In testimony before the governor's tax commission in Jackson, Mississippi, experts from the Pew Charitable Trust and the Tax Foundation agreed that taxes on phone companies are a terrible burden on the companies and their customers.
Every new service the hyper-competitive phone companies offer spawns a new tax that is grafted onto old taxes left over from when Ma Bell was our one monopoly phone company.
Just today we received a plea for help from the manager of a new hotel who is desperately trying to figure out what her hotel's phone bill is going to be like. She drew up a chart of tax rates that she needs to fill in.
TAXES | City | State | Federal | Other1 | Other2 |
Local | ____% | ____% | ____% | ____% | ____% |
950 | ____% | ____% | ____% | ____% | ____% |
976 | ____% | ____% | ____% | ____% | ____% |
411 Info | ____% | ____% | ____% | ____% | ____% |
555 Info | ____% | ____% | ____% | ____% | ____% |
1-700 | ____% | ____% | ____% | ____% | ____% |
1-800 | ____% | ____% | ____% | ____% | ____% |
1-900 | ____% | ____% | ____% | ____% | ____% |
(0+) | ____% | ____% | ____% | ____% | ____% |
Message Unit | ____% | ____% | ____% | ____% | ____% |
In-state | ____% | ____% | ____% | ____% | ____% |
State-to-state | ____% | ____% | ____% | ____% | ____% |
International | ____% | ____% | ____% | ____% | ____% |
HOBIC | ____% | ____% | ____% | ____% | ____% |
Equipment | ____% | ____% | ____% | ____% | ____% |
Those "other" columns could be school districts or some other regional tax authority, legal entities created by state or local politicians who have delegated the power to tax so that they can avoid voting on a tax hike.
More on cell phone taxes here.
We present to you the worst of the gas tax and windfall profits tax debate:
(1) “Barack Obama doesn’t understand the effect of high gas prices on the American economy,” McCain spokesman Tucker Bounds said in a statement. “Sen. Obama voted for a gas tax reduction before he opposed it, he has no plan for relief from record-high gas prices for Americans this summer and he’s the empty-tank candidate in this race.
On the issue of the gas tax holiday, Barack Obama is correct. On the issue of the windfall profits tax, Obama is just pandering. But Senator McCain's proposal won't bring relief from record-high gas prices either.
(2) “There are times a president will take a position that a group of quote-unquote experts will agree with and there are times when a president will take a position that a group of quote-unquote experts won’t agree with it,” campaign spokesman Howard Wolfson told reporters today, “Sen. Clinton believes this is the right policy.”
These "quote-unquote" experts are essentially unanimous in their opposition, and it doesn't matter what side of the aisle they are on, or whether they favor a larger or smaller role for government.
(3) Clinton also noted that while Democratic rival Sen. Barack Obama, D-Ill., opposes the idea, it has been embraced by presumptive Republican rival Sen. John McCain, R-Ariz.. The Indianapolis Star said Clinton chided McCain for not backing her idea of a windfall profits tax on the oil industry to make up the lost tax revenue. "I sort of feel like Goldilocks," Clinton said. "Not too much, not too little. Just right."
Actually, the nursery rhyme three blind mice would be more appropriate for the three candidates' positions on this issue.
(4) Obama: "We've got to go after the oil companies and look at their price-gouging. We've got to go after windfall profits … then we've got to use less oil, and that means raising fuel efficiency standards for cars."
"Price gouging" is already illegal. With regards to "go after the oil companies...," it's just pure rhetoric that plays well with an angry audience. A windfall profits taxes would be paid by the individuals who own the oil companies either directly as individual shareholders or indirectly through pension funds. The CEO's of these corporations aren't exactly the only ones that would be harmed by such a tax. Furthermore, a windfall profits tax is a bad way to reduce one type of investment in future energy.
ATR suggests providing a year-end tax deduction to consumers which could be filed using the income tax system. At the end of each fiscal year, energy receipts from the preceding year would be tabulated and that amount deducted on their income tax form. Just as individuals can deduct their home mortgage or sales tax from their federal income tax bill, this same concept would be applicable to the consumption of fuel.
Such a proposal is worse than the gas tax holiday. It would create more complexity in the federal income tax, especially given that it would require energy receipts. Second, it would encourage more energy consumption, and to a large extent merely be capitalized into the price of energy, thereby saving consumers as a whole very little. And finally, the subsidy would vary based upon one's marginal tax rate, and thereby via the price effect would likely have the result of making energy more expensive for the poor, while slightly subsidizing energy for the rich (those in higher marginal tax rates).
(6) Hillary Clinton speaking about a windfall profits tax: “We will pay for it by imposing a windfall profits tax on the big oil companies. They sure can afford it."
