Wednesday, December 3, 2008

Federal and State Tax Policy in the Best of the Blogosphere

The Tax Foundation's mission is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government. And it's nice to see that bloggers are paying attention to the Tax Foundation's work at all levels of government.

On federal tax issues ...

  • The Urbanophile, a blog about urban affairs in Midwestern cities, uses Tax Foundation studies on "nonpayers" into the federal income tax system to make the point that "the burdens of society must broadly be shared" and that folks should be concerned "about the class warfare rhetoric being used to demonize the 'top 2%' or whomever, as well as tax policies that are again separating America into a two-tier society: those who pay taxes and those who collect benefits."
  • FisCons.com cites a recent blog post from Staff Economist Josh Barro on Congressman Louie Gohmert's (R-TX 1) proposal for a two-month temporary tax holiday, saying that "Gohmert’s plan may be well-intentioned, but bad policy" and "will do little to stimulate the economy."

On state tax issues ...

Go to the original author's site::

My colleague Joe notes below a proposal by Texas Rep. Louie Gohmert to suspend personal income and payroll tax collections for two months in 2009, as an alternative "use" for approximately $350 billion in bailout funds that are as yet unallocated.  Let's set aside the merits of temporary tax suspensions in general.  I'll note that they violate one of the Tax Foundation's five principles of sound tax policy—stability—and leave it at that.

A key problem with this proposal and its counterparts on the left (see, for example, The Progressive's $700 billion wish list for new government spending) is that they conflate buying $x worth of assets with spending $x on programs, or foregoing $x in tax revenues.  Because TARP (the bailout program) is not really $700 billion of spending, an alternative plan of the same size that funds more government programs or gives new tax cuts would blow a much bigger hole in the federal budget than TARP does.

So far, the Treasury has used about $350 billion of the $700 billion in funds available through TARP, principally to purchase preferred stock in large banks.  The preferred stock is an asset with real value—the banks pay an annual rate of interest to the government, and the government can sell the preferred stock to other investors.  So, when the government buys $350 billion worth of preferred stock in banks, it's not spending the money; it's investing it.

Of course, these might be bad investments.  The preferred stock may be worth less than the government is paying for it, if the dividend is below market.  And if one of the banks the government invested in fails, it would likely lose part of all of its investment in that bank.  However, the cost to taxpayers here is the difference between what the government pays for its investments and what they're worth—a fraction of the total bailout amount, except in the unlikely event that all the investments are worth $0 (i.e., all banks fail).

On the other hand, new tax cuts or new spending programs represent an actual current cost to the federal treasury in their full amounts.  If the government spends $350 billion more on health care programs, or gives $350 billion in new tax cuts, it must either cut spending elsewhere or raise that money from taxpayers today (with current tax increases) or tomorrow (with debt issuance followed by higher taxes in future years).  Suspending personal income and payroll taxes for two months would cost the federal government about $330 billion, in Gohmert's estimation; using that money to buy more preferred stock would cost only the amount by which the government overpays, almost surely much less than $330 billion.

Go to the original author's site::

RedState has the scoop about the proposal:

Gohmert’s tax holiday plan is elegant in its simplicity: every American taxpayer would pay no federal income or FICA taxes for the first two months of 2009. For the typical American family -- earning about $50,000 a year -- that would mean they would keep about $2000 that would otherwise be paid to the government.

Gohmert would like to hold the holiday in January or February of next year. It would cost approximately $332 billion, still cheaper than using the rest of the bailout money for a bailout.

Go to the original author's site::

The cost of the twelve days of Christmas (that is, the price of a partridge in a pear tree, two turtle doves, three french hens, etc.) is $21,080, according to calculations by PNC Wealth Management. That's up 8.1 percent from 2007. Buying the goods online would cost $31,957, mainly due to shipping costs. (Buying everything in all the verses—12 partridges and pear trees, 22 turtle doves, 30 french hens, etc.—will run you over $86,000.)

The 78-item package of birds, rings, and people cost a mere $12,000 in 1995, and the big factor driving it up (besides general inflation) is increased wages for skilled laborers. The price of swans-a-swimming evidently fluctuates wildly by year.

Not sure whether this package includes luxury taxes, payroll taxes, and use taxes for goods purchased via the Internet.

Go to the original author's site::

Florida Rep. Jim Waldman (D-Coconut Creek) is seeking to raise the state's cigarette tax by $1 per pack, to $1.339. Tax Foundation Chief Economist Patrick Fleenor explains why such a tax is probably far beyond any externality imposed by cigarette smokers, and is essentially a way to stick a disfavored group with punitive taxes.

What is especially disturbing about Rep. Waldman's proposal is that he is calling it a "user fee." Government-imposed charges on cigarette purchases are taxes, not fees. ATR notes that Gov. Charlie Crist has played the same game. Waldman expresses ambivalence about the tax/fee distinction:

To me, it doesn't really matter. A tax is a tax, a user fee is a tax. It's the same thing. They like to hide behind the semantics. I choose not to. I'm calling it a user fee only because I have spoken to my Republican colleagues who said they would support it if it was called a user fee.

It does matter, in two respects. First, because the American antipathy to taxes is so deeply rooted in our nation's history, lawmakers often seek to raise revenue in ways to avoid the "tax hiker" label even it requires calling an obvious tax a "fee." That's what's happening here. These shell games undermine transparency by making it harder for citizens to understand the cost of government, and it can encourage them to demand more government services than they are actually willing to pay for. That, over time, can undermine fiscal stability and neutrality.

Second, Florida courts would reject out-of-hand Rep. Waldman's claim that it doesn't matter. Florida's Constitution allows local authorities to impose fees but not taxes, and a series of court decisions have drawn a careful line between the two in order to enforce this provision. See Fla. Const. art. 7, § 1(a) ("All other forms of taxation shall be preempted to the state except as provided by general law."); Alachua County v. State, 737 So.2d 1065, 1067 (Fla. 1999) ("The Florida Constitution preempts to the State all forms of taxation except ad valorem taxes and those authorized by general law."). Florida court rulings have looked at two factors:

  • First, one must ask whether the charge is "bargained for [or] unilaterally imposed." Florida Power Corp. v. City of Winter Park, 887 So.2d 1237, 1240 (Fla. 2004).
    • See also Alachua County, 737 So.2d at 1068-69 ("Clearly, Alachua County conferred nothing to the utilities and there was no bargained-for exchange upon which a franchise could be found; rather, Alachua County has attempted to impose a forced charge on the utilities. Thus the trial court properly ruled that the Privilege Fee is not a franchise fee.");
    • Town of Belleair v. Florida Power Corp., 897 So.2d 1261, 1261 (Fla. 2005) ("[C]ontinued imposition of the franchise fee without the support of the underlying agreement constituted an illegal tax....");
    • State ex rel. Gulfstream Park Racing Ass'n v. Florida Racing Comm'n, 70 So.2d 375, 379 (Fla. 1953) ("In common parlance a tax is a forced charge or imposition, it operates whether we like it or not and in no sense depends on the will or contract of the one on whom it is imposed.").
  • Second, one must ask what the purpose of the charge is.
    • If the charge is not "reasonably related to the government's cost of regulation or the rental value of the occupied land," Florida Power Corp., 887 So.2d at 1241, it cannot be considered a fee.
    • See also Jacksonville Port Authority v. Alamo Rent-A-Car, Inc., 600 So.2d 1159, 1164 (Fla. App. 1992) (stating that a fee cannot be "a general revenue source for the support of a sovereign government").
  • The second point—whether the revenue is used for general spending instead of a narrow group of beneficiaries—is generally considered the essential inquiry by most courts in the United States. Here's a quick list of relevant cases:
    • See, e.g., Safety Net for Abused Persons v. Segura, 692 So.2d 1038, 1041 (La. 1997) ("[A] tax is a charge that is unrelated to or materially exceeds the special benefits conferred upon those assessed.");
    • Chicago and Nw. Transp. Co. v. Webster Co. Bd. of Supervisors, 71 F.3d 265, 267 (8th Cir. 1995) ("[A] government levy is a tax if it raises revenue to spend for the general public welfare.");
    • San Juan Cellular Tel. Co. v. Pub. Serv. Comm'n of Puerto Rico, 967 F.2d 683, 685 (1st Cir. 1992) ("The classic ‘tax' is imposed by a legislature upon many, or all citizens. It raises money, contributed to the general fund, and spent for the benefit of the community.");
    • Brock v. WMATA, 796 F.2d 481, 488 (D.C. Cir. 1986) ("A levy is properly defined as a ‘tax' . . . when its principal purpose is to raise revenues.");
    • Roger D. Colton & Michael F. Sheehan, Raising Local Government Revenue Through Utility Franchise Charges: If the Fee Fits, Foot It, 21 Urb. Law. 55, 63 (1989) ("If the primary intent is to raise revenues, a measure is more likely to be considered a ‘tax.' If the level of the fee is totally divorced from any cost-basis, it is more likely to be deemed a ‘tax.'").

