List of Tax Provisions Scheduled to Expire on December 31, 2010

Just to remind everyone, here's the list of tax law provisions currently scheduled to expire on December 31, 2010.

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Operators of Kentucky's Creation Museum are seeking tax incentives to build a creationism theme park called Ark Encounter, which, according to preliminary estimates, could draw as many as 1.6 million guests a year.

The developers are seeking the tax incentives under the Kentucky Tourism Development Act.  If the project is approved, the park's developers could recover up to 25 percent of the project's cost in the form of returned sales tax paid by visitors on admission tickets, food, gift sales and lodging costs.

Developers Mike Zovath, senior vice president of the non-profit group Answers in Genesis, and Ark Encounter LLC, a for-profit company based in Springfield, Mo., have not finalized the park's location and are still considering an Indiana location.

Not surprisingly, some controversy surrounds the proposed use of tax incentives for a religious-themed park. From the Courier-Journal:

Advocates for church-state separation question whether the tax incentives would raise First Amendment issues.

Louisville attorney David Tachau, who successfully sued over a state appropriation for a religiously affiliated pharmacy school, said he would have to further research the issue.

"It certainly sounds as if the mechanism for supporting a particular religious dogma would violate the establishment of religious prohibitions in the state and federal constitutions, but there may be slippery ways this could pass muster," he said.

Edwin Kagin, a Northern Kentucky attorney who is also the national legal director for the group American Atheists, said it doesn't appear to him to violate the law. If other projects with religious themes could qualify for the tax incentives, the law doesn't discriminate.

"It might not be discrimination, but it might not be a good idea," Kagin said.

...

Martin Cothran, senior policy analyst for the Family Foundation, said his organization doesn't believe there would be a problem in giving a tax break to an organization that is "not explicitly religious."

"Whether you agree with them or not, they are making a claim that what they are doing is scientific and it's not necessarily the state's business to second guess that," Cothran said.

There an additional issue that Kentucky officials should consider when weighing the merits of this project: regardless of the content or theme of the park, is it good policy for states to provide preferential tax treatment to tourist-friendly businesses?

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List of Tax Provisions Scheduled to Expire on December 31, 2010

List of Tax Provisions Scheduled to Expire on December 31, 2010

Just to remind everyone, here's the list of tax law provisions currently scheduled to expire on December 31, 2010.

Should Kentucky Provide Tax Incentives to Proposed Creationism Theme Park?

Operators of Kentucky's Creation Museum are seeking tax incentives to build a creationism theme park called Ark Encounter, which, according to preliminary estimates, could draw as many as 1.6 million guests a year.

The developers are seeking the tax incentives under the Kentucky Tourism Development Act.  If the project is approved, the park's developers could recover up to 25 percent of the project's cost in the form of returned sales tax paid by visitors on admission tickets, food, gift sales and lodging costs.

Developers Mike Zovath, senior vice president of the non-profit group Answers in Genesis, and Ark Encounter LLC, a for-profit company based in Springfield, Mo., have not finalized the park's location and are still considering an Indiana location.

Not surprisingly, some controversy surrounds the proposed use of tax incentives for a religious-themed park. From the Courier-Journal:

Advocates for church-state separation question whether the tax incentives would raise First Amendment issues.

Louisville attorney David Tachau, who successfully sued over a state appropriation for a religiously affiliated pharmacy school, said he would have to further research the issue.

"It certainly sounds as if the mechanism for supporting a particular religious dogma would violate the establishment of religious prohibitions in the state and federal constitutions, but there may be slippery ways this could pass muster," he said.

Edwin Kagin, a Northern Kentucky attorney who is also the national legal director for the group American Atheists, said it doesn't appear to him to violate the law. If other projects with religious themes could qualify for the tax incentives, the law doesn't discriminate.

"It might not be discrimination, but it might not be a good idea," Kagin said.

...

Martin Cothran, senior policy analyst for the Family Foundation, said his organization doesn't believe there would be a problem in giving a tax break to an organization that is "not explicitly religious."

"Whether you agree with them or not, they are making a claim that what they are doing is scientific and it's not necessarily the state's business to second guess that," Cothran said.

There an additional issue that Kentucky officials should consider when weighing the merits of this project: regardless of the content or theme of the park, is it good policy for states to provide preferential tax treatment to tourist-friendly businesses?

The Report Is Out: Deficit Commission Unveils Its 'Moment of Truth'

The White House deficit commission - a/k/a The National Commission on Fiscal Responsibility and Reform - has released its long-awaited report, with the title "The Moment of Truth." In the report's preamble, members sign on to an unusually blunt summary of the state of affairs:

After all the talk about debt and deficits, it is long past time for America’s leaders to put up or shut up. The era of debt denial is over, and there can be no turning back. We sign our names to this plan because we love our children, our grandchildren, and our country too much not to act while we still have the chance to secure a better future for all our fellow citizens.

Whether the love of the commission members for their grandchildren will be enough to garner the bipartisan support they're hoping for remains to be seen, though it seems all but certain that the Commission's recommendations will inspire the "heart-wrenching media assaults" by "countless advocacy groups and special interests" that they've already predicted. Initial reaction by John Merline of AOL News here.

