Permanent Fund dividends and Colorado's TABOR refunds (which was suspended in 2005):

The Oregon rebate, known locally as the "kicker," also is written into the state constitution.

In the national consciousness, Oregon is firmly classified as a liberal state, whose residents were among the first in the nation to approve medical marijuana, and support strict environmental policies.

But when it comes to taxes, the state's residents are decidedly libertarian. Voters have shot down just about every proposal for a new tax in the last decade, from sales to gas to cigarettes.

That predisposition has made the "kicker" an untouchable sacred cow, especially because its backers timed the rebate to appear in mailboxes at Christmas, when bills are pilling up.

The refunds have their opponents, of course, in this case interestingly from the same person who sent her overcollected income taxes to charity and clothes for herself::

"As a former teacher, I don't get why the money isn't just reallocated to an area that has a tremendous need," Stockton said. "There are cheerleaders out in front of the supermarket begging for money to keep their sports program alive."

Oregon residents have that option, too. According to the AP, 12,000 residents sent $6.7 million in rebate checks to the state schools fund. It's a choice left to each taxpayer to decide the best use of their refund check.

Go to the original author's site::

An excellent Washington Post oped by Sally Pipes ("Brave New Diet") warns the public against scaremongering about our weight. She shines a light on the faults of the government's BMI Index by pointing out that Kobe Bryant, Tom Brady and other superfit athletes are overweight according to their BMIs. Oh, to be overweight like Kobe!!

And even if the BMI Index (ratio of height to weight) were an accurate measure of healthy weight, what was the validity of the 1998 government decision to lower the definition of overweight from a BMI of 27 to 25, making 25 million Americans suddenly "overweight"?

It might be partly to justify new taxes. Proposals for so-called fat taxes on soda and snacks are all the rage now, and the higher those obesity numbers are, the more likely we might be to relent and start letting legislators count our calories. We've written about such proposals in New Mexico and Colorado and more generally nationwide. Here was a fat tax lesson from Australia, and here's a humorous commentary from England.

Pipes is worried about the "nanny state" in general, that is, a government that conceives of its role as telling everyone what to do, supposedly for their own good. That's something Harvard scholar Kip Viscusi is also concerned with.

Go to the original author's site::

Don't Let the Nanny Staters Scare You (or Tax You) By Calling You Obese

An excellent Washington Post oped by Sally Pipes ("Brave New Diet") warns the public against scaremongering about our weight. She shines a light on the faults of the government's BMI Index by pointing out that Kobe Bryant, Tom Brady and other superfit athletes are overweight according to their BMIs. Oh, to be overweight like Kobe!!

And even if the BMI Index (ratio of height to weight) were an accurate measure of healthy weight, what was the validity of the 1998 government decision to lower the definition of overweight from a BMI of 27 to 25, making 25 million Americans suddenly "overweight"?

It might be partly to justify new taxes. Proposals for so-called fat taxes on soda and snacks are all the rage now, and the higher those obesity numbers are, the more likely we might be to relent and start letting legislators count our calories. We've written about such proposals in New Mexico and Colorado and more generally nationwide. Here was a fat tax lesson from Australia, and here's a humorous commentary from England.

Pipes is worried about the "nanny state" in general, that is, a government that conceives of its role as telling everyone what to do, supposedly for their own good. That's something Harvard scholar Kip Viscusi is also concerned with.

Go to the original author's site:

I hope Santa Claus brought you exactly what you wanted this morning. Oregon residents might have us beat, though, in that the state refunded part of their income tax payments just before the holiday:

Checks have arrived in mailboxes all over the state, thanks to an only-in-Oregon law that requires rebates to taxpayers when income tax collections top projections by more than 2 percent.

All told, the state has doled out $1.1 billion in rebates.[...]

"It is pretty well spent," said Portland resident Linda Stockton, who got a check for about $600. "And I bought $100 worth of canned goods, and gave it to the food bank. I bought about 20 pairs of mittens for foster kids."

The rest, she said, was spent on "clothes for me."[...]

