Joseph Henchman, Tax Counsel at the Washington, D.C.-based Tax Foundation, will be in Raleigh on Monday, September 8, 2008 to view oral arguments for Heatherly v. State at the North Carolina Supreme Court. Henchman will be available for interviews Monday and Tuesday, September 8-9.
On March 18, 2008, the North Carolina Court of Appeals upheld the constitutionality of the North Carolina Education Lottery by a 2 to 1 vote in Heatherly v. State. The court majority held that the lottery is not a tax, and thus did not violate taxpayer protections requiring new taxes to meet certain procedural thresholds.
"The majority opinion misses the mark in an important way," said Joseph Henchman, Tax Counsel at the Washington, D.C.-based Tax Foundation, which submitted an amicus brief supporting the constitutional challenge. "While it is true that lottery ticket purchasers receive a benefit in the form of prizes and operation costs, that's only 65 percent of what they pay. The other 35 percent goes straight to the government general fund, and that's a tax."
On May 19, 2008, the Tax Foundation filed friend-of-the-court brief with the North Carolina Supreme Court in Heatherly v. State, urging the court to reverse a lower court ruling.
From the "You can't make this stuff up" category...
The New York Post (with beach pics) and New York Times are reporting that the most powerful tax-law writer in the world, House Ways and Means Chairman Charlie Rangel, has not reported on his tax return rental income that the veteran congressman has earned from his rental unit in the Dominican Republic. Whether he owes any federal tax or not on the unit is unclear, but aides say he would likely owe at least some to New York City and state.
From the Times article:
Representative Charles Rangel has earned more than $75,000 in rental income from a villa he has owned in the Dominican Republic since 1988, but never reported it on his federal or state tax returns, according to a lawyer for the congressman and documents from the resort.
Mr. Rangel, chairman of the House Ways and Means Committee, which writes the federal tax code, bought the beachfront villa at the Punta Cana Yacht Club and has received twice-yearly payments from the resort, which rents the property for $500 or more per night.
Records from the development, now called the Punta Cana Resort and Club, indicated that Mr. Rangel’s rental profits varied from year to year, from $2,700 in 2004 to $7,600 in 1994.
A lawyer for Mr. Rangel, Lanny Davis, said on Thursday that the congressman would most likely file amendments to his tax returns for the years in question.
Mr. Davis said Mr. Rangel’s accountant believed he would most likely owe back taxes to the state and New York City.
But Mr. Rangel will probably have no federal tax liability, Mr. Davis said, because he considered the villa an investment rather than a vacation home, and was therefore entitled to deduct depreciation on the property, as well as taxes the resort management paid to the Dominican Republic.
Mr. Davis declined to release copies of the congressman’s tax returns and said he was gathering documents showing how often Mr. Rangel stayed at the home during the past two decades, a critical question because the Internal Revenue Service does not allow a property owner to deduct as much depreciation on a second home that the owner uses more than 14 days per year.
The best line of the article came here where Mr. Rangel had a moment that is John McCain-esq:
Mr. Davis said the congressman did not realize he had to declare the money as income, and was unaware of the semiannual payments from the resort because his wife, Alma, handled the family finances and conferred with their accountant, John Viardi, on tax matters.
This issue for Rangel is on top of the problem reported last month by the Times relating to his four rent-stabilized apartments. Maybe Rangel "just doesn't get it" and is too "out-of-touch" with middle-class America to be writing our tax laws.
A few weeks ago the Tax Foundation launched the CompeteUSA campaign to raise the public's awareness of the ways America's high business tax rates affect our competitiveness, wages, and living standards. The CompeteUSA campaign launch comes on the heels of new data released by the Organisation for Economic Co-Operation and Development (OECD) showing that the United States has the second-highest corporate income tax rate in the industrialized world, that for the 17th consecutive year the average rate of corporate taxes in countries other than the U.S. fell while our corporate tax rate stayed the same, and a new OECD study that finds that corporate taxes are the single most harmful tax to GDP growth-more so than even personal income taxes or consumption taxes.
CompeteUSA's first project was a new web page. The CompeteUSA webpage includes data, studies, blog posts, commentaries, podcasts, offers for free publications, a video, and even a corporate tax quiz. Now, building on the popularity of the new web page, the Tax Foundation has expanded the CompeteUSA campaign to include an ad on CNN, which first ran on Sept. 1and will continue for three weeks. The ad will help educate the American public, the media and our elected officials about the harm caused by high corporate tax rates.
If you have not already seen the ad on CNN or on our website, it is now available on YouTube. If you enjoy the video, please take a moment to forward it to a friend or colleague.
From last night's speech in St. Paul, here the remarks of Gov. Sarah Palin discussing tax policy (referring to Obama's policies) courtesy ABC News:
'Congress spends too much ... he promises more.