A $1 per pack government charge imposed on cigarette sales is both unilaterally imposed without bargaining and is used for the general fund not for regulatory purposes or to provide a service. Therefore, it's a tax. So, Rep. Waldman, it's more than just semantics. Referring to a government-imposed charge on cigarette sales as a "fee" instead of a "tax" undermines the transparency and long-term stability of Florida's tax system and comes into conflict with Florida case law.

Go to the original author's site::
Posted by at No comments:

Giving to Charity (Year-End Tax Tips)

Giving to Charity (Year-End Tax Tips)
Giving money away to a worthy cause is a great tax strategy to implement at the end of the year. For one thing, you'll be able to assess how much...

Federal and State Tax Policy in the Best of the Blogosphere

The Tax Foundation's mission is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government. And it's nice to see that bloggers are paying attention to the Tax Foundation's work at all levels of government.

On federal tax issues ...

  • The Urbanophile, a blog about urban affairs in Midwestern cities, uses Tax Foundation studies on "nonpayers" into the federal income tax system to make the point that "the burdens of society must broadly be shared" and that folks should be concerned "about the class warfare rhetoric being used to demonize the 'top 2%' or whomever, as well as tax policies that are again separating America into a two-tier society: those who pay taxes and those who collect benefits."
  • FisCons.com cites a recent blog post from Staff Economist Josh Barro on Congressman Louie Gohmert's (R-TX 1) proposal for a two-month temporary tax holiday, saying that "Gohmert’s plan may be well-intentioned, but bad policy" and "will do little to stimulate the economy."

On state tax issues ...



A Federal Tax Holiday?

RedState has the scoop about the proposal:

Gohmert’s tax holiday plan is elegant in its simplicity: every American taxpayer would pay no federal income or FICA taxes for the first two months of 2009. For the typical American family -- earning about $50,000 a year -- that would mean they would keep about $2000 that would otherwise be paid to the government.

Gohmert would like to hold the holiday in January or February of next year. It would cost approximately $332 billion, still cheaper than using the rest of the bailout money for a bailout.



Florida Rep. Trying to Call Cigarette Tax a "Fee"

Florida Rep. Jim Waldman (D-Coconut Creek) is seeking to raise the state's cigarette tax by $1 per pack, to $1.339. Tax Foundation Chief Economist Patrick Fleenor explains why such a tax is probably far beyond any externality imposed by cigarette smokers, and is essentially a way to stick a disfavored group with punitive taxes.

What is especially disturbing about Rep. Waldman's proposal is that he is calling it a "user fee." Government-imposed charges on cigarette purchases are taxes, not fees. ATR notes that Gov. Charlie Crist has played the same game. Waldman expresses ambivalence about the tax/fee distinction:

To me, it doesn't really matter. A tax is a tax, a user fee is a tax. It's the same thing. They like to hide behind the semantics. I choose not to. I'm calling it a user fee only because I have spoken to my Republican colleagues who said they would support it if it was called a user fee.

It does matter, in two respects. First, because the American antipathy to taxes is so deeply rooted in our nation's history, lawmakers often seek to raise revenue in ways to avoid the "tax hiker" label even it requires calling an obvious tax a "fee." That's what's happening here. These shell games undermine transparency by making it harder for citizens to understand the cost of government, and it can encourage them to demand more government services than they are actually willing to pay for. That, over time, can undermine fiscal stability and neutrality.

Second, Florida courts would reject out-of-hand Rep. Waldman's claim that it doesn't matter. Florida's Constitution allows local authorities to impose fees but not taxes, and a series of court decisions have drawn a careful line between the two in order to enforce this provision. See Fla. Const. art. 7, § 1(a) ("All other forms of taxation shall be preempted to the state except as provided by general law."); Alachua County v. State, 737 So.2d 1065, 1067 (Fla. 1999) ("The Florida Constitution preempts to the State all forms of taxation except ad valorem taxes and those authorized by general law."). Florida court rulings have looked at two factors:

  • First, one must ask whether the charge is "bargained for [or] unilaterally imposed." Florida Power Corp. v. City of Winter Park, 887 So.2d 1237, 1240 (Fla. 2004).
    • See also Alachua County, 737 So.2d at 1068-69 ("Clearly, Alachua County conferred nothing to the utilities and there was no bargained-for exchange upon which a franchise could be found; rather, Alachua County has attempted to impose a forced charge on the utilities. Thus the trial court properly ruled that the Privilege Fee is not a franchise fee.");
    • Town of Belleair v. Florida Power Corp., 897 So.2d 1261, 1261 (Fla. 2005) ("[C]ontinued imposition of the franchise fee without the support of the underlying agreement constituted an illegal tax....");
    • State ex rel. Gulfstream Park Racing Ass'n v. Florida Racing Comm'n, 70 So.2d 375, 379 (Fla. 1953) ("In common parlance a tax is a forced charge or imposition, it operates whether we like it or not and in no sense depends on the will or contract of the one on whom it is imposed.").
  • Second, one must ask what the purpose of the charge is.
    • If the charge is not "reasonably related to the government's cost of regulation or the rental value of the occupied land," Florida Power Corp., 887 So.2d at 1241, it cannot be considered a fee.
    • See also Jacksonville Port Authority v. Alamo Rent-A-Car, Inc., 600 So.2d 1159, 1164 (Fla. App. 1992) (stating that a fee cannot be "a general revenue source for the support of a sovereign government").
  • The second point—whether the revenue is used for general spending instead of a narrow group of beneficiaries—is generally considered the essential inquiry by most courts in the United States. Here's a quick list of relevant cases:
    • See, e.g., Safety Net for Abused Persons v. Segura, 692 So.2d 1038, 1041 (La. 1997) ("[A] tax is a charge that is unrelated to or materially exceeds the special benefits conferred upon those assessed.");
    • Chicago and Nw. Transp. Co. v. Webster Co. Bd. of Supervisors, 71 F.3d 265, 267 (8th Cir. 1995) ("[A] government levy is a tax if it raises revenue to spend for the general public welfare.");
    • San Juan Cellular Tel. Co. v. Pub. Serv. Comm'n of Puerto Rico, 967 F.2d 683, 685 (1st Cir. 1992) ("The classic ‘tax' is imposed by a legislature upon many, or all citizens. It raises money, contributed to the general fund, and spent for the benefit of the community.");
    • Brock v. WMATA, 796 F.2d 481, 488 (D.C. Cir. 1986) ("A levy is properly defined as a ‘tax' . . . when its principal purpose is to raise revenues.");
    • Roger D. Colton & Michael F. Sheehan, Raising Local Government Revenue Through Utility Franchise Charges: If the Fee Fits, Foot It, 21 Urb. Law. 55, 63 (1989) ("If the primary intent is to raise revenues, a measure is more likely to be considered a ‘tax.' If the level of the fee is totally divorced from any cost-basis, it is more likely to be deemed a ‘tax.'").