"I don't trust (government) to spend our money wisely," said Paul Hansen of Portland, whose family got a check for $1,161. "The private sector is smart enough to spend the money more wisely and more efficiently."

Hansen said about 20 percent of his check will go to charity, and the rest is earmarked for his daughter's private school tuition.

Charities could be particular beneficiaries of the kicker, since many families are accustomed to making their donations at Christmas time. Greg Chaille, president of the Oregon Community Foundation, which tracks charitable giving in the state, said the rebate checks could increase donations by $100 million or so this year.

Oregon's tax refund rebate system has been around since 1979, and is similar to Alaska's Permanent Fund dividends and Colorado's TABOR refunds (which was suspended in 2005):

The Oregon rebate, known locally as the "kicker," also is written into the state constitution.

In the national consciousness, Oregon is firmly classified as a liberal state, whose residents were among the first in the nation to approve medical marijuana, and support strict environmental policies.

But when it comes to taxes, the state's residents are decidedly libertarian. Voters have shot down just about every proposal for a new tax in the last decade, from sales to gas to cigarettes.

That predisposition has made the "kicker" an untouchable sacred cow, especially because its backers timed the rebate to appear in mailboxes at Christmas, when bills are pilling up.

The refunds have their opponents, of course, in this case interestingly from the same person who sent her overcollected income taxes to charity and clothes for herself::

"As a former teacher, I don't get why the money isn't just reallocated to an area that has a tremendous need," Stockton said. "There are cheerleaders out in front of the supermarket begging for money to keep their sports program alive."

Oregon residents have that option, too. According to the AP, 12,000 residents sent $6.7 million in rebate checks to the state schools fund. It's a choice left to each taxpayer to decide the best use of their refund check.

Go to the original author's site:

South Carolina Governor Proposes Optional Flat Tax, Cigarette Tax Hike

South Carolina Governor Proposes Optional Flat Tax, Cigarette Tax Hike

Since taking office, Governor Mark Sanford of South Carolina has sought to cut his state's income tax, which tops out at a 7 percent rate. Yesterday, he unveiled a proposal to offer residents the option of sticking with the current code, or paying a 3.4 percent flat tax, with no exemptions or deductions.

He estimates the revenue loss would be $107 million, which he proposes to make up by increasing the state tax on cigarettes from 7 cents to 37 cents. According to the Governor, it's a step to increase South Carolina's competitiveness and bring about sound tax policy:

This is about beginning a long-overdue conversation in South Carolina about the way we tax and about the need to simplify our tax structure. To that end, we're making this proposal as a way of starting that conversation and as a way to take a meaningful step in that direction.

Sanford has tried reforming the state income tax several times since taking office:

In 2003 Sanford supported raising the cigarette tax to cover Medicaid costs, while advocating gradual reductions in the top income tax rate from 7 percent to 6.5 percent in the first five years, and then to 5 percent over the next 10 years. In 2004 he supported a proposal to reduce the income tax rate to 4.75 percent over 10 years. The proposal passed the House, but was killed by a seven-hour filibuster by Senate Democrats. A similar measure approved by the House in 2005 was scaled down by the Senate to a reduction in small business taxes, which Sanford signed, while vowing to return the next year "asking for what the Senate ultimately didn't give you this year."

In 2006 Sanford proposed an income tax rebate and limiting state spending to population growth plus inflation with a referendum similar to Colorado's Taxpayer Bill of Rights, also known as Amendment 1. But lawmakers were more interested in property tax relief that year, and Sanford ultimately signed a bill raising the sales tax by 1 percentage point to pay for a partial property tax exemption for owner-occupied homes and a reduction in the tax on groceries.

While we've criticized (most recently yesterday) the soundness of raising cigarette taxes for general revenue needs, the flat tax plan is an intriguing one, and hopefully it will generate a good discussion about tax policy in the Palmetto State.