See our summary here.

Tax Debate Heats up in Washington

Congress appears to be gearing up to tackle the question over whether tax rates should increase in 2011.

"The House will hold a vote this week on extending the George W. Bush-era tax cuts only for middle income Americans," reports TheHill.com. But that publication is predicting a contentious debate in the Senate between legislators who prefer raising taxes only on people making more than $250,00 (as Obama has previously suggested) or to forgo any tax rate hike regardless of income-level.

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Tax Foundation’s New Online Calculator Lets Users Play VAT-God

Last Thursday, we released a new value-added tax (VAT) calculator. It’s easy to use, a one-page form that users can adjust to suit their own VAT preferences. The U.S. has no VAT, essentially a national sales tax, but the idea is increasingly in the news, and this calculator shows how much taxpayers are likely to owe if Congress enacts one.

The calculator has two columns. The left-hand side is common to most calculators: the user enters a few fields about his income but no identifying personal information.

On the right-hand side, the user adjusts the "policy parameters" such as the tax rate, the exemptions, and how much revenue the user wants to raise with the VAT. This is where the Tax Foundation VAT calculator gets politically interesting.

When the user loads the page, the default VAT is one that is designed to achieve a balanced budget after 10 years, using a tax base equal to about 37 percent of GDP – this requires a VAT rate of about 13 percent, raising $789 billion dollars annually.

However, let’s say you don’t want to wait 10 years for a balanced budget. You want it now. You can tell the calculator to figure out how high the VAT rate would have to be to balance the 2011 budget. Simply click the “pick a year” option and select “2011.” The revenue goal jumps to $1,405 billion ($1.4 trillion), requiring an exorbitant VAT rate of 32 percent, a sobering reminder of just how high the deficit currently is.

Ideally, a VAT would apply to all purchases (about 70 percent of U.S. GDP), and if it did, we would only need a rate of about 6.5 percent to eliminate the deficit over 10 years. But politics being what it is, such a pure VAT is impossible. If state sales taxes are any guide, it’s likely that at the very least, Congress would please powerful constituencies by enacting exemptions for all purchases related to education and religion, financial and other services, housing, health care and medicine. So we’ve set the default to exclude those, but to tax everything else.

Perhaps you expect that groceries and gasoline purchases would also be exempted from the tax. Simply press the "include consumption of" option and uncheck those two boxes. Notice that the VAT rate (for eliminating the deficit in 10 years) jumps from 13.12 percent to 16.6 percent. As you exclude more and more consumption from the tax base, you need to tax everything else at a higher rate to make up for the lost revenue.

The Administration’s deficit commission is currently playing VAT-god, so our calculator lets the public play along. Have fun!

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Citing Income Tax Initiative, Texas Governor Reaches Out to Washington Businesses

Citing Income Tax Initiative, Texas Governor Reaches Out to Washington Businesses

Tomorrow is Election Day, which means we'll find out whether Washington voters are keen on dropping off the list of states with no income tax. (Check out our report on Washington's Initiative 1098 here.) Given how much Washington trumpets its no-income-tax status to businesses considering investing and moving there, lots of people agree with our assessment that adopting an income tax, particularly on high-earners only, would have a devastating impact on the state's business tax climate.

Enter Texas Governor Rick Perry (R):

Perry, a Republican, has taken an unusually aggressive swipe at Gov. Chris Gregoire, a Democrat. Perry sent letters Friday to 90 leading businesses in Washington - including Amazon, Microsoft and Starbucks - inviting them to relocate to Texas, which also has no income tax.

"If Washington doesn't want your business, Texas does," said Perry. "Texas has no personal income tax and no interest in getting one."

Most Washington business leaders are lined up against the proposal, which would impose a 5 percent tax on individuals earning $200,000 or more a year and a 9% tax on those making more than $500,000.

Microsoft founder Bill Gates, the state's most prominent billionaire, has divided loyalties: his company is fighting the tax proposal on behalf of its many highly-paid workers, but the ballot initiative was sponsored by Gates father, a retired lawyer who argues that Washington needs the money to fund education. The software mogul himself has not taken a position on the tax, which stands to cost him tens of millions of dollars a year.

Perry reportedly sent the letter to 88 business executives in Washington.

More on Washington state here.

Is Allowing Tax Cuts to Expire the Largest Tax Increase in American History? The Question Revisited

Is Allowing Tax Cuts to Expire the Largest Tax Increase in American History? The Question Revisited

Many conservative talk show hosts and organizations, in addition to many Republican members of Congress, have been pushing the talking point that allowing the Bush tax cuts to expire is the largest tax hike in history. Many have questioned this claim, including the Tax Foundation. Now Ryan Ellis, Tax Policy Director at Americans for Tax Reform (ATR), has put out a "defense" of this claim.  Unfortunately, this defense suffers from many flaws itself.

