We've been following Virginia's new tax on traffic offenses, which went into effect January 1. They are another example of legislators targeting random activities for punitive taxation, solely to raise revenue. Other recent examples include cigarettes, alcohol (to fund public transit), bottled water, and even video games (to fund juvenile detention facilities).
Because the purpose of the surcharges is to raise money, rather than deter behavior or recoup the cost of administration, they are rightly called taxes, not fees. And they aren't small; a pregnant woman rushing to the hospital (57 mph in a 35 mph zone) was hit with a $1,050 abusive driver tax on top of the usual $100 traffic fine.
Now, a bicyclist has been ordered by the Newport News district court to cough up the $1,050 surcharge for going too fast on his 18-speed Huffy:
Bicyclist Kajuan Cornish, 19, has not accumulated a bad driving record because he does not own an automobile. That did not stop Newport News Police Officer George Evans for writing up Cornish as he pedaled down Warwick Boulevard near Denbigh Boulevard on December 27. Cornish was headed back to work after taking a lunch break.
WAVY-TV has more of the silliness:
Cornish says his reckless driving ticket might one day be funny, if it weren't so confusing.
"I get some people who laugh," he says, "and I get some people, like me, that are lost."
He reads his ticket out loud.
"Year? None. Make? None. Type? Bike. License? None. State? None."
Cornish may be among the last who have to fight the surcharges. They're in court on an Equal Protection Clause challenge, and the Governor recently conceded that it's time to repeal them.
More on Virginia tax issues here.
"Stimulus" is the word of the day in Washington. And tax rebate checks have been the most frequently cited possibilities for financing such a stimulus. But in order for a supposed stimulus to "work," tax rebate checks must lead to short-term real increases in consumption. So will they?
We can let recent history be our guide. Below are links to some academic papers on the question of whether or not people spent their rebate checks they received in 2001.
"Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys", by Matthew Shapiro and Joel Slemrod. The conclusion:
The tax rebates sent out in the summer and early autumn of 2001 were a small part of the 10-year tax cut bill that became law earlier that year. Although not originally part of the tax cut plan, as an economic slowdown became more apparent, one part of the tax cut for 2001 was converted into more visible checks sent out to taxpayer rather than reductions in withholding. One might speculate that incumbent politicians also guessed that household-voters would be more likely to recall their largesse if the tax cut took the form of a check as opposed to, for example, a reduction in tax withholding.
Did they work as a counter-recession policy? The answer to that question depends in part on households’ propensity to consume out of the increased disposable income due to the rebates. Our survey-based research suggests that the spending rate was quite low compared to what many economists had expected. This finding appears in a contemporaneous survey and a retrospective survey that addressed the actual rebate plan. It also appears in answers to what would be the response to a hypothetical survey conducted soon after September 11. An examination of the NIPA data is completely consistent with a small impact on consumption. Yet, because it is impossible to know what consumption would have been absent the rebates, aggregative analysis cannot be definitive. Nonetheless, that the counterfactual in aggregate data gives a similar result to the counterfactual that we pose to survey respondent is significant validation of the survey methodology.
Another paper on this issue by Shapiro and Slemrod appeared in AER. Here is the abstract:
Many households received income tax rebates in 2001 of $300 or $600. These rebates represented advance payments of the tax cut from the new 10 percent tax bracket. Based on a survey of a representative sample of households, this paper finds that only 22 percent of households receiving the rebate would spent it. Instead, they would either save it or use it to pay off debt. This very low rate of spending represents a striking break with past behavior, which would have suggested a much higher rate of spending. The low spending rate implies that the tax rebate provided a very limited stimulus to aggregate demand.
A study by Parker and Souleles suggests a larger response by American consumers to the rebate checks. Here is their abstract:
Under the Economic Growth and Tax Relief Reconciliation Act of 2001, most U.S. taxpayers received a tax rebate between July and September, 2001. The week in which the rebate was mailed was based on the second-to-last digit of the taxpayer's Social Security number, a digit that is effectively randomly assigned. Using special questions about the rebates added to the Consumer Expenditure Survey, we exploit this historically unique experiment to measure the change in consumption expenditures caused by receipt of the rebate and to test the Permanent Income Hypothesis and related models. We find that households spent about 20-40 percent of their rebates on non-durable goods during the three-month period in which their rebates were received, and roughly another third of their rebates during the subsequent three-month period. The implied effects on aggregate consumption demand are significant. The estimated responses are largest for households with relatively low liquid wealth and low income, consistent with liquidity constraints.
For more on the economic research of consumption, check out a previous recent blog post on the issue.
Radio host Jerry Bowyer criticized the FairTax proposal in the Wall Street Journal last week, in part because it would exempt business-to-business transactions to prevent pyramiding (taxes on taxes):
In addition to the colossal job of selling America on a zero tax rate for business, a rigorous definition of the term "business transaction" would have to be provided. What is a business transaction, exactly? I write articles for publication. I consider it a hobby. Sometimes I get paid. Should I pay sales taxes on money I earn for writing this article?
What about the Internet connection I used to send it? Should readers pay taxes on the connection they use to read my article? What if a reader uses it for his job? If he is a financial adviser, then no, but otherwise it's yes? Will I pay taxes on gas I used to drive to the studio to talk about this article? What if I stop to buy my son Jack a birthday present on the way home?
I'm a recovering tax accountant (and not a good one at that) and I've got 50 ways to avoid this tax swimming around in my head. What about the really smart guys?
This criticism isn't persuasive; it could be used against our current tax system.
People pay taxes, not businesses, so taxing businesses is just a hidden way of taxing people. Thus many tax reform plans (including the FairTax) exempt business-to-business transactions from tax. The current income tax system also allows businesses to deduct business expenses. Bowyer seems not to know this, as he worries that businesses will be unable to distinguish between business and personal expenses. They have to now, when they figure out their income taxes.
Bowyer again:
Then there's the complexity argument. You don't think the lobbyists and lawyers will get involved in this, looking for exemptions on houses, medical services and education? You're going to put a 30% tax on my home purchase, and my doctor visits and my kids' tuition? Yeah, great idea.
The danger of lobbyists clamoring to exempt their industry from general taxation is a real one, but one that already exists at both the federal and state levels. Owner-occupied housing is so generously exempted from taxes that it is actually subsidized to the tune of negative 5 percent, for example. I'm not sure how opposing reform fixes a problem we have now.
Incidentally, the FairTax exempts tuition, so Bowyer is wrong there. But that exemption might open the door for all the other special interests claiming that their economic activity is so unique that it justifies exemption.
Finally, Bowyer argues that any discussion of tax reform is meaningless since it will never pass:
None of this matters anyway. We will never make this change.
The FairTax is just one idea and may have its problems, but the fact that it comes up so often shows that people want a national discussion about our uncompetitive, burdensome, and overly complex tax system.
No comments:
Post a Comment