Holiday Tax –pectations

There's a lot of talk of silly tax policy now-in-days. Every politician seems to have some funny gimmick that will tax some group to pay for a program for some other group. So with the holidays upon us, here's a list of new taxes we wouldn't be surprised (for better or usually for worse) to see proposed:

Egg nog and Christmas cookie "fat" tax

They are staples of the holiday diet, but they're also the cause of the ever-expanding American waistline. Therefore, it's time to tax these holiday favorites into oblivion.

Christmas Tree Global Warming Tax

Deforestation is certainly a cause of global warming, so expect that evergreen to cost a bit more green next year.

Menorah Candle Carbon Offset Fee

Burning candles is one quick way to increase your carbon emissions, so prepare to give one night's worth of presents to the tax man.

The Gift of the Magi Sales Tax Holiday

Perhaps with a bit of incentive from the taxman Jim and Della could have afforded that watch chain and hairbrush outright (though that doesn't solve the question about the income they gained from pawning the watch and her locks of hair - maybe next year).

Holiday Lights Carbon Tax

Electricity runs on coal and coal equals carbon, so plug in Frosty on the front lawn and prepare to pay.

Ebenezer Scrooge Charitable Donation Deduction

Maybe old Scrooge would have abandoned his miserly ways a bit sooner if he'd had a bigger tax incentive to do so. Maybe Tiny Tim will have the holiday the feast he always wanted after all.

Snow Shovel Tax Credit

Tax policy isn't just about penalizing "bad" behavior. This year, we'll reward those who buy a shovel instead of firing up the ol' snow blower. After all, there will be no more white Christmases for them if they keep up their gas-powered ways.

Coal in the Stocking Carbon Tax

Well, duh. What else would you expect after a year of being bad but an added tax?

New Years Eve Champagne Liquor Tax

Booze is always a favorite target for special taxation, so why not up the ante on the biggest celebration of the year. You're going to pay for popping that cork this year.

New Years Cigar Tobacco Tax

Tobacco is another easy target, so there's no reason to leave them out of this holiday tax-and-spend-a-palooza. Puffing on that stogie will mean paying the piper this go around.

and finally...

The Broken Resolutions Fee

You promised to lose weight, you promised to spend more time at home, you promised to go out and volunteer... and broke every single one of those resolutions. You got away with it last year, but not this go around. Break your word and pay the price. After all, if the tax man isn't watching out for you, who is?

 

Happy holidays!

Your Paycheck Will Increase on January 1

Inflation adjustments for tax brackets, exemptions, and deductions will mean that your first paycheck in 2008 will be slightly higher than your last paycheck of 2007, even if your salary remains the same. While the increase this January will not be nearly as large as last January, it will still be noticeable.

For a single person earning $50,000 per year (assume all wages/salaries and no adjustments), his federal individual income tax bill under 2007 tax parameters would be calculated as follows:

AGI = $50,000
Taxable Income = AGI less Standard Deduction ($5,350) and Personal Exemptions ($3,400) = $50,000 - $5,350 - $3,400 = $41,250
Income Tax Before Credits = Tax Paid at 10% Rate + Tax Paid at 15% Rate + Tax Paid at 25% Rate = (($41,250 - $31,850) * .25) + (($31,850 - $7,825) * .15) + ($7,825 - 0) * .10) = $2,350 + $3,603.75 + $782.50 = $6,736.25
Credits = 0 (we assume no credits)
Income Tax After Credits for 2007 tax law = $6,736.25

Now for a person earning $50,000 under the 2008 tax parameters:

AGI = $50,000
Taxable Income = AGI less Standard Deduction ($5,450) and Personal Exemptions ($3,500) = $50,000 - $5,450 - $3,500 = $41,050
Income Tax Before Credits = Tax Paid at 10% Rate + Tax Paid at 15% Rate + Tax Paid at 25% Rate = (($41,050 - $32,550) * .25) + (($32,550 - $8,025) * .15) + ($7,825 - 0) * .10) = $2,125 + $3,678.75 + $802.50 = $6,606.25
Credits = 0 (we assume no credits)
Income Tax After Credits for 2007 tax law = $6,606.25

The person would save $130 on the year assuming no pay change, which would be about a $5.42 pay increase per pay period (assuming two per month).