First, Ellis admits that allowing the tax hikes to expire (assuming you classify that as a tax hike) would not be as big as one passed during World War II, hence his "outside of killing Hitler" disclaimer in his post. But Ellis is thereby admitting that it's simply not the largest tax hike in American history. When you say "history," that includes the 1940s. If you want to exclude WWII, say peacetime. Furthermore, the Treasury study that Ellis bases these claims off only goes back to the 1940s, which means that we don't even know the relative size of tax hikes pre-1940, such as when the individual income tax was initiated and ramped up. So in summary, we can say that you have to knock off about 170 years of American history in order to make Ellis's claim only possibly defensible.

Second, Ellis classifies a compilation of "tax hikes" that are set to go into effect as one giant tax hike, including AMT expiration, the extenders bill, Making Work Pay, and even health care reform. There are two problems with this. First off, Ellis and ATR have a countdown clock on the ATR website (which is off by one hour by the way due to Daylight Savings Time) saying "countdown to the biggest tax increase in American history." Well, virtually all of the health care tax hikes, which he counts in his tax hike amount, don't kick in until 2013 (731 days from January 1, 2011). Therefore, this is inconsistent. Furthermore, summing up all the tax hikes and counting them as one big tax hike is inconsistent with the Treasury study cited earlier. If you want to count all the "tax hikes" occurring under Obama as one big tax hike, then shouldn't you do the same for previous administrations?

Third, the Treasury study referenced wouldn't even consider letting the tax cuts to expire to be a tax hike because there was no act of Congress. Has Ellis done a review of history to make sure that no tax cut has expired elsewhere in history that was not counted in this Treasury study (given that Ellis considers an expiring tax cut to be a tax hike)?

Furthermore, what's interesting is that according to Ellis's framework, Republicans are proposing fairly significant tax hikes too. That's because his numbers include as a tax hike allowing Making Work Pay and other stimulus provisions to expire (which he labels "extenders"), many of which the Republican plan (the "Tax Hike Prevention Act of 2010") wouldn't extend. The Republican plan also calls for a "tax hike" on the estate tax since they don't favor full extension of 2010 estate tax law (i.e., no estate tax). According to Ellis's math, ATR should be calling out all the Republicans who have signed onto the Tax Hike Prevention Act of 2010 as tax hikers and pledge violators. In fact, according to Ellis, Republicans are calling for a tax hike amount that rivals the Bush tax hike of 1990 and possibly the Clinton tax hike of 1993 (this includes some refundable credits, which Ellis counts as tax hikes given the CBO numbers he references).

Overall, there are legitimate arguments to be made against the Democratic position of allowing the tax cuts to expire, but this debate is filled with enough misinformation already from both sides.

Study Finds the Mortgage Interest Deduction to be Ineffective at Increasing Ownership

The mortgage interest deduction (MID) is an income tax preference that allows taxpayers to deduct from income the interest paid on a home mortgage. Proponents for the MID often offer the justification that it increases homeownership rates, which they say has positive benefits for society. But most economists seriously question the benefits of MID and many believe homeownership is greatly over-subsidized.

A recent paper, The Impact of the Mortgage Interest Deduction on Homeownership Decisions, takes a look at the state and federal mortgage interest deductions and their effects on homeownership rates. The study's authors, Christian A.L. Hilber of the London School of Economics and Tracy M. Turner of Kansas State University, find that "on average, the MID has no statistically significant impact on homeownership attainment," and so "conclude that the MID is a costly and ineffectual policy for boosting homeownership and social welfare."

While the authors find no net effect on ownership rates, there are effects on individual homeownership decisions. Focusing on land use regulations the authors find that in more tightly regulated areas (where the supply of owner-occupied housing cannot easily expand with increases in demand) the MID actually reduces homeownership rates for all but the lowest income group. Theory suggest that this is because the tax benefit becomes incorporated into prices and actually increases the price of housing. In areas with more relaxed land use regulations the authors find that the MID boosts ownership rates for higher income households but not lower income households. The authors find that lower income families are unaffected by MID regardless of the regulatory environment.

The authors' note that:

The implications of the MID for redistribution are striking. The fact that the subsidies have an adverse effect on homeownership attainment in the more regulated markets, implies that an increase in the subsidy rate only serves to make existing (typically higher-income) homeowners better off and existing (usually lower-income) renters worse off. In less regulated places we do find the intended tenure transitions but, again, only for the higher income groups.

They also note that while research has suggested that there are positive externalities associated with homeownership, the places where home ownership is thought to provide the highest social benefit, namely urbanized areas, are the very same areas where the MID reduces homeownership rates.

In other homeownership-subsidy news, on September 30 the New Jersey General Assembly failed to override Governor Christie's veto of a new homebuyer credit. The credit would have been worth 5% of the home price, with a maximum of $15,000, on any purchase of a home. It plan would have cost $100 million over three years. Christie, along with the legislators who declined to overturn his veto, should be applauded.  A tax credit for home purchases is bad tax policy and a waste of taxpayer dollars.

Discussing State Tax Trends on Washington Journal

This morning I appeared on C-SPAN's Washington Journal to discuss trends in state taxation. Why are states turning to income taxes in this recession when historically it's the last revenue source states turned to? How are some states able to lower taxes? What's going on with property taxes? Check out the video for the answers.