A $1 per pack government charge imposed on cigarette sales is both unilaterally imposed without bargaining and is used for the general fund not for regulatory purposes or to provide a service. Therefore, it's a tax. So, Rep. Waldman, it's more than just semantics. Referring to a government-imposed charge on cigarette sales as a "fee" instead of a "tax" undermines the transparency and long-term stability of Florida's tax system and comes into conflict with Florida case law.


Posted by at No comments:

Monday, November 3, 2008

Obama Proposes Big Tax Increases, But Not 65% Big

Throughout this election season, we have lamented the misinformation about the candidates' tax plans that has flowed from both sides of the aisle.  The Obama campaign has attacked John McCain's health care tax credit proposal, actually a $1.3 trillion net tax cut, as a massive tax increase.  Meanwhile, McCain accused Obama of supporting "a tax on electricity" because Obama backs restrictions on carbon emissions—a policy McCain has also endorsed.

This week at National Review's The Corner, we've seen two posts overstating the size of Barack Obama's proposed tax increases.  While Obama is proposing significant tax increases on high-income individuals, it is possible to overstate the size of his proposals, and NR bloggers have done so.  First, Mark Levin misdescribed the Obama tax plan as a complete repeal of the Bush tax cuts, with some help from American Thinker.  (Ramesh Ponnuru quickly responded that this isn't the Obama proposal.)

Today, Victor Davis Hanson vastly overstated the scope of Obama's proposed tax increases on high-income taxpayers.  Hanson managed even to outdo RightChange.com, asserting that some taxpayers would see a total income/payroll tax rate of about 65%:

As I recall, the Clintons never introduced legislation repealing the caps on payroll/Social Security taxes. Obama has; and so the new exposure to the 12.4% on self-employed income, coupled with the 2.9% contribution for Medicare, would mean that on self-employed income (and that would be the more likely target), we are talking about a 15.3% tax hike, added onto a 5% additional tax raise on income (34% to 39%).

One can support or reject Obama's plans, but he should at least admit he is not at all going back to the 1990s, but proposing something quite radically new: that anyone in America who makes over $250,000 (the targeted amount seems to change frequently), would pay a new additional tax of 19.3% on their income. And in some states with a 9% state income tax rate, coupled with the 2.9% Medicare rate, one can see that a total tax bite, federal, state, and FICA/Medicare, of at least about 65% of their income, aside from proposed increases in capital gains and inheritance taxes.

This is wrong in several places.

"Anyone in America who makes over $250,000... would pay a new additional tax of 19.3% on their income."

Saying high-income earners would pay a new percentage tax "on their income" conflates total and marginal tax rates.  To the extent Obama raises the top two income tax rates or adds a FICA tax for income over $250,000, he increases only marginal tax rates by a stated percentage; a taxpayer's total tax rate (income divided by tax, or tax paid "on their income") would rise by a smaller percentage.  The exact percentage depends on the individual taxpayer's circumstances.

Further, the 19.3% increase figure is greatly overstated, even as a measure of marginal tax rates.  Hanson arrives at the 19.3% figure by summing three components, two partly false and one totally false.  (Note: I recognize the three items below actually sum to 20.3%, however the text of Hanson's post indicates he intends 19.3% as a sum of these three tax increases.)

  • A 5% increase in the top marginal rate from "34% to 39%."  In fact, the current top marginal rate is 35%, and Obama would let it rise to 39.6%, for an increase of 4.6%.  Furthermore, this increase would not apply to "anyone in America who makes over $250,000"; for 2008, the top tax bracket kicked in at $357,700 of federal taxable income for single and married filers.  So, this tax increase is smaller than Hanson claims and doesn't apply to all taxpayers earning over $250k.  Partly false.
  • Application of the 12.4% FICA (Social Security) tax to individual income above $250,000.  However, in an August op-ed column in the Wall Street Journal, Obama's economic advisors Jason Furman and Austan Goolsbee wrote that "Sen. Obama does not support uncapping the full payroll tax of 12.4% rate. Instead, he is considering plans that would ask those making over $250,000 to pay in the range of 2% to 4% more in total (combined employer and employee). This change to Social Security would start a decade or more from now."  So, Obama's proposed increase would likely be much smaller than Hanson says and wouldn't start until at least 2018.  Also partly false.
  • Application of the 2.9% Medicare tax to all income.  While this tax would be applied under the Obama plan, it is also current law (and, indeed, would also be applied under the McCain plan, just as President Bush has applied it.)  Thus, it is not a tax increase at all.  Totally false.

Instead of 19.3%, the correct figure would be something in the ballpark of 6.1% (4.6% increase in the top income tax rate, plus a 1.5% increase in the top marginal rate for many high-income taxpayers due to rules phasing out deductions and exemptions), or 10.1% after 2018 if Obama levies a 4% FICA tax on incomes over $250,000.  And again, that marginal tax rate increase wouldn't apply to all taxpayers with incomes over $250,000, because some would not be in the top tax bracket.

Later on, Hanson says:

"And in some states with a 9% state income tax rate, coupled with the 2.9% Medicare rate, one can see that a total tax bite, federal, state, and FICA/Medicare, of at least about 65% of their income."  (Emphasis added.)

Here, Hanson again conflates marginal and total tax rates.  Even if Hanson were correct that the Obama plan would expose some taxpayers to a 65% marginal tax rate (and that claim, based on the assumptions above, is false) it would not expose them to "total tax bite" of 65% of their income.

More broadly, Hanson contests Obama's frequent theme that he would merely return high income taxpayers to the rates they paid during the 1990s under Bill Clinton.   It is true that, if enacted in 2018, the new 2-4% FICA tax on incomes over $250,000 would represent an increase over the Clinton era.

However, the return to a 39.6% top income tax rate and a 20% capital gains rate for high earners would both represent returns to pre-Bush tax cut law.  And high earners, under Obama, would still pay a lower-than-Clinton rate on the part of their income that is taxed under the first four income tax brackets (that is, the first $208,850 in taxable income for most married filers as of 2008.)

Since those tax benefits do not apply at the margin, they are essentially a lump-sum savings to taxpayers and do not encourage economic output in the way that top marginal tax rate cuts would.  Essentially, Obama would keep some tax benefits for high-income individuals but junk the ones that are most conducive of economic growth.  That's a shame, but it's still not a 19.3% tax increase on anybody.

Go to the original author's site::

So today's Los Angeles Times had a story about how Obama and McCain differ on taxes with the theme that Obama focuses on questions of vertical equity and McCain focuses on efficiency. In the article, there was a quote from Jared Bernstein of EPI:

"You can't find evidence that low tax rates foster high economic growth," said Jared Bernstein, director of a research program at the liberal Economic Policy Institute. "In my view, Medicare, education, child care and preschool services that the government provides are going to be more necessary in the future."

I'm not sure what Bernstein's definition of "high economic growth" would be, but if he's implying that there is no evidence that lower tax rates help promote economic growth, he's way off the mark. Of course, it's not always the case that a tax rate cut is going to promote economic growth given that there must be some spending offset, but I could come up with a pretty good list of tax rate cuts financed by spending cuts that would increase economic growth.

It is true that better education pre-K through grade 12 would promote economic growth, maybe even more than tax rate cut. But I can guarantee that if you cut farm subsidies out of the budget and lowered tax rates accordingly, economic growth would be fostered. (As for Medicare promoting economic growth, I'd say that's a stretch...maybe universal coverage for those under 25, but not for those 65+.)