Note also that inflation adjustments do reduce somewhat any growing income gap between those whose real incomes did not grow as fast as others as higher exemptions and deductions make the tax system more progressive.

Finally, a pay raise will not apply to some of those who live in Maryland as paychecks for high-income Marylanders are set to shrink significantly starting Jan. 1, 2008 thanks to the recent tax hike approved by the legislature and Gov. O'Malley. Those not high income in Maryland may see higher paychecks thanks to a slight increase in the exemption amount, but they will see higher taxes when they shop as the sales tax is going from 5 percent to 6 percent effective January 3rd.

Go to the original author's site::

Since taking office, Governor Mark Sanford of South Carolina has sought to cut his state's income tax, which tops out at a 7 percent rate. Yesterday, he unveiled a proposal to offer residents the option of sticking with the current code, or paying a 3.4 percent flat tax, with no exemptions or deductions.

He estimates the revenue loss would be $107 million, which he proposes to make up by increasing the state tax on cigarettes from 7 cents to 37 cents. According to the Governor, it's a step to increase South Carolina's competitiveness and bring about sound tax policy:

This is about beginning a long-overdue conversation in South Carolina about the way we tax and about the need to simplify our tax structure. To that end, we're making this proposal as a way of starting that conversation and as a way to take a meaningful step in that direction.

Sanford has tried reforming the state income tax several times since taking office:

In 2003 Sanford supported raising the cigarette tax to cover Medicaid costs, while advocating gradual reductions in the top income tax rate from 7 percent to 6.5 percent in the first five years, and then to 5 percent over the next 10 years. In 2004 he supported a proposal to reduce the income tax rate to 4.75 percent over 10 years. The proposal passed the House, but was killed by a seven-hour filibuster by Senate Democrats. A similar measure approved by the House in 2005 was scaled down by the Senate to a reduction in small business taxes, which Sanford signed, while vowing to return the next year "asking for what the Senate ultimately didn't give you this year."

In 2006 Sanford proposed an income tax rebate and limiting state spending to population growth plus inflation with a referendum similar to Colorado's Taxpayer Bill of Rights, also known as Amendment 1. But lawmakers were more interested in property tax relief that year, and Sanford ultimately signed a bill raising the sales tax by 1 percentage point to pay for a partial property tax exemption for owner-occupied homes and a reduction in the tax on groceries.

While we've criticized (most recently yesterday) the soundness of raising cigarette taxes for general revenue needs, the flat tax plan is an intriguing one, and hopefully it will generate a good discussion about tax policy in the Palmetto State.

Go to the original author's site::

There's a lot of talk of silly tax policy now-in-days. Every politician seems to have some funny gimmick that will tax some group to pay for a program for some other group. So with the holidays upon us, here's a list of new taxes we wouldn't be surprised (for better or usually for worse) to see proposed:

Egg nog and Christmas cookie "fat" tax

They are staples of the holiday diet, but they're also the cause of the ever-expanding American waistline. Therefore, it's time to tax these holiday favorites into oblivion.

Christmas Tree Global Warming Tax

Deforestation is certainly a cause of global warming, so expect that evergreen to cost a bit more green next year.

Menorah Candle Carbon Offset Fee

Burning candles is one quick way to increase your carbon emissions, so prepare to give one night's worth of presents to the tax man.

The Gift of the Magi Sales Tax Holiday

Perhaps with a bit of incentive from the taxman Jim and Della could have afforded that watch chain and hairbrush outright (though that doesn't solve the question about the income they gained from pawning the watch and her locks of hair - maybe next year).

Holiday Lights Carbon Tax

Electricity runs on coal and coal equals carbon, so plug in Frosty on the front lawn and prepare to pay.