See also:

• A Review of 2010’s Changes In State Tax Policy, by Joseph Henchman and Xander Stephenson, August 23, 2010

Corporate Welfare for Movie Producers Returns to Iowa

Iowa is once again funneling taxpayer dollars to the film industry. The Tax Update Blog has been following this gripping tale of corruption, celebrities, and nine-figure price tags since day one:

The film program collapsed in scandal last fall, and the film office director and two filmmakers face criminal charges. Iowa is on the hook for $200 million for credits already committed -- about $66 per Iowan.

Because of this scandal Iowa temporarily stopped shamelessly handing out cash to filmmakers, but the gravy train is up and running again. Iowa lawmakers have not learned the broader lesson: film tax credits should be eliminated permanently because they are terrible tax policy. One of most egregious forms of corporate welfare, film tax credits take money from the taxpayers and funnel it to filmmakers. The claims of economic benefits and job creation are greatly exaggerated (assuming you can even call a job shifted from one state to another a job "created") and ignore the opportunity cost of such tax expenditures (like funding essential government services, or reducing taxes). Film tax credits are yet another example of a politically well-connected special interest group securing subsidies for itself at the cost of the rest of the state's taxpayers and businesses.

For much more on film tax credits, see our Special Report on the topic or visit this section of our site.

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New York's cigarette tax of $4.35 (raised this year from the already-high $2.75) is sufficiently high relative to its neighbors to induce schemes to bring in cigarettes from out-of-state. Determined to overcome this resistance, the state is thinking up new efforts to clamp down on smuggling and illegal sales.

One is by going after the Seneca tribe of Native Americans. Cigarettes are sold on tribal lands, and the state tax does not apply as it is sovereign land. New York is unhappy with this arrangement - in 2005, the tribe sold as many cigarettes as the rest of New York altogether - and they claim that New Yorkers are illegally smuggling cigarettes from the reservation to the state. So they passed a law, to go into effect today, requiring the Seneca to collect New York cigarette tax on sales to non-tribal members, if the cigarettes are bought wholesale from outside the reservation.

The Seneca, who rely heavily on the sale revenues themselves, went to court and got a federal judge to suspend implementation of the new tax requirement. The Oneida and Onondaga, two other nearby tribes, will stop buying wholesale and switch to brands produced on the reservation. New York was hoping for $150 million from the scheme, but that probably won't happen.

New York City Mayor Michael Bloomberg tastelessly implied the use of more brutal force against the Seneca for refusing to collect New York taxes on their reservation:

Bloomberg said on a radio show that Paterson needs to grab a "cowboy hat and a shotgun" and demand the money himself. 

The Seneca Nation reacted harshly, demanding that the mayor either apologize or resign, calling on Paterson to distance himself from Bloomberg and threatening to pursue a hate crimes case against him. 

Bloomberg's office said no apology or resignation would be forthcoming and that the tribes should just "follow the law." 

This is a classic case of states reaching across jurisdictional lines to use force to prop up a broken tax system. New York's high cigarette tax is causing these problems, and to ameliorate them, the state should bring it in line with competitors.

More on cigarette taxes here. Previous:

• Seneca Object to New York Cigarette Tax Law, December 18, 2008

Note: Updated to include New York's new cigarette tax rate, effective July 1, 2010.

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The Tax Foundation has put up a 10-question quiz for users to test their knowledge of the Bush tax cuts and what President Obama is proposing to do about them.

Here's a sample:

The federal estate tax rate for 2010 is currently zero. If the Bush tax cuts were to expire, what would the rate be in 2011?
A. 35%
B. 39.6%
C. 45%
D. 55%

Take the quiz to find out the answer.

When submitted, an explanation for each answer (with documentation) is provided to the quiz-taker.

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In a televised address to the nation tonight, President Obama outlined his plans going foward concering U.S. military presence in Iraq. Obama's plan to formally end combat operations means that those troops who remain in Iraq are now being labeled "non-combat."

But even while they are no longer being called "combat" troops, the troops remaining in Iraq and throughout the Gulf Region will continue to receive combat zone tax treatment. As Stripes Central reported last week, a rumor that was circulating among some in the military that Obama's change would affect the tax treatment of troop pay was just that, a rumor.

Starting Sept. 1, the U.S. mission in Iraq will officially change to mentoring Iraqi troops and police, marking a symbolic end to the U.S. combat mission there. Even though the Defense Department has said the move won’t affect troops’ pay, rumors along those lines have persisted, prompting Stars and Stripes to ask the department about this matter.

“Iraq (land and airspace) is included in the list of designated hostile fire or imminent danger pay areas (effective since Sep 17, 1990),” said Defense Department spokeswoman Eileen Lainez in an e-mail. “These pays are based upon a location's designation as a combat zone or direct support area. Therefore, the pays won't change Sept. 1.”

So there you have it. The current special tax treatment received by those in Iraq has been in place long before President Obama took office or even the previous administration launched Operation Iraqi Freedom in 2003.