Ask any left-of-center economist who opposed the Iraq war whether or not economic growth would have been higher under lower taxes instead of spending that money in Iraq. They would be unanimous in telling you that lower taxes would have been preferential (holding the deficit constant).

If Bernstein's standard for "high" economic growth is that a tax cut pay for itself, I would agree that no major tax rate cut at today's tax levels is going to promote that much of economic growth. (I'm referring to major federal taxes, as I'm sure there is somewhere out there in a state that lower tax rates would pay for itself...say on a cigarette tax or something where there is huge border activity. Also if you consider certain prohibitions to be implicit taxes, repealing them and in effect cutting tax rates would pay for themselves.)

But Bernstein's position seems to be like many on the left, which is a lexicographic preference for government always getting bigger, and he's trying to act as if it's a free lunch. It's very similar to the view of those on the right who say that government is a waste and should be starved of all revenue. The fact of the matter is that the optimal size of government > 0, but it's optimal size is not 100 percent of the economy (and there would be substantially lower economic growth if that was the case).

There are some government spending items currently in existence that are not worth their costs to taxpayers. Then again, there are some hypothetical government spending items that do not exists right now that would be worth additional tax dollars. The secret is finding which spending items are worth their costs and only funding those, and raising the necessary revenue in the best possible way that meets various criteria (such as equity and efficiency).

It is one of the paradoxes for those who seek to rally support for starving the beast (even if it worked say at the state level under a balanced budget rule). You are starving a beast because you view the beast as too wasteful and not looking out for the best interest of the taxpayer. But whose to say that when you starve it, it's going to devote its now more limited resources to the best interest of the taxpayers. It may starve you in return of the services you and those who you seek to garner support from value most (since you already believe that it doesn't look out for your own interests), thereby not getting rid of the programs at the margin that aren't worth their costs to taxpayers but instead getting rid of the programs that are worth their costs.

Go to the original author's site::

Voters in 23 states will be considering initiatives and referenda relating to tax issues on November 4. Our new report, Tax Foundation Fiscal Fact No. 154: Voters Will Consider Tax-Related Ballot Initiatives in 23 States, summarizes each of them and the arguments made by proponents and opponents.

For the full list, check out the report. Here are some of the more prominent initiatives:

Arkansas - Proposed Constitutional Amendment 3 would establish a state lottery, with the proceeds used for college attendance scholarships. Arkansas is one of eight states that do not have a lottery; a similar measure failed in 2006. Proponents including Lt. Gov. Bill Halter point to programs the lottery revenues would fund. Opponents argue that lotteries are a regressive form of taxation and are accompanied by social costs. This Tax Foundation commentary discusses Measure 3.

Colorado - Amendment 59. In 1992, Colorado voters approved a Taxpayers Bill of Rights (TABOR), which capped state spending according to a formula of population growth plus inflation, unless a referendum approved exceeding the cap. The surpluses which resulted in subsequent years were used for education, saved in a rainy day fund, or refunded to taxpayers. Because TABOR's formula was based only on the previous year's spending, a one-time drop in revenue (during a recession, for instance) would "ratchet" down the cap for subsequent years. This provision was modified in 2005, when voters changed the formula to the highest collection in the last five years and suspended rebates through 2010 (diverting the money to education). Additionally, Amendment 23 requires annual increases in education funding, which with TABOR creates budget pressure. Amendment 59 attempts to address this problem by making permanent the elimination of rebates (with the money going instead to education), and exempt education spending from TABOR's caps. Proponents support the increased education funding and argue that the constitutional reform is needed. Opponents say Amendment 59 effectively repeals TABOR's limits, and that Amendment 23's problems can be addressed in better ways.

Maryland - Question 2 would authorize the state to provide video lottery terminals (slot machines) in five locations in the state, with the $600 million raised funneled into education programs. Maryland recently raised taxes but the revenue increase is lower than projected, and along with spending increases has created a new budget shortfall. Proponents such as Governor O'Malley argue that slots can increase revenues without raising other taxes, and that some of the revenue can be pulled from neighboring states. It could also be said that by permitting some gambling, the state would give consumers more choice than they do at present. Opponents argue that state-sanctioned gambling is just a type of taxation and is associated with social costs, and that the measure does not address spending.

Massachusetts - Question 1 would cut the state income tax in half for 2009 and repeal it completely beginning in 2010. The state income tax currently tops out at 5.3 percent, and brings in $12 billion in revenue (out of a $28 billion state budget, not including "off-budget" expenditures and local government spending). If the initiative passes, Massachusetts would become the tenth U.S. state with no state income tax, joining Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. (But New Hampshire and Tennessee tax some individual investment income.) Proponents point to wasteful spending on projects like the Big Dig and toll roads and recent increases in spending. Opponents such as Governor Deval Patrick earlier this year called the proposal "irresponsible," saying it would contribute to "broken roads..., overcrowded schools... [and] broken neighborhoods." A similar measure received 45% of the vote in 2000.

North Dakota - Measure 2 would lower the state's corporate income tax by 15 percent and the state's personal income tax by 50 percent. This Tax Foundation paper extensively discusses Measure 2.

Oregon - Measure 59. Currently, Oregon taxpayers can deduct their federal income taxes from their state income taxes up to $5,600. Measure 59 would remove this cap beginning in 2010, reducing state revenues by $1.3 billion in the next two-year budget. Proponents say the measure repeals a double tax on income, while opponents argue that the revenue reductions would harm state programs.

Check out the full list here.

Go to the original author's site::

California Governor Arnold Schwarzenegger (R) yesterday signed an executive order establishing a 12-member panel to review the state's tax code. Schwarzenegger specifically cited the swings in tax revenue caused by heavy reliance on capital gains income:

General Fund revenue over the last several decades has fluctuated dramatically due to changes in the economy in general, but primarily as a result of the volatility that is inherent in California's current tax system[....]

[T]his fluctuation in General Fund revenues creates difficulty in funding the operations of government year-to-year, as the need for state services such as operating state parks, operating state prisons, overseeing elections and providing funding for healthcare and social services do not change in response to revenue, but in relation to population, demographics and service availability[....]

The panel will be comprised of 6 members including the chair appointed by the Governor, three by the Assembly Speaker, and three by the Senate President Pro Tem. The commission must provide its report on or before April 15, 2009.

Go to the original author's site::

It's Halloween, and taxes will probably be the last thing on the minds of the young ghosts, ballerinas, witches, and superheroes who go door to door collecting candy tonight.  

But the grown-ups who buy the candy might want to give taxes a bit of thought, especially if they live in a state that has ridiculously complex laws regarding the taxation of candy.  At Easter time we lamented the trouble the Easter Bunny has calculating his tax burden when he purchases candy and other supplies for Easter baskets.  We picked on Iowa as an example of a state where the Easter Bunny would have an especially difficult time determining the amount of tax he'd have to pay at the checkout counter.

Iowa has adopted the Streamlined Sales Tax Project (SSTP) and has some confusing rules about taxes on certain types of candy (taxes on other types of food can be just as confusing, as this issue paper on the SSTP's taxation of food shows).  When the SSTP when into effect in Iowa, food containing flour was not considered candy anymore, even if most rational people would argue otherwise. For example, classic Milky Way bars, which contain flour, are not considered candy and are therefore tax-exempt, while Milky Way Midnight (dark chocolate) bars are taxed because they do not contain flour. This obviously creates technical difficulties for retailers and confusion for consumers.

From the Rhode Island Division of Taxation:

The exemption for food under R.I.G.L. 44-18-30(a) does not apply to "candy." "Candy" is defined as any "preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts, or other ingredients or flavorings in the forms of bars, drops, or pieces." The term "candy" does not include any preparation containing flour as an ingredient.

Because many products commonly categorized as candy contain flour, packaging labels must be examined to determine which items are deemed taxable candy or exempt food products. Examples of items exempt after January 1, 2007 include KitKats, Twix, some licorice, Nestle Crunch, and Milky Way.