Ebenezer Scrooge Charitable Donation Deduction

Maybe old Scrooge would have abandoned his miserly ways a bit sooner if he'd had a bigger tax incentive to do so. Maybe Tiny Tim will have the holiday the feast he always wanted after all.

Snow Shovel Tax Credit

Tax policy isn't just about penalizing "bad" behavior. This year, we'll reward those who buy a shovel instead of firing up the ol' snow blower. After all, there will be no more white Christmases for them if they keep up their gas-powered ways.

Coal in the Stocking Carbon Tax

Well, duh. What else would you expect after a year of being bad but an added tax?

New Years Eve Champagne Liquor Tax

Booze is always a favorite target for special taxation, so why not up the ante on the biggest celebration of the year. You're going to pay for popping that cork this year.

New Years Cigar Tobacco Tax

Tobacco is another easy target, so there's no reason to leave them out of this holiday tax-and-spend-a-palooza. Puffing on that stogie will mean paying the piper this go around.

and finally...

The Broken Resolutions Fee

You promised to lose weight, you promised to spend more time at home, you promised to go out and volunteer... and broke every single one of those resolutions. You got away with it last year, but not this go around. Break your word and pay the price. After all, if the tax man isn't watching out for you, who is?

 

Happy holidays!

Go to the original author's site::

Should Mortgage Debt Forgiveness be Taxed?

Today, President Bush signed into law a new tax law that puts in place a three year exclusion from income of mortgage debt forgiveness. Currently, individuals who receive forgiveness of their mortgage must claim the forgiveness as income on their IRS tax forms. This change in tax law is bad tax policy for two reasons. First, it's temporary. If mortgage debt forgiveness should not be taxable income, then why should somebody who is in financial trouble in 2008 be more deserving of somebody who is in financial trouble in 2012? Such a provision defies logic and basically shows that the politicians are just trying to appease the short-run concern of voters, void of any true principle.
 
But then again, tax policy in Washington is rarely driven by principle. And that brings us to the second reason why this is bad tax policy   mortgage debt forgiveness is income and should be taxed under an income tax. There is a reason that the IRS lawyers have ruled that this type of mortgage debt forgiveness should be treated as ordinary income.
 
Under a pure income tax, a house would be treated as an investment that pays annual dividends (in the form of imputed rental income) and which can have capital gains or losses which are realized upon sale. But for political reasons, we have decided that not only should imputed rental income not be taxed and capital gains on primary housing non taxed, but that homeowners should be able to deduct the mortgage interest that they pay. (It really is bizarre policy when you think about MID allowing people to deduct mortgage interest against income that they don't have to claim.)

Now on the issue of debt forgiveness, if an individual seeks to purchase a $450,000 home and needs to borrow $450,000 to do so, the interest expenses should be deductible under the pure income tax assuming the imputed rental income is taxed. For simplicity, however, assume there was a zero percent interest rate. Suppose one year later, the value of the home now falls to $200,000 given the market and the bank forgives the remainder of the loan. $15,000 has been paid off, but the bank now forgives the person of the remaining $435,000 and takes the home. Should that $435,000 be taxed?
 
From a Haig-Simons perspective, the person's change in net wealth is zero relative to the starting point (before the investment). Ignoring the imputed rental income (the consumption portion of HSI), the person would be forced to claim the forgiveness as income but also be allowed to deduct from income the huge capital loss as a result of the house depreciation. However, the U.S. tax system does not tax the capital gains from housing nor does it allow for housing-related capital losses to be deducted against income. Therefore, the forgiveness should still be treated as income and the person should have a positive tax liability.

Finally, it is worth noting that this will cost $1 billion. So how do we pay for that? Raise taxes on somebody else of course. Bloomberg News reports that "the $1 billion cost of the bill will be offset by raising penalties on partnerships and small businesses that fail to file tax returns." That is not sound tax policy either. The penalties on partnerships and small businesses for not filing tax returns should be set in order to ensure proper compliance, and should not be increased merely because politicians want to raise revenue to pay for something else. (Same principle as Virginia drivers' fees and cigarette taxes.) There is an optimal fine amount, which is independent of the need to raise money to help bailout homeowners who happen to be struggling when others are struggling.