For more on combat zone tax exclusions, click here, which includes the following listing of designated combat zones:

Afghanistan: By Executive Order No. 13239, Afghanistan (and airspace above) is designated a combat zone beginning September 19, 2001.

The Kosovo area: By Executive Order No. 13119 and Public Law 106-21, the following locations (including air space) were designated as a combat zone and a qualified hazardous duty area beginning March 24, 1999.

Federal Republic of Yugoslavia (Serbia/Montenegro)

Albania

The Adriatic Sea

The Ionian Sea - north of the 39th parallel (including all of the airspace in connection with the Kosovo operation.)

Persian Gulf area: By Executive Order No. 12744, the following locations (and airspace) were designated as a combat zone beginning January 17, 1991:

The Persian Gulf

The Red Sea

The Gulf of Oman

The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude

The Gulf of Aden

The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates

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Massachusetts Gov. Patrick Should Say No to Sales Tax Holidays and Focus Instead on Real Tax Relief

Massachusetts may soon be the 19th state to enact a sales tax holiday for 2010. Massachusetts lawmakers have sent a sales tax holiday bill to Governor Patrick's desk and the Governor has indicated that he will sign the bill. But the Governor would be wise to steer clear of this bill.

The popular but ill-advised policy of offering a temporary break from sales taxes has become more prevalent over the last decade, with 18 states having scheduled at least one holiday in 2010. In a way this makes sense. Politicians love sales tax holidays because it allows them to pass a relatively small tax cut and forever brand themselves with the invaluable "Tax Cutter" stamp. That is not to say that a small tax cut is not worthwhile. But if Massachusetts has the extra room in their budget to afford even a small tax cut it would be much better to give that tax cut to all consumers regardless of when they shop.

The argument that sales tax holidays are a great boon for the economy is wrong. Sales tax holidays mostly shift the timing of purchases that would have occurred anyway. Business will increase during the tax free period, but it will be down in the weeks before and after.

If you have to offer a holiday from your state's tax system, maybe that is a sign that there are larger problems. Gimmicks like sales tax holidays distract from real, beneficial tax reform. Bay Staters should not be mollified by such policies, but instead should demand that their elected officials make genuine tax reform a priority.

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California's Franchise Tax Board began mailing out some 135,000 notices to Californians who claimed the head of household filing status on their 2009 California return. The letters simply ask that the taxpayer answer a few questions to confirm that they are eligible to utilize the head of household status. Taxpayers can respond by mailing the audit questionnaire back to the state, by faxing in their answers, or by using California's Audit Letter Web Response application.

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Alaska Cuts Cruise Passenger Head Tax

From the Associated Press:

Alaska Gov. Sean Parnell signed legislation lowering the state's tax on cruise passengers in a move aimed at bringing more ships back to Alaska and settling an industry lawsuit over the fee.[...]

Tourism and industry officials called the reduction an important first step, and John Binkley, president of the Alaska Cruise Association, cautioned against expecting too much, too fast.[...]

Binkley said the state will not only have to build back what it lost, but it must also compete with destinations that benefited from ships Alaska lost. A multimillion-dollar ad campaign to promote the industry, a cause for which the Legislature gave extra money, is seen as a key part of that endeavor.

With Parnell's signature, the head tax will drop from $46 to $34.50, with deeper offsets for ships stopping in at least one of two popular ports, Juneau and Ketchikan. Voters had approved the tax in 2006, with supporters seeing it as a way to help cover the cost of infrastructure needed for large ships coming to port.

But the cruise association argued the tax is onerous and unconstitutional, and sued the state.

Last year, the U.S. Supreme Court struck down another one of Alaska's taxes on ships.

More on Alaska here.

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California is two days into Fiscal Year 2011 with no budget in sight. (Illinois approved a skeleton budget yesterday, Pennsylvania approved one with a $850 million hole still in it, ditto for Rhode Island with a $100 million hole.) Even New York has a budget after going for months since its fiscal year started on April 1.

Governor Arnold Schwarzenegger is taking an action that will be noticed:

Roughly 200,000 state workers will receive minimum wage paychecks next month under terms of an order issued Thursday by the Schwarzenegger administration.

According to a letter delivered to Controller John Chiang in late afternoon, July pay for most hourly state employees will be withheld to the minimum allowed by federal law – $7.25 an hour – and then restored once there's a budget.

Chiang, whose office cuts state paychecks, said Thursday that he won't follow the order unless a court tells him to.[...]

Schwarzenegger is invoking a 2003 state Supreme Court decision as grounds for the order. The ruling in White v. Davis held that without a state budget with money appropriated for payroll, wages can be withheld to the federal minimum. Back pay would be issued once a budget is enacted.

The threat of minimum wage has prodded several unions into contract talks with Schwarzenegger. Last month six unions – representing doctors, highway patrol officers, firefighters and psychiatric technicians, equipment operators, and health and social service professionals – tentatively agreed to pacts lowering retirement benefits for new state hires and increasing what all their members will pay into their pensions.

Reducing the state's cost for pension benefits has been a policy centerpiece for Schwarzenegger. In exchange for those concessions, he promised the six unions that they would be shielded from minimum wage.