Similar to Obama. She doesn't tell the whole truth by telling us which individuals will pay for it, and why those individuals should. See more here.
(7) Clinton also said she will make sure that the tax suspension is passed on to motorists by ordering the Federal Trade Commission to aggressively oversee service stations. Democratic rival Barack Obama has raised that concern in so far not supporting the gas tax suspension.
Trying to legally enforce economic incidence = price controls.
Amazon has filed suit in New York state court seeking to invalidate the recently passed "Amazon tax", which requires any out-of-state online retailer collect sales tax on purchases if the business does at least $10,000 worth of business with in-state affiliates, even if it has no property or employees in the state.
In its lawsuit, Amazon argues the law violates the Commerce Clause, Due Process Clause, and Equal Protection Clause of the U.S. Constitution. They have a good case, as we previously discussed:
New York's move is just the latest in a string of state efforts to abandon the physical presence rule of taxing out-of-state businesses. In 1992, the U.S. Supreme Court reaffirmed the rule in the Quill v. North Dakota case, holding that a state could not impose sales tax collection obligations on a company, unless the company has either property or employees in the state. Amazon has neither in New York.
Far from creating a level playing field, New York's new law and other efforts to abandon the physical presence rule (California has a pending bill, A.B. 1840) actually move away from a level playing field. If every state did what New York did, online retailers would have to keep track of the different rates and bases of the 7,400+ sales taxing jurisdictions in the United States and all the income tax systems. We here at the Tax Foundation have a lot of researchers and subscriptions trying to do that, and it'd be quite burdensome for small online retailers to tackle that task. Meanwhile, brick-and-mortar retailers need only keep track of one sales tax rate and base.
Many states are hoping that the Streamlined Sales Tax Project, by simplifying state sales taxes, will paper over this fundamental inequity by making compliance easy. (Hard to believe since their stretch goal is to limit the 7,400+ sales tax jurisdictions by nine-digit zip codes, of which there are 38,547,080.)
Amazon's filing papers elaborate on how it impacts them:
The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates--from big publishers to tiny blogs--that feature links to its products. It says thousands of those have given an address in New York State, although it does not verify the addresses. The state law says that if even one of those affiliates is in New York, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate.
Yours truly made a push for neutral tax systems that don't discriminate against online retailers in a comprehensive Internet News article by Kenneth Corbin:
"Brick-and-mortar retailers will have to keep track of just one tax law at a time, while online retailers will have to keep up with 7,400," he said. "A neutral tax system would have all retailers collect tax on one standard or the other."
We'll continue to monitor this case as it develops. More on the physical presence rule here, here, and here.
Using data on who owns shares in U.S. oil companies combined with household financial data in the Survey of Consumer Finances, the Tax Foundation has done a distributional analysis of the proposed gas tax holiday and windfall profits taxes. Note that the report shows how the estimated savings from a gas tax holiday under both assumptions: (1) that the tax cut is merely capitalized into higher prices for gasoline (the economists' consensus) and (2) that the tax cut is fully passed forward to consumers.
Here is what the table looks like for a gas tax holiday that is not passed onto consumers (or equivalently a windfall profits tax on oil companies).
Average Tax Savings Per Familiy from Proposed Policies:
| Income Quintile | Windfall Profits Tax Burden per Family (Short-Run) | Gas Tax Holiday Savings (Economists' Assumption) |
| Bottom 20% | $6 | $6 |
| Second 20% | $10 | $10 |
| Middle 20% | $24 | $24 |
| Fourth 20% | $48 | $48 |
| 80-90% | $68 | $68 |
| Top 10% | $558 | $558 |
Sources and notes: See full paper.
Note that these tables and those in the actual paper ignore the fiscal incidence on the spending side. For example, if lower taxes on gasoline leads to cuts in transportation spending, the latter would result in lower welfare for citizens, all else equal. That's because government services would be cut. (The net effect would be the value of the tax cut compared to the value of the government services cut.)
Some have discussed how a gas tax holiday would cost 30,000 jobs in the construction sector. With all due respect to those in the industry, that should be irrelevant from the perspective of gas tax policy. The purpose of government is not to maximize the number of jobs. The purpose is to provide a service to the citizens that cannot be provided by the private sector for whatever reason. If there was a way in which transportation projects could be completed without paying a single worker (say a self-operating cheap machine could do it), that would be terrific. Those labor resources could be used to produce some other product or service.
In summary, the "jobs" rhetoric is ridiculous. Think about it. Suppose the government started paying people to dig ditches and then paid other people to fill them back up. That would create a lot of jobs, but would provide no benefit to society.