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It has been a common theme recently for elected officials to go after cigarettes for a tax hike to pay for some spending program that is supposed to provide general public benefits. What is the justification of this type of policy from the perspective of sound public finance? Unless one wants to argue for an across-the-board switch to Ramsey Rule taxation, there is none. It's pure democratic politics: use the coercive power of the state to take from an unpopular minority to finance a majority's wishes.

The latest two examples come from California and South Carolina. Gov. Schwarzenegger (yes, the same man who used to loathe socialist policies in Free to Choose videos) wants to use the revenue to pay for universal healthcare in California. Gov. Sanford wants to raise the South Carolina cigarette tax to pay for a flat tax in his state.

Neither has justified higher cigarette taxes on the grounds of empirical evidence on their negative externalities. They just want the revenue. It's kind of scary that in a supposedly free country a politician with the political support of a majority could raise taxes on an arbitrarily selected minority to finance a program that benefits the majority.

Our recommended holiday reading for these politicians: Federalist Paper No. 10 by James Madison
(Caution: May contain words not used often in everyday readings or talk such as "liberty.")

Go to the original author's site:

There's a lot of talk of silly tax policy now-in-days. Every politician seems to have some funny gimmick that will tax some group to pay for a program for some other group. So with the holidays upon us, here's a list of new taxes we wouldn't be surprised (for better or usually for worse) to see proposed:

Egg nog and Christmas cookie "fat" tax

They are staples of the holiday diet, but they're also the cause of the ever-expanding American waistline. Therefore, it's time to tax these holiday favorites into oblivion.

Christmas Tree Global Warming Tax

Deforestation is certainly a cause of global warming, so expect that evergreen to cost a bit more green next year.

Menorah Candle Carbon Offset Fee

Burning candles is one quick way to increase your carbon emissions, so prepare to give one night's worth of presents to the tax man.

The Gift of the Magi Sales Tax Holiday

Perhaps with a bit of incentive from the taxman Jim and Della could have afforded that watch chain and hairbrush outright (though that doesn't solve the question about the income they gained from pawning the watch and her locks of hair - maybe next year).

Holiday Lights Carbon Tax

Electricity runs on coal and coal equals carbon, so plug in Frosty on the front lawn and prepare to pay.

Ebenezer Scrooge Charitable Donation Deduction

Maybe old Scrooge would have abandoned his miserly ways a bit sooner if he'd had a bigger tax incentive to do so. Maybe Tiny Tim will have the holiday the feast he always wanted after all.

Snow Shovel Tax Credit

Tax policy isn't just about penalizing "bad" behavior. This year, we'll reward those who buy a shovel instead of firing up the ol' snow blower. After all, there will be no more white Christmases for them if they keep up their gas-powered ways.

Coal in the Stocking Carbon Tax

Well, duh. What else would you expect after a year of being bad but an added tax?

New Years Eve Champagne Liquor Tax

Booze is always a favorite target for special taxation, so why not up the ante on the biggest celebration of the year. You're going to pay for popping that cork this year.

New Years Cigar Tobacco Tax

Tobacco is another easy target, so there's no reason to leave them out of this holiday tax-and-spend-a-palooza. Puffing on that stogie will mean paying the piper this go around.

and finally...

The Broken Resolutions Fee

You promised to lose weight, you promised to spend more time at home, you promised to go out and volunteer... and broke every single one of those resolutions. You got away with it last year, but not this go around. Break your word and pay the price. After all, if the tax man isn't watching out for you, who is?

 

Happy holidays!

Go to the original author's site:

Inflation adjustments for tax brackets, exemptions, and deductions will mean that your first paycheck in 2008 will be slightly higher than your last paycheck of 2007, even if your salary remains the same. While the increase this January will not be nearly as large as last January, it will still be noticeable.