Read more at the Los Angeles Times: http://www.sacbee.com/2010/07/02/2864614/governor-puts-200000-state-workers.html#ixzz0sWzqBTiA

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New EU Report Shows U.S. Corporate Tax Rate Out of Step With Global Trends

Eurostat, the statistical agency of the European Union, has released an informative update of tax trends across the EU over the past decade. By and large, the report shows a downward sloping trend in top statutory tax rates for both personal income taxes and corporate income taxes.

On average, the top personal income tax rate among the 27 EU nations fell 7.2 percentage points between 2000 and 2010, from 44.7 percent to 37.5 percent. Only four countries increased their personal income tax rates - Latvia (+1.0%), Portugal (+2.0%), Sweden (+4.9%), and the U.K. (a whopping +10.0% to 50.0%).  

But the real story is on corporate income taxes where every country except Hungary, Malta, and Norway cut their top corporate tax rate during the past decade. Hungary was the only country to raise their rate, albeit 1 percentage point to 20.6 from 19.6.

As the table below shows, on average, the top statutory corporate tax rate among the EU27 fell 8.7 percentage points, from 31.9 percent to 23.2 percent. Among the 16 largest EU nations, the average rate is 25.7 percent.

By contrast, the top federal corporate rate in the U.S. has been fixed at 35 percent since 1993, and tops 39 percent when the average state rate is added to it. This is further evidence that the U.S. corporate tax rate is out of step with the rest of the developed world and needs to be cut dramatically for our economy to remain competitive globally. 

 

	Top Statutory Tax Rate on Corporate Income
Country	2000	2009	2010	Difference 2000 -- 2010
EU 27*	31.9	23.5	23.2	-8.7
EA 16*	34.9	25.9	25.7	-9.2
Belgium	40.2	34.0	34.0	-6.2
Bulgaria	32.5	10.0	10.0	-22.5
Czech Republic	31.0	20.0	19.0	-12.0
Denmark	32.0	25.0	25.0	-7.0
Germany	51.6	29.8	29.8	-21.8
Estonia	26.0	21.0	21.0	-5.0
Ireland	24.0	12.5	12.5	-11.5
Greece	40.0	25.0	24.0	-16.0
Spain	35.0	30.0	30.0	-5.0
France	37.8	34.4	34.4	-3.4
Italy	41.3	31.4	31.4	-9.9
Cyprus	29.0	10.0	10.0	-19.0
Latvia	25.0	15.0	15.0	-10.0
Lithuania	24.0	20.0	15.0	-9.0
Luxembourg	37.5	28.6	28.6	-8.9
Hungary	19.6	21.3	20.6	1.0
Malta	35.0	35.0	35.0	0.0
Netherlands	35.0	25.5	25.5	-9.5
Austria	34.0	25.0	25.0	-9.0
Poland	30.0	19.0	19.0	-11.0
Portugal	35.2	26.5	26.5	-8.7
Romania	25.0	16.0	16.0	-9.0
Slovenia	25.0	21.0	20.0	-5.0
Slovakia	29.0	19.0	19.0	-10.0
Finland	29.0	26.0	26.0	-3.0
Sweden	28.0	26.3	26.3	-1.7
United Kingdom	30.0	28.0	28.0	-2.0
Norway	28.0	28.0	28.0	0.0
Iceland	30.0	15.0	18.0	-12.0
* Arithmetic average

Source: Eurostat, "EU27 Tax Ratio Fell to 39.3% of GDP in 2008."

 

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I sent Virginia Attorney General Ken Cuccinelli a letter today, criticizing his office's amicus curiae brief in FFW Enterprises v. Fairfax County.

The case involves newly enacted special property taxes on property near what will be new Metrorail stations, with the revenue used to help fund the Dulles Metro extension. Such tax-benefit districts are common and justified under a "benefits conferred" approach whereby those who benefit from the spending are those who pay the taxes.

This case is different because Fairfax will impose the taxes only on commercial property. Residents and travelers will benefit at least as much, if not more, from the Dulles Metrorail improvements, so a tax only on commercial landowners within the geographic area surrounding the stations cannot be justified under a "benefits conferred" approach. Special district taxes for benefits from the Metrorail should be imposed uniformly over the taxing district, not arbitrarily on some types of property.

From the letter:

The Virginia Constitution limits policymakers' discretion in defining taxation categories in this context. Fairfax County and, unfortunately, your brief, argue that because the Uniformity Clause only requires uniformity "among the same class of subjects," the General Assembly is free to define the class however it wishes and survive any Uniformity Clause challenge. (Your 8-page brief does not even attempt to explain or justify the General Assembly's arbitrary action against taxpayers, instead pasting a page of text from the trial judge's opinion musing about possible rationales.)

If such a theory survived constitutional scrutiny, legislative classifications could routinely overburden select groups of private property to finance benefits enjoyed by the broader public. Such classifications could then be prone to a federal takings challenge because as a classification becomes increasingly specific to a certain type of property, a tax based on benefits conferred takes the nature of an arbitrary deprivation of property without due process.