"Some licorice"? This means that anyone purchasing last-minute Halloween candy today may want to check the label of licorice packages carefully since some brands contain flour while others do not. Does it really make sense to tax licorice that does not contain flour, and exempt licorice that does, or to make any decision about taxes based on such a picayune criterion?

Levying a different tax rate on candy or any type of "junk food" than on other food creates enough confusion for consumers as it is, without the additional minute distinctions between various types of "junk food." Most shoppers probably are not even aware of the different tax rates for different types of food, which is problematic, since sound tax policy requires simple, transparent taxes that are easy to comply with. Shoppers should not have to scrutinize the labels of every item on the shelf to determine what is taxed and what is not, nor should they have to take a copy of the state's tax laws to the grocery store along with their shopping lists.

The taxes on that candy everyone is handing out tonight might just end up being the scariest part of Halloween.

Go to the original author's site::
Posted by at No comments:

Year-end Tax Planning #1 - Stock Up and Pre-Pay

Year-end Tax Planning #1 - Stock Up and Pre-Pay
Today starts a week of my suggestions for your business tax planning. Start now, in the last few months of the year, to make adjustments to income and expenses,...

Posted by at No comments:

Friday, October 3, 2008

Tax Policy Questions for the Presidential Candidates

A few days ago, we released eight tax policy questions we have for Senators McCain and Obama:

  • The Treasury Department and the Congressional Budget Office say that housing receives more tax subsidies than any other industry, thanks to the ever-growing government effort to boost home ownership. Most tax experts say we've got to pull back some of those subsidies so that people only buy a house when they can afford it.
    • Senator McCain, your plan doesn't rescind any of housing's tax benefits. Isn't it time to take on the housing industry's claim to tax breaks that subsidize home ownership?
    • Senator Obama, your plan actually piles on more tax benefits for housing. Why are the experts wrong?
  • A recent OECD study reports that the U.S. corporate tax rate is the second-highest among industrialized countries. Do you believe this affects America's ability to attract capital and to compete economically in the global marketplace? If so, what would you do about it? If not, why not?
  • Polls show that most Americans think our income tax system is too complicated and nearly 60% of taxpayers pay someone else to fill out their tax forms. Next year, there will even be a worksheet for the standard deduction. Despite the calls for a major overhaul and simplification of the system, both of you offer tax proposals that further complicate the tax code with more credits and deductions. Why can't you remove some?
  • Congress has always eliminated taxes for the poorest. But with new credits, even middle-class filers are joining the ranks of "non-payers." Currently, one-third of tax filers owe nothing in income taxes, and if either of your plans is enacted next year, about 43% of filers would get every dollar back that was withheld from their paychecks. Do you think it is desirable to have nearly half of Americans disconnected from the income tax system?
  • Since the early 1990s, lawmakers have increasingly used the tax code, instead of government spending programs, to funnel money to groups of people they want to reward, enacting credits to subsidize families with children, college students, and purchasers of hybrid cars. Do you think it is still a good idea to use the IRS as a vehicle for social policy?
  • Tax Foundation economists have described Barack Obama's tax plan as an advancement of redistribution, focusing on dividing the "economic pie", while John McCain's tax plan places more emphasis on "growing the pie."
    • To John McCain: Is it the role of taxes to enforce fairness, and if so, how will your plan accomplish that?
    • To Barack Obama: How will you make sure that the pie that you want to divide differently can grow overall?
  • There have been claims made by both campaigns on each other's tax proposals that have appeared in several advertisements.
    • To John McCain: You have attacked Sen. Obama for wanting to tax electricity. Then why do you support doing essentially the same thing with your carbon cap and trade proposal?
    • To Barack Obama: Why have you said the McCain tax plan gives no benefits to "100 million households" while the liberal Brookings-Urban Tax Policy Center scores the McCain health tax credit as a big tax cut for the vast majority of households?
  • There has been considerable debate during the campaign over what the federal government should do about the higher price of gasoline, but the proposals of both candidates have little economic backing.
    • To Barack Obama: Why impose a windfall profits tax on U.S. oil companies when it failed so miserably during the 1980s? Don't private and public pension funds invest in them?
    • To John McCain: Why did you support a gas tax holiday when experts have called it a gimmick that would not lower gas prices significantly?

To learn more about Presidential tax proposals, go to http://www.taxfoundation.org/candidates08/.

Go to the original author's site::

Sen. McCain is running a new ad on taxes featuring Gov. Palin. Here's the transcript of the ad:

GOVERNOR PALIN: How are you going to be better off if our opponent adds a massive tax burden to the American economy?

ANNOUNCER: Good question.

GOVERNOR PALIN: The Democratic nominee for President supports plans to raise income taxes, and raise payroll taxes, and raise investment income taxes. How are you going to be better off if our opponent adds a massive tax burden to the American economy?

ANNOUNCER: The answer: we won’t.

Unfortunately, it's not that simple. You see Sen. Obama's tax plan raises taxes on some and cuts taxes for others. Many on the right call such a plan redistribution (and accuse some of those tax cuts as being spending in disguise). Obama labels his tax plan fairness and neighborly of the rich.

This ad implies that Obama's tax hikes on high income taxpayers would affect low-and-middle income households. This is of course true to some extent, but that adverse effect on those at the bottom is not likely to outweigh the added "transfer" income that those households would receive from Obama's direct tax cut targeted at them (in a rather inefficient manner I might add) that is financed by the higher taxes on those at the top.

The fact of the matter is that in order to accurately criticize Obama's tax plan on distributional terms, the McCain campaign essentially needs to say that his tax plan is redistribution and is unfair. But that may not be an easy sell with many in the middle. So instead, McCain tells them that Obama's tax hikes on the rich are going to hurt them, when in reality, most of those in the middle are still going to be better off from Obama's tax plan (assuming they don't care about the moral dimensions of redistribution).

Go to the original author's site::
Posted by at No comments:

More Misleading Ads from Obama on Taxes

Sen. Obama's new ad entitled "Spending Spree" attacking Sen. McCain's tax cuts as costly "spending" contains accurate figures, but is still highly misleading in some respects.

The first claim regarding the cost of his tax cuts being over $3 trillion (excluding health insurance credit) is 100 percent correct. However, Obama calls McCain's tax cuts as new spending, which is kind of odd. There are parts of McCain's plan that are similar to spending (tax expenditures), but much of the deficit-financed cost comes from reductions in tax rates.

Regarding the privatization of Social Security, McCain has not indicated in this campaign that he would support the Bush privatization plan. He did support it four years ago, but in this campaign, he has called for a panel a la Reagan/Greenspan/etc. to secure the future of Social Security (which is not in as dire straits as Medicare). When discussing this issue on ABC's This Week about a little over a month ago, McCain said that he would even consider a tax increase, which if you recall, set off a firestorm among the anti-tax community.

The last figure cited in the ad ($1.3 trillion to insurance companies) is the most misleading. It refers to John McCain's health insurance tax credit that would cost $1.3 trillion over 10 years. Well, at least the Obama campaign is now saying it is a tax cut. Biden has been on the campaign trail calling it a huge tax increase.

But the number is misleading because it only refers to the fact that under McCain's health insurance plan, the health insurance credit would go directly to health insurance companies that provide the health insurance to the individual or family. The ad doesn't tell you that the health insurance companies don't get the money unless they provide the health insurance to the individual or family.

By this line of reasoning, we could say that Obama's health care plan gives trillions of dollars to doctors, ignoring the fact that the doctors are providing a service to patients. We could also say that Obama's mortgage interest credit goes to "Wall Street" or "Big Housing" since some of it may lead to more borrowing, higher interest rates, and higher home prices. This is a question of economic incidence at its core, but Obama is assuming that where the check flows is who benefits. Others like Tax Policy Center assumed that the health insurance credit benefits the insured individual or family, even though the factor of production receives the check.

This type of misleading information is typical of the Obama campaign: pick out an industry that is less than favorable in the public light (like oil or insurance) and provide misleading information that claims McCain supports that industry with his policies that have no such intention. Don't worry...I'm sure the McCain campaign is working on a dishonest advertisement in response; and I bet it will say something to the effect of "Obama will raise your taxes."

Go to the original author's site:

Raleigh Convention Center

In North Carolina, land of gasoline shortages due to state-imposed price controls, a new convention center opened this month in Raleigh. Funded by taxes on meals and hotel stays (and therefore not a tax increase, since only "they" pay the taxes not "us"), the $221 million center is already turning into a "money pit," according to the local John Locke Foundation:

"Analysis of 164 convention and meeting contracts shows that Raleigh Convention Center officials have given conventions a whopping $2.26 million in discounts for RCC room rentals," [report co-author Dr. Michael Sanera said]. More than $500,000 in discounts cover events scheduled in the next 10 months, and some discounts cover events scheduled as late as 2023.[...]

Taxpayers would be wrong to assume that the convention center could operate like a private business, Sanera said. "You might think prices for space and services would cover the operational expenses and even pay off the debt incurred to build the convention center," he said. "Unfortunately, the opposite is true. The only way for the RCC to attract users is to offer deep discounts on rooms and services and even pay large subsidies to attract conventions and meetings."

Of 68 events scheduled through June 2009, room discounts have averaged 58 percent, Sanera said. "Some groups are paying nothing or as little as $1 to rent space," he said. "This might make sense for a city organization, like the Raleigh Appearance Commission, but large corporations are getting similar deals."

Check out the full report here.

Go to the original author's site:

Over at the StangNet.com forums, a commenter looking at Tax Foundation data expresses surprise that marginal income tax rates once reached 91 percent. Indeed they did!

The rate had reached 94 percent during World War II, on income over $200,000 (approx. $2.49 million in today's dollars). It dropped down to 91 percent in 1946 and remained there until the Kennedy tax cuts in 1962-64. Brackets weren't inflation adjusted back then, so it still applied on income over $200,000, which by then had reached $1.41 million in today's dollars. Click here for a newsreel of President Kennedy urging passage of the tax cut.

Check out U.S. income tax rates from 1913 to today here.

Go to the original author's site:
Posted by at No comments:

Wednesday, September 3, 2008

Blog Post Round-Up

Blog Post Round-Up
  • Stagnant U.S. Business Tax System Potentially Harmful to Competitiveness: A recent study shows that while America has left the major features of its business tax system unchanged over the past fifteen years, virtually all developed nations have lowered their corporate tax rates, potentially hurting the competitiveness of the United States.
  • Higher Taxes, or Less Police and Fire Protection?: Several Indiana cities currently face some difficult budget decisions. While each city has numerous options to increase revenues or reduce expenditures, the "Washington Monument" strategy is being utilized by some local officials. Instead of looking for efficiency gains, officials simply threaten to cut or drastically reduce a service in attempts to muster support for budget increases. The National Park Service uses this strategy, suggesting it would have to reduce visiting hours at the Washington Monument without additional funding.
  • Mississippi: Regressive is Regressive is Regressive: The editorial board supports the proposal to raise cigarette taxes by 32 cents, but argues for a $1 overall increase in the per-pack tax. The editorial also calls for grocery tax relief, citing the regressive nature of sales taxes. Unfortunately, cigarette taxes also place a disproportionate burden on the poor.
  • The Internal Revenue Code Would Fit on Approx. 80 Rolls of Toilet Paper
  • California Activist Proposes Wealth Tax and Probably Unconstitutional Exit Tax: Earlier this month, a California activist began gathering signatures to put a state wealth tax on the ballot.
  • Major Party Conventions Partly Funded with Tax Dollars: The major party conventions (the Democratic one in Denver this week and the Republican one in Minneapolis next week) are in part taxpayer funded, to the tune of $17 million each (but not a major share of the total cost, which is mostly underwritten by sponsors). The funds come from the Presidential Election Campaign Fund checkoff box on the 1040 form, which we looked at in a piece earlier this summer.


Presidential Candidate Tax Plan Comparison
Be sure to check out our Presidential Candidate Tax Plan Comparison, newly updated for the post-primary general election. See how each of the candidates stand on income taxes, corporate taxes, tax reform, the estate tax, payroll taxes, the AMT, and capital gains and dividends taxes.

QuickBooks Chart of Accounts - Liability and Equity
Keep that CPA visor on for just a while longer! In my previous post, I explained the difference between the various types of accounts withing the asset section of the QuickBooks chart of accounts. This post will give you some additional insight on the liabilities and equity section.Let's begin...

Should Congress Limit Executive Compensation?
Compensation of executives is one of the most controversial topics in American business today.� It is also one of the most complicated issues due to the broad nature of executive responsibilities and the difficulties involved in measuring one person's achievements.� Congress has created numerous limits on tax deductions for executive pay and the SEC has asked companies to disclose�how their pay amounts are determined.� Should the government now establish a maximum wage?

Starting a Very Small Business - Part 7 - Independent Contractor or Employee?
As I have been talking with my sister Carol about setting up her small business (selling antiques/collectibles at an antique mall), we have talked about her "hiring" her daughter Cindy...
Posted by at No comments:

Sunday, August 3, 2008

Florida Imposes Tax on Justice

Rebekah Diller from the Brennan Center notes Florida's new court charges in a USA Today op-ed:

Consider Florida's new court fees, which went in effect July 1. Faced with a budget crisis, Florida has raised its filing fees to among the highest in the country: $300 for most civil cases, $397.50 for divorce and $270 for eviction actions. Florida does not, as do other states, waive civil filing fees for indigent litigants. Instead, court clerks negotiate payment plans with those unable to pay up front - and add a surcharge for paying over time.

Florida is also putting the squeeze on criminal defendants, most of whom are indigent. Those who cannot afford their own lawyer must pay $50 to apply for a constitutionally mandated public defender. If convicted, they face assessments for the costs of prosecution and defense regardless of their ability to pay. These charges are added to other assessments.[...]

Perhaps the worst feature of Florida's court fees is the fact that only 61% of the new fee collections will go toward funding courts, prosecutors and public defenders, according to a recent news report. The rest will go to the state's general revenue fund.

When determining whether something is a tax or a fee, the primary consideration is the purpose of the revenue. Fee revenue is used to recoup the cost of providing a service to a group of users (such as getting a divorce or an eviction notice, or driving a toll road, or using a sewer system). The purpose of fees is not to raise revenue, but to fund a service. If they raise general revenues, it has to be a small incidental amount, subordinate to the greater function of regulating or providing a service.

Taxes, by contrast, are all about raising revenue. If the revenue is spent on broadly available public benefits, and it is not an incidental amount, it's a tax. And that's the case no matter what politicians call it. See our Heatherly v. North Carolina brief for more information.

Here, according to Diller, 39% of the new assessments on justice-related activities are non-incidental amounts of revenue going to the state's general fund. These are taxes. Hefty taxes. Taxes on justice.

Back in April, the Louisiana Supreme Court called a $5 judicial charge imposed on speeders a tax, because the assessment had no logical connection to the administration of justice. Because courts cannot impose taxes in Louisiana, the charge was struck down. I wonder if Florida's Constitution allows for justice to be taxed.

Go to the original author's site::

The IRS has shed some new light on the high-income Californians who are the targets of the state legislature's tax-raising approach to budget balancing (IRS spreadsheet or Tax Foundation tabular summary).

By breaking out state-by-state its popular analysis of income and tax data, the IRS shows us that the top one percent of California taxpayers (150,000 people)—the same people who would pay the new, higher state tax rates of 10 percent, 11 percent and 12 percent —are already paying more in total federal income taxes than the 66 million people nationwide who make up the lower-earning half of US taxpayers.