For a single person earning $50,000 per year (assume all wages/salaries and no adjustments), his federal individual income tax bill under 2007 tax parameters would be calculated as follows:

AGI = $50,000
Taxable Income = AGI less Standard Deduction ($5,350) and Personal Exemptions ($3,400) = $50,000 - $5,350 - $3,400 = $41,250
Income Tax Before Credits = Tax Paid at 10% Rate + Tax Paid at 15% Rate + Tax Paid at 25% Rate = (($41,250 - $31,850) * .25) + (($31,850 - $7,825) * .15) + ($7,825 - 0) * .10) = $2,350 + $3,603.75 + $782.50 = $6,736.25
Credits = 0 (we assume no credits)
Income Tax After Credits for 2007 tax law = $6,736.25

Now for a person earning $50,000 under the 2008 tax parameters:

AGI = $50,000
Taxable Income = AGI less Standard Deduction ($5,450) and Personal Exemptions ($3,500) = $50,000 - $5,450 - $3,500 = $41,050
Income Tax Before Credits = Tax Paid at 10% Rate + Tax Paid at 15% Rate + Tax Paid at 25% Rate = (($41,050 - $32,550) * .25) + (($32,550 - $8,025) * .15) + ($7,825 - 0) * .10) = $2,125 + $3,678.75 + $802.50 = $6,606.25
Credits = 0 (we assume no credits)
Income Tax After Credits for 2007 tax law = $6,606.25

The person would save $130 on the year assuming no pay change, which would be about a $5.42 pay increase per pay period (assuming two per month).

Note also that inflation adjustments do reduce somewhat any growing income gap between those whose real incomes did not grow as fast as others as higher exemptions and deductions make the tax system more progressive.

Finally, a pay raise will not apply to some of those who live in Maryland as paychecks for high-income Marylanders are set to shrink significantly starting Jan. 1, 2008 thanks to the recent tax hike approved by the legislature and Gov. O'Malley. Those not high income in Maryland may see higher paychecks thanks to a slight increase in the exemption amount, but they will see higher taxes when they shop as the sales tax is going from 5 percent to 6 percent effective January 3rd.

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Since taking office, Governor Mark Sanford of South Carolina has sought to cut his state's income tax, which tops out at a 7 percent rate. Yesterday, he unveiled a proposal to offer residents the option of sticking with the current code, or paying a 3.4 percent flat tax, with no exemptions or deductions.

He estimates the revenue loss would be $107 million, which he proposes to make up by increasing the state tax on cigarettes from 7 cents to 37 cents. According to the Governor, it's a step to increase South Carolina's competitiveness and bring about sound tax policy:

This is about beginning a long-overdue conversation in South Carolina about the way we tax and about the need to simplify our tax structure. To that end, we're making this proposal as a way of starting that conversation and as a way to take a meaningful step in that direction.

Sanford has tried reforming the state income tax several times since taking office:

In 2003 Sanford supported raising the cigarette tax to cover Medicaid costs, while advocating gradual reductions in the top income tax rate from 7 percent to 6.5 percent in the first five years, and then to 5 percent over the next 10 years. In 2004 he supported a proposal to reduce the income tax rate to 4.75 percent over 10 years. The proposal passed the House, but was killed by a seven-hour filibuster by Senate Democrats. A similar measure approved by the House in 2005 was scaled down by the Senate to a reduction in small business taxes, which Sanford signed, while vowing to return the next year "asking for what the Senate ultimately didn't give you this year."

In 2006 Sanford proposed an income tax rebate and limiting state spending to population growth plus inflation with a referendum similar to Colorado's Taxpayer Bill of Rights, also known as Amendment 1. But lawmakers were more interested in property tax relief that year, and Sanford ultimately signed a bill raising the sales tax by 1 percentage point to pay for a partial property tax exemption for owner-occupied homes and a reduction in the tax on groceries.

While we've criticized (most recently yesterday) the soundness of raising cigarette taxes for general revenue needs, the flat tax plan is an intriguing one, and hopefully it will generate a good discussion about tax policy in the Palmetto State.

Go to the original author's site: