If anybody ever wonders why tax reform is so difficult to accomplish, one need look no further than the website of the National Association of Realtors®, which is featuring on the front page a podcast where its president, Dick Gaylord, talks about how "politics is our business." You would think real estate is their business, but then again, the NAR's primary mission appears to be to influence policy in order to get Congress to pass friendly legislation. In a word, the NAR is what economists call a rent-seeker.
It's sad that people believe that more special tax breaks are needed for housing. The Congressional Budget Office has calculated that capital income derived from owner-occupied housing has a -5.1 percent effective tax rate. That's right, a negative tax rate. In other words, the tax code is subsidizing housing.
But the fact that we are over-invested in housing thanks to the tax code leads to a kind of catch-22 in terms of rhetoric because then the Realtors® and other special interests in housing (e.g. NAHB) can make claims on how housing is a vital part of the American economy, citing how many "jobs they create." And therefore, they can argue that their industry is worthy of even more subsidies and friendly policies.
This is nothing new. It's the famous "what is seen versus what is not seen" problem of the political economy. They make these claims about the importance of real estate as if everyone would be homeless and the real estate agents would be begging on the street corners if not for the special tax treatment they are receiving. The fact of the matter is that more people would be renting and real estate agents would be doing something else, possibly making less as they would no longer be extracting rents from taxpayers and consumers. But that does not necessarily mean social welfare would be less. In fact, it would be higher, albeit distributed in a different (and fairer) manner.
We've written before on Virginia's "abusive driver fees" and "civil remedial fees," and why they are just a tax on traffic offenses. Because the revenue goes to general state spending, they are properly called a "tax" and not "fees." We've covered how this is an example of politicians targeting easy revenue sources for punitive taxes, the public outcry over the huge assessments, and finally, the pending court challenges.
After defending the surcharges for months, Virginia Governor Tim Kaine (D) may be ready to give up on them. At the end of yesterday's State of the State Address, he said he would sign a repeal:
The imposition of higher fees on drivers who commit serious traffic offenses was designed to both increase transportation revenue and encourage safer driving habits.
After six months, neither goal has come to pass. The abusive driver fees will not generate the amount of revenue we had hoped. And neither the number of traffic tickets issued nor the tragic number of deaths on Virginia highways last year indicate that the fees have improved highway safety.
Virginia citizens in huge numbers have told us that the fees should be repealed. We should listen to them. I hope that this session, you will send to my desk a bill fully repealing the abusive driver fees.
In a Washington Post chat yesterday, Virginia Governor Tim Kaine reiterated his recent decision to seek repeal of Virginia's abusive driver surcharges, which we mentioned earlier this week:
Alexandria, Va.: When exactly will the abusive driver law be repealed and will it be retroactive?
Tim Kaine: I believe the legislature will follow my suggestion that the abusive driver fees should be repealed. Normally, this kind of legislative action would be implemented on July 1, but if the legislature votes in a super-majority fashion for the repeal there are some circumstances where it can take place immediately. Some of the introduced legislation includes a rebate for those who have been affected already.
We've covered how this is an example of politicians targeting easy revenue sources for punitive taxes, the public outcry over the huge assessments, and finally, the pending court challenges, so it's good that they may soon be history. With refunds for those who have had to pay the surcharges, too!
We have posted a new Tax Foundation Podcast interview with Dr. William Gentry. a professor of economics at Williams College in Massachusetts. Dr. Gentry recently wrote a paper for the Treasury Department titled A Review of the Evidence on the Incidence of the Corporate Income Tax.
In this podcast, Dr. Gentry and Tax Foundation Vice President for Economic Policy Robert Carroll discuss the incidence of corporate taxes—that is, who bears the burden of corporate taxation.. Dr. Gentry discusses the growing academic evidence that suggests the burden of the corporate tax is increasingly falling on labor and impacting workers directly.
The podcast is 14 minutes, 26 seconds.
Click here to listen. Click here for more on corporate taxes.
With California running out of borrowing options to cover huge budget deficits stretching back nearly a decade, Governor Arnold Schwarzenegger got everyone's attention with proposed budget cuts last week:
Schwarzenegger's proposed budget-cutting mechanisms include:
- A 10 percent decrease in education funding, including $4.4 billion in cuts from K-12 education and $1.13 billion from higher education.
- The closing of 48 of the state's 280 parks.
- A reduction of $1.13 billion dollars from the California Department of Health Care Services, including the elimination of dental care for low income residents on the state's Medi-Cal program.
- The firing of 7,000 state employees.
- An $11.7 million cut from the Office of Emergency Services-Disaster Assistance Program, less than three months after the state suffered from the most extensive and damaging wildfires in its entire history.
- A $175 million cut from the child services division of the Department of Social Services, which provides resources for abused, neglected, and deaf children.
- A 10 percent reduction in retirement benefits for military veterans, along with a $20.5 million cut in the California Department of Veteran Affairs - Veteran Homes Program, which provides nursing services and residential care for veterans.
In addition, the budget includes a provision to borrow $3.3 billion dollars approved under California Proposition 57, placing the state's poor credit rating under further strain and providing cover for future spending cuts.
Schwarzenegger is also proposing the early release of 37,000 prisoners from the state's overcrowded penitentiary system.
This is a classic example of the "Washington Monument" ploy used by government agencies to justify revenue increases or prevent budget cuts. A threatened agency, instead of trying to become more efficient, warns that it will have to cut or shut down the most popular service under its control. The name comes from the National Park Service, which gets Congress to approve budget hikes by warning that it would have to cut hours at the Washington Monument.
We're not the only one who thinks the Schwarzenegger budget plan is a stunt designed to gain public support for raising taxes:
To build a public groundswell for higher taxes, he crafted a budget -- or, more precisely, a budget narrative -- designed to make everyone howl.
So we're told there's an "across-the-board 10 percent cut" when in fact general fund spending is only down 2 percent. We're told education funding is going to be ravished when in fact it is only down by less than 1 percent in a year in which school attendance will decline. And we're told that cuts are so drastic than tens of thousands of prisoners must be released. Yet the Corrections Department budget gets a 6 percent increase!
Do you really think that a department getting 6 percent more money has no choice but to flood the streets with felons?
The script Arnold wants for 2008 could not be more clear: The Dems get a huge new tax increase. He gets a spending cap.
But the Dems know what Arnold is up to, so here's the script we could see instead: The Dems don't just get a huge new tax increase, they get Arnold's support for a constitutional initiative to allow the Legislature to adopt tax increases on a simple majority vote, not the present two-thirds.
Readers may notice that this blog post cites the World Socialist Web Site for coverage of Schwarzenegger's plan. It really is a well-written, relatively unbiased article about the budget proposal. Compare it to the slanted opening of this news article in the Los Angeles Times:
SACRAMENTO—The state's ability to protect children, renters, workers and the elderly as well as California's wildlife and its land would be impeded under Gov. Arnold Schwarzenegger's proposals for closing a $14.5-billion deficit, state agency reports show.
The proposed budget reductions, which Schwarzenegger submitted this week to the Legislature, would erode public protection programs across state government, according to hundreds of pages of assessments that agencies submitted along with the budget this week.
More on the Washington Monument ploy here and here. Thanks also to Richard Rider for updating us on California developments.
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