The General Assembly's chosen route to raise revenues for the Metrorail construction may be administratively and politically convenient, but it creates exactly the type of discriminatory tax classification that the Virginia Constitution was designed to prevent. The General Assembly should not have the power to burden specific types of private property for public benefit under the guise of district-wide taxes. The state, and the state's Attorney General, has an obligation to protect taxpayers from such arbitrary actions.

For more on the FFW case, see here: http://www.taxfoundation.org/publications/show/26381.html

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The IRS has a helpful web page for all homebuyers who plan to claim the homebuyer tax credit on their income tax returns, and today the service updated the page to reflect Congress's action late on June 30 to extend a closing deadline for the program.

June 30 had been the final deadline for closing on a home sale for everyone who wanted the tax credit and had met the April 30 deadline for entering into a binding contract on a home sale. But at the last minute, Congress added 90 days, extending it to September 30 because real estate agents had complained that many purchasers who did meet the April 30 deadline were going to miss the June 30 closing deadline. Some observers predicted a high rate of fraud, asserting that people would backdate contracts entered into after April 30.

Whether fraudulent or legitimate, temporary tax credits for housing are just the same old congressional idea: to act as if they're solving a problem when they're actually just funneling taxpayers' money to powerful special interests like real estate agents, homebuilders and mortgage lenders.

It's particularly galling to see Congress twiddling its thumbs on the Fannie Mae/Freddie Mac fiasco. These mortgage goliaths -- once called "government-sponsored enterprises" - are now not much different from regular government agencies.

They're losing money at an astonishing rate, and they're still hiring!

You wouldn't expect an aggressive hiring campaign at an agency that has recently:

• contributed mightily to the economy's downfall by buying bad loans
• lost about $142 billion in taxpayer money over the last year
• been delisted from the stock exchange
• had CBO predict that they would continue losing money that may total $389 billion

And perhaps that CBO estimate of $389 billion is too low. CNBC is quoting housing experts who fear it may reach $1 trillion.

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Your Choices for Managing Your LLC - Member or Manager

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The Washington Examiner reports on the new price of tickets in the district:

Mayor Adrian Fenty approved increasing 71 traffic fines as wells as raising various business fees as part of an effort to balance the city's budget. The increases are projected to generate about $7 million this fiscal year, which ends in September.

D.C. Traffic Fines:

Infraction	Old fine	New fine
Speeding 11 to 15 mph	$50	$125
Speeding 16 to 20 mph	$100	$150
Speeding 21 to 25 mph	$150	$200
Speeding over 25 mph	$200	$250
Driving too slow	$15	$50
Broken speedometer	$25	$75
No running lights	$25	$75
Failure to yield	$25	$100
Violating "No turn on red" signs	$50	$100
Operating with high beams on	$25	$75
Rolling right turn at red light	$50	$100
Coasting	$15	$75
Interfering with traffic when pulling from curb	$25	$100
Not having windshield wipers	$25	$75
Failing to secure loads	$50	$250
Passing a stopped school bus that has lights flashing	$50	$50

It is a mistake to increase the cost of tickets to raise more revenue.  And while I'm sure Fenty would deny that this is what is happening, I doubt anyone in D.C. would believe him.  Governments are not meant to raise revenue, they are meant to enforce laws.  If citizens begin to see laws as arbitrary—like paying $250 instead of $50 for failing to tie a red flag to an oversized load—then they lose trust and respect for law enforcement.  Not to mention we get bad laws.  One might argue that you don't have to pay the ticket if you abide by the law (or if you're D.C. Councilman Harry Thomas).  But then why not make the fines in the thousands?  If the government were to enforce every law it would cripple society. There should be proportionality when determining the amount of fines.  And government budgets should not be in the equation.

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Sen. Schumer Proposes Tax on Outsourced Call Centers

Senator Chuck Schumer (D-NY) has proposed a federal excise tax on customer service operations that use non-U.S. call centers. The AP article describes how it would work:

The [tax] would be 25 cents for calls transferred to foreign countries. There would be no [tax] for a domestic call center. Companies would have to report quarterly their total customer service calls received and the number relayed overseas.

"If we want to put a stop to the outsourcing of American jobs, then we need to provide incentives for American companies to keep American jobs here," Schumer said last week. The New York Democrat said the excise tax would "also provide a reason for companies that have already outsourced jobs to bring them back."

In a survey of American economists in 2006, Robert Whaples found nearly 90 percent agreed the U.S. should eliminate remaining protectionist tariffs and trade barriers, like the new one Schumer is proposing, that there are lower costs and a net gain from free trade. Most also agreed the U.S. should not restrict American employers from outsourcing work to foreign countries.[...]

The measure would also require telling U.S. customers that the call is being transferred and to which country.

Excise taxes are sometimes imposed on "bad" behaviors that politicians want to discourage, but there can be differences of opinion on what's good and bad.

(Hat tip: Hit & Run)

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Corporate Income Tax Rates - How Does Your State Rank?