California Republicans reject the tax-hike approach to budget balancing, and Governor Schwarzenegger has just thrown down the spending-cut gauntlet. He signed an order laying off temporary workers and withholding a portion of many other state employees' salaries, starting at the end of the month unless the legislature sends him an already overdue budget.

Go to the original author's site::

A humorous new Tax Foundation YouTube video titled "Dream Job" addresses the problem of the United States' high corporate tax rate.

While Americans pay close attention to individual tax rates, many tune out when the conversation turns to business taxes. This is a mistake. The tax climate for business should be important to all Americans, regardless of whether they actually own businesses themselves. Businesses pass their tax burdens on to their customers, employees, and shareholders. In fact, Tax Foundation research shows that in 2005 the average household paid $2,757 in business taxes.

Anybody who owns stock in a company stands to lose if higher tax rates reduce that company's earnings growth. Additionally, basic economics tells us that a corporation forced to pay high taxes must offset that cost by taking one of three courses of action. Charge higher prices, although competitive pressures can limit this option. Pay less in profit to investors, but investors' funds are nimbly re-invested elsewhere when profits dip. Finally, the company can pay lower salaries, give less generous employee benefits, or hire fewer people. In the increasingly dynamic economy, it could also mean that businesses relocate to places where the tax climate is more inviting.

Click here or below to watch the video. Click here for the Tax Freedom Day song and video and here for more on corporate taxes.

Go to the original author's site::

There isn't much honesty in this presidential campaign from two candidates who supposedly were of a new type of politics. Earlier this week, Sen. McCain distorted Obama's position on energy taxes in a recent advertisement (the one that featured Britney Spears and Paris Hilton). And today, Sen. Obama made misleading statements saying that McCain wants to cut taxes on oil companies by $4 billion. But what Obama didn't say is that McCain's corporate tax cut would apply to all corporations, whether they produce oil, wind energy, or cookies. (That's kind of like saying that Sen. Obama favors government paying for Warren Buffett's prescription drugs since he supports Medicare Part D. Of course, everybody gets it.)

What's also funny is that when the vote in the Senate came up for a specific piece of legislation that did give special tax favors to oil companies and other energy producers (green as well as "dirty"), Obama voted for it and McCain voted against it. It was the Energy Policy Act of 2005, which was a pathetic piece of legislation. McCain, along with many environmentally-friendly Democrats, as well as a few fiscal conservatives, voted against the measure. (It passed 74-26 and was signed by Pres. Bush who of course never had the guts to veto anything on principle.). Obama likely voted for it merely because his home state's corn producers stood to benefit from the ethanol mandates and subsidies that were included in the bill.

In his speech on Thursday, Obama also criticized McCain's gas tax holiday (rightly so), and then implied to voters that the oil company profits are merely at the expense of consumers, which is baloney and shows of economic ignorance of the fact that the purpose of prices is to allocate resources. Even if oil companies gave every dollar of profit to charity (and investment in the firm remained the same), the price would still have to be high given the huge worldwide demand for oil, or else there would be a shortage. Obama said, "But while Big Oil is making record profits, you are paying record prices at the pump and our economy is leaving working people behind."

Speaking of oil company profits, there is also the nonsense in a letter written by Democrats in Congress telling the oil companies that they should invest in alternative energies instead of buy back their stock. Essentially, they are telling the oil company executives that they should diversify the portfolio of their shareholders (corporate diversification) for them. But that leads to the obvious question: why not let investors diversify themselves if they think alternative energy is such a great investment? There are plenty of firms in that business. Suppose, on the other hand that there exist economies of scale (or scope) and thereby benefits in having the existing oil companies diversify themselves into green alternatives. Wouldn't you expect them to be doing just that right now in order to maximize the return to shareholders? After all, you imply that by buying back their stock, all they care about is their shareholders. If it's such a great investment, then their shareholders shouldn't mind. In fact, their stock should rise.

Go to the original author's site::

With gas prices on the rise, some states have considered providing relief to their citizens by suspending their state gas taxes. However, many states are also faced with budget shortfalls which make it difficult to forgo any tax revenue. Not so in Alaska, where Gov. Sarah Palin has proposed suspending the state’s gas tax and sending a sizable “resource rebate” check to every resident. Bob Tkacz from Tax Analysts (subscription required) writes:

Recent record oil prices are flooding Alaska's treasury with huge royalty and tax profits, but the state's residents and businesses are struggling to pay for gasoline that has long cost more than $5 or $6 per gallon in the most remote communities. Depending on the average price of crude oil over the state fiscal year that began July 1, the Department of Revenue is projecting a revenue surplus, beyond the state's roughly $4 billion operating budget, in the range of $8 billion to $10 billion, or more.[...]

The [gas tax] suspension would cost the state treasury an estimated $39.9 million for a year. It is one of four measures under consideration to help Alaskans cope with energy costs. Palin has also proposed HB 4002, which would provide a special "resource rebate" payment of $1,200 to every Alaska resident as a broad assistance measure that directly shares the state's windfall profits.

But not all Alaskans are lining up to board the gravy train. Some point out that residents already benefit from the state’s oil resources through annual payments from the Alaska Permanent Fund. From the Anchorage Daily News:

Alaskans are already counting on Permanent Fund dividend checks this fall of almost $2,000 each. Every man, woman and child who's a bona fide resident will get the payment.

In any other state, residents would faint with joy if their politicians handed out that kind of money. An Alaska family of four is going to collect $8,000. That's not enough to help Alaskans cope with the spike in energy prices?

Go to the original author's site::
Posted by at No comments:

Florida Imposes Tax on Justice

Rebekah Diller from the Brennan Center notes Florida's new court charges in a USA Today op-ed:

Consider Florida's new court fees, which went in effect July 1. Faced with a budget crisis, Florida has raised its filing fees to among the highest in the country: $300 for most civil cases, $397.50 for divorce and $270 for eviction actions. Florida does not, as do other states, waive civil filing fees for indigent litigants. Instead, court clerks negotiate payment plans with those unable to pay up front - and add a surcharge for paying over time.

Florida is also putting the squeeze on criminal defendants, most of whom are indigent. Those who cannot afford their own lawyer must pay $50 to apply for a constitutionally mandated public defender. If convicted, they face assessments for the costs of prosecution and defense regardless of their ability to pay. These charges are added to other assessments.[...]

Perhaps the worst feature of Florida's court fees is the fact that only 61% of the new fee collections will go toward funding courts, prosecutors and public defenders, according to a recent news report. The rest will go to the state's general revenue fund.

When determining whether something is a tax or a fee, the primary consideration is the purpose of the revenue. Fee revenue is used to recoup the cost of providing a service to a group of users (such as getting a divorce or an eviction notice, or driving a toll road, or using a sewer system). The purpose of fees is not to raise revenue, but to fund a service. If they raise general revenues, it has to be a small incidental amount, subordinate to the greater function of regulating or providing a service.

Taxes, by contrast, are all about raising revenue. If the revenue is spent on broadly available public benefits, and it is not an incidental amount, it's a tax. And that's the case no matter what politicians call it. See our Heatherly v. North Carolina brief for more information.

Here, according to Diller, 39% of the new assessments on justice-related activities are non-incidental amounts of revenue going to the state's general fund. These are taxes. Hefty taxes. Taxes on justice.

Back in April, the Louisiana Supreme Court called a $5 judicial charge imposed on speeders a tax, because the assessment had no logical connection to the administration of justice. Because courts cannot impose taxes in Louisiana, the charge was struck down. I wonder if Florida's Constitution allows for justice to be taxed.