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That was the title of Rafael Coronel's tax payment to the Mexican government in 1980 (the title has been translated from Spanish: "El que no paga impuestos"). In Mexico, artists can choose to pay their taxes with artwork instead of cash. USA Today has the story here:

There's a sliding scale: If you sell five artworks in a year, you must give the government one. Sell 21 pieces, the government gets six. A 10-member jury of artists ensures that no one tries to unload junk.

Under the program, the Ministry of Finance and Public Credit now owns 4,248 paintings, sculptures, engravings and photographs by Diego Rivera, Rufino Tamayo, Leonora Carrington and other masters.

The government displays these treasures in Mexican museums and government offices and, increasingly, loans them out for special exhibitions around the world. Other works are stored in a huge, climate-controlled warehouse in Mexico City.[...]

Some of the art is explicit, but no matter.

"There's no censorship here," says Julieta Ruiz, a curator at the museum.

If anything, the temptation to needle the taxman makes the art even edgier, she says.

Rafael Coronel's 1980 tax payment is a portrait called He Who Doesn't Pay Taxes. A painting that Fabian Ugalde contributed in 2002 declares in huge letters, "The authorities have still not determined whether it was an act of aggression or just another piece of art."

All the art is posted on this website. To view "El que no paga impuestos" click on "Colecciones Pago En Especie" on the left, choose 1980 from the drop down list and click "Buscar."

In kind tax payments are not currently an option in the United States, but maybe with the economic downturn Congress will consider such an arrangement. The Mexican program does not accept musical compositions but a US version could. As an amateur musician I would love to be able to pay my tax bill in the form of a groovy bass line crafted for the common good. But I'm not holding my breath.

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Corporate Income Tax Rates - How Does Your State Rank?

Corporate Income Tax Rates - How Does Your State Rank?


Getting Amnesty for Delinquent State Business Taxes


May Federal Tax Reports Due/Payable

Tennessee Legislature's Effort to Drive a Stake Through the Heart of Wage Taxation Passes Senate

The roster of states that refuse to tax wages stands at nine out of fifty, as it has for almost 20 years. (Connecticut joined the wage-taxers in 1991.) Among those nine states, Tennessee is the one that has come closest to adopting a wage tax.

The year was 2002, during the last recession, and the political parties did not align predictably. Facing a budget crisis that had shut down state government on July 1, Republican governor Don Sundquist favored the new wage tax, but the Democrat-controlled state legislature wouldn't give him one. Reporter Michael Wilson at The New York Times set the wild Independence Day scene.

Tennessee's reaction to the most recent recession and its attendant budget problems has been much different. Instead of a nearly successful effort to tax wages, the legislature is pushing to amend the constitution to make such an enactment nearly impossible.

As reported by State Tax Today (subscription), the state senate has voted by 25 to 7 to approve SJR 763, which would amend the constitution to prohibit a state income or payroll tax. Next step is a vote in the House Budget Subcommittee, and even then it would have to be approved by the 107th General Assembly, which meets in 2011 and 2012, before being referred to voters in 2014. A long process suited to constitutional amendments.

As colleague Joe Henchman pointed out a couple weeks ago, Tennessee's courts have repeatedly ruled that the state legislature already has no power under the state constitution to enact a wage tax, but considering how close it got eight years ago, the current effort to make the constitution more emphatic on the matter may be understandable.

Technically, Tennessee already has an income tax, but it only applies to investment income from dividends and interest, most of which flows to the wealthiest people. The new effort to make wage taxation clearly unconstitutional protects this pre-existing tax on investment income.

Tax Foundation has more info on Tennessee.

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April 15 - Federal Income Taxes Due and Payable - Which Form to Use?

April 15 - Federal Income Taxes Due and Payable - Which Form to Use?


Did You Start a Business in 2009? You Can Deduct Start-up Costs

New DC Charge on Plastic Bags is a Tax

Starting yesterday, shoppers in D.C. must pay a nickel for each plastic bag they receive at businesses that sell food and alcohol. The D.C. city government has launched a campaign to make people aware of the new tax on plastic bags, which they sometimes call a "fee":

Beginning January 1, 2010, District businesses that sell food or alcohol must charge you 5 cents for each disposable paper or plastic carryout bag.

The business keeps 1 cent, or 2 cents if it offers a rebate when you bring your own bag. And the remaining 3 or 4 cents go to the new Anacostia River Protection Fund. DDOE will administer this fund. We will use it to provide reusable bags, educate the public about litter, and clean up the river.

The District has also partnered with CVS/pharmacy to produce and hand out 112,000 reusable bags.

Putting to one side the question of whether a tax on some plastic bags to fund trash cleanup for one area is wise public policy, the new charge is properly called a selective excise tax. The bill may call the charge a fee, but it's a tax. If it were up to legislatures, few things would be called "taxes," and loose definitions help deprive taxpayer protection provisions of any meaning.

A fee funds services directed at those who pay it, or pays for regulating their conduct. Taxes produce surplus revenue for general government programs. Since the latter is what is happening here (most of the trash in the Anacostia is not plastic bags, and plastic bags pollute other things), it is a tax.

Because 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 if 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.

Check out our brief in Weisblat v. City of San Diego for a discussion of the law on tax/fee distinctions.

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