Go to the original author's site:

Thanks to all who came yesterday evening to the Tax Foundation's Chicago Reception at the annual conference of the American Legislative Exchange Council! We had a packed room of state lawmakers, members of think tanks, economists, and others to listen to remarks by Tax Foundation President Scott Hodge and Dr. Richard Vedder of Ohio University.

And congratulations to Rep. Phyllis M. Heineman of South Dakota (in last picture with Dr. Vedder) who won the drawing for an iPod loaded with Tax Foundation podcasts!


Go to the original author's site:

A humorous new Tax Foundation YouTube video titled "Dream Job" addresses the problem of the United States' high corporate tax rate.

While Americans pay close attention to individual tax rates, many tune out when the conversation turns to business taxes. This is a mistake. The tax climate for business should be important to all Americans, regardless of whether they actually own businesses themselves. Businesses pass their tax burdens on to their customers, employees, and shareholders. In fact, Tax Foundation research shows that in 2005 the average household paid $2,757 in business taxes.

Anybody who owns stock in a company stands to lose if higher tax rates reduce that company's earnings growth. Additionally, basic economics tells us that a corporation forced to pay high taxes must offset that cost by taking one of three courses of action. Charge higher prices, although competitive pressures can limit this option. Pay less in profit to investors, but investors' funds are nimbly re-invested elsewhere when profits dip. Finally, the company can pay lower salaries, give less generous employee benefits, or hire fewer people. In the increasingly dynamic economy, it could also mean that businesses relocate to places where the tax climate is more inviting.

Click here or below to watch the video. Click here for the Tax Freedom Day song and video and here for more on corporate taxes.

Go to the original author's site:
Posted by at No comments:

Thursday, July 3, 2008

State Government Revenue Up in First Quarter 2008

Earlier this week, the Census Bureau released its Quarterly Summary of State and Local Government Revenue for the first quarter 2008. The Rockefeller Institute of Government has parsed through the data and put together a report of findings. Some facts:

  • State tax revenue is up 1.7 percent in the first quarter of 2008, as compared to the first quarter of 2007. This is the slowest rate since 2003, but still positive. For this fiscal year, revenue is up 3 percent over last year.
  • State personal income tax revenue increased 4.4 percent over first quarter 2007.
  • State corporate income tax revenue declined 5.1 percent over first quarter 2007.
  • State sales tax collections were flat, declining 0.04 percent over first quarter 2007.
  • In total states collected $155.3 billion in the first quarter 2008, comprised of $64 billion (41%) in income taxes, $55 billion (35%) in sales taxes, about $10 billion in corporate income taxes (7%), and $26 billion in other taxes and fees.

At a recent hearing, Rep. John Conyers (D-MI) stated that "many [states] are insolvent." States may not be enjoying the revenue boom of prior years, but they're not quite as bad as that. It must be noted, though, that some of the revenue increase comes from recently enacted tax increases. But reports that states are collapsing financially are a bit premature.

More on state taxes and policy here.

Go to the original author's site::

[Homer finds out about the new tax to pay for fixing the town's bear problem]

Homer: Woo-hoo! A perfect day. Zero bears and one big fat hairy paycheck. [opens it up] Hey! How come my pay is so low? ... Bear patrol tax! This is an outrage! It's the biggest tax increase in history!

Lisa: Actually, Dad, it's the smallest tax increase in history.

Homer: Let the bears pay the bear tax. I pay the Homer tax.

Lisa: That's the home-owner tax.

Homer: Well, anyway, I'm still outraged.

[Later, a mob marches on the Mayor's office shouting "Down with taxes!"]

Mayor Quimby: Are those morons getting dumber or just louder?

Assistant: [checks his clipboard] Dumber, sir. They won't give up the bear patrol, but they won't pay taxes for it either.

Quimby: Ducking this issue calls for real leadership.

[at the podium]

Mayor Quimby: People, your taxes are too high because of illegal immigrants![...]

Moe: Immigants! [sic] I knew it was them! Even when it was the bears, I knew it was them.

Go to the original author's site::

We're always on the lookout for strange tax policies, and South Carolina has recently supplied two. The South Carolina Legislature assembled on June 25 to reconsider several bills that had been vetoed by Gov. Mark Sanford. Here is the information from South Carolina's revenue website on two of the more interesting vetoes that were overridden by the Legislature:

The $50 Venison Income Tax Credit:

"Section 12‑6‑3750.

(A) Beginning with the year 2008, there shall be allowed a nonrefundable credit against taxes imposed by this chapter for a meat packer, butcher, or processing plant licensed or permitted by this State or the United States Department of Agriculture that, during the tax year for which the credit is claimed, had a valid contract with any nonprofit organization to process deer for donation to any charitable organization engaged in distributing food to the needy. No portion of the donated deer shall be used by a commercial enterprise. The amount of the credit shall be fifty dollars for each carcass processed and donated. The credit must be claimed in the year earned and may not be carried to any other taxable year.

(B) For the purposes of this section, 'process' means to skin, cut, bone, grind, package, or perform any butchering tasks necessary to prepare the meat for distribution and consumption. The processing must take place in a licensed or permitted establishment."

Second Amendment Sales Tax Holiday:

"This two-day sales tax holiday applies to purchases of handguns, rifles and shotguns and will take place every year on the Friday and Saturday after Thanksgiving. This year the Second Amendment Sales Tax Holiday will take place on November 28th and 29th of 2008. Information concerning the Second Amendment Sales Tax Holiday will be published later this year."

We would point out, as we have many times before, that these types of tax benefits only add to the complexity of a state's tax system, and especially in the case of sales tax holidays, are just plain bad tax policies. Read more about tax complexity in our Compliance Cost and Tax Complexity section. Read more about sales tax holidays from our blog, here and here.

Go to the original author's site::

A recent article in the Wall Street Journal–Europe discusses the impact that Obama's proposed tax changes would have on Americans living abroad:

Celebrity chef Alain Ducasse insists that his change of citizenship this week from high-tax France to no-income-tax Monaco wasn't a financial decision but an "affair of the heart." Right. But even if he's being sincere, plenty of other Frenchmen have moved abroad to escape their country's confiscatory taxes.

Americans should be so lucky: Theirs is the only industrialized country that taxes its people even if they live overseas. That hasn't been a big problem as long as U.S. tax rates have been relatively low. But with Barack Obama promising to lift rates to French-like levels, this taxman-cometh policy could turn Americans into the world's foremost fiscal prisoners.

And make no mistake, taxes under a President Obama could be truly à la française. The top marginal tax rate, including federal, state and local levies, could approach 60% for self-employed New Yorkers and Californians. Not even France's taxes are that high now that President Nicolas Sarkozy has capped the total that high-earning Frenchmen like Mr. Ducasse can pay in income, social and wealth taxes at 50% of earnings.

For more on the candidates' tax plans, click here and here.

Go to the original author's site::

In November, Oregon voters will vote on Initiative 3, which would allow taxpayers full deduction of federal income taxes on Oregon state income tax returns. Currently, the deduction is limited to about $5,500. Petitioners gathered some 82,000 signatures to qualify the initiative for the ballot.

Before 1974, Oregon taxpayers could fully deduct federal income taxes on their state taxes, but that year a $3,000 limit was instituted (which would be about $13,000 in 2008 dollars). In 1980, the amount was increased to $7,000 ($18,000 in 2008 dollars), but reduced to $3,000 in 1987, and increased to $5,000 in 2000 with annual inflation adjustments. Also in 2000, voters rejected a measure 45% to 55% that also would have made federal income taxes fully deductible. (See today's Daily Tax Report article by Tom Alkire for this history.)

The Legislative Revenue Office says that the measure would reduce state general fund revenue by 13 percent, or about $550 million. Read the text of the initiative here (PDF).

More on Oregon here. Past Oregon blog posts:

Go to the original author's site::
Posted by at No comments:
Subscribe to: Posts (Atom)