Taxes are too high ... he wants to raise them. His tax increases are the fine print in his economic plan, and let me be specific.
The Democratic nominee for president supports plans to raise income taxes ... raise payroll taxes ... raise investment income taxes ... raise the death tax ... raise business taxes ... and increase the tax burden on the American people by hundreds of billions of dollars. My sister Heather and her husband have just built a service station that's now opened for business - like millions of others who run small businesses.
How are they going to be any better off if taxes go up? Or maybe you're trying to keep your job at a plant in Michigan or Ohio ... or create jobs with clean coal from Pennsylvania or West Virginia ... or keep a small farm in the family right here in Minnesota.
How are you going to be better off if our opponent adds a massive tax burden to the American economy?
Is she right? Not totally. Assuming a current policy baseline, Obama does raise taxes on those making more than $250,000 directly, which would indirectly affect those "trying to keep their jobs at a plant". This is due to the fact that the economic incidence of a tax rarely falls 100 percent on the person who remitted the check. (Distributional tables typically assume this for convenience.) Given that a disproportionate amount of income earned by those above $250,000 is business income, higher taxes could result in higher prices (short-run) and lower wages (longer run), affecting those below $250,000 (like those that Palin is talking about).
However, as I've said before, those higher prices and lower wages for those households below $250,000 (especially those under $100,000) would likely pale in comparison to the amount those households will be receiving directly from Obama's "tax cuts," which are really just government handouts administered by the IRS (i.e. tax expenditures) if one excludes the AMT patch. In other words, any dynamic distributional analysis of Obama's plan would still leave most of those earning below $250,000 with more after-tax income (ceteris paribus) than under the current policy baseline.
Of course, this ignores the impact Obama's plan would have on the deficit, as well as how Obama's plan compares to McCain's. But the tax plans of the two candidates relative to current policy can basically be summarized as follows. Obama: large deficits; focus tax cuts on lump-sum transfers to anyone he doesn't consider rich. McCain: even larger deficits; focus tax cuts on overall economic growth. (Note: The adverse effect on national saving from McCain's larger deficits would take back some of the positive impact on economic growth that is tax cuts are designed to promote.)
Florida's tax swap ballot initiative will not appear on the November ballot. The Florida Supreme Court unanimously upheld a lower court ruling removing it from the ballot because summary materials were confusing.
As we have stated before, tax swaps are not sound tax policy for three specific reasons. First, local control of schools gets shifted to the state level, harming local autonomy. Second, increasing the sales tax is a more problematic source of revenue and makes the state less competitive in relation to rates found in neighboring states. Third, and most importantly, if the swap means a zero net change in revenue, it won't actually reduce Floridians' overall tax burden, as they think it will.
The Los Angeles Times had an article today that described Alaska Gov. Sarah Palin's battle to acquire earmarks for the state and the town of Wasilla when she was mayor. We've already documented how Obama and Biden differed on the biggest energy vote of the past decade, where Obama sided with special interests whom he constantly says he will take on. Now we have a similar situation on the Republican side with Palin arguing that she opposes earmarks (as Governor and now as Vice-Presidential candidate) after having requested many of them herself (and were criticized by Sen. McCain). Here's an excerpt from the LA Times article:
This year, Palin, who has been governor for nearly 22 months, defended earmarking as a vital part of the legislative system. "The federal budget, in its various manifestations, is incredibly important to us, and congressional earmarks are one aspect of this relationship," she wrote in a newspaper column.
In 2001, McCain's list of spending that had been approved without the normal budget scrutiny included a $500,000 earmark for a public transportation project in Wasilla. The Arizona senator targeted $1 million in a 2002 spending bill for an emergency communications center in town -- one that local law enforcement has said is redundant and creates confusion.
McCain also criticized $450,000 set aside for an agricultural processing facility in Wasilla that was requested during Palin's tenure as mayor and cleared Congress soon after she left office in 2002. The funding was provided to help direct locally grown produce to schools, prisons and other government institutions, according to Taxpayers for Common Sense, a nonpartisan watchdog group.
Wasilla received $11.9 million in earmarks from 2000 to 2003. The results of this spending are very apparent today. (The town also benefited from $15 million in federal funds to promote regional rail transportation.)
The most ridiculous Palin earmark request:
This year she submitted to Congress a list of Alaska projects worth $197.8 million, including $2 million to research crab productivity in the Bering Sea and $7.4 million to improve runway lighting at eight Alaska airports. A spokesman said she cut the original list of 54 projects to 31.
Looking at their limited fiscal policy records, if Obama and Palin are the new voices that are going to bring change to Washington, maybe the old guard isn't so bad.
In his speech last night at the Republican National Convention, fromer Tennessee Senator Fred Thompson actually brought up the issue of tax incidence, albeit in a non-academic political soundbite. From the LA Times:
Now, our opponents tell us not to worry about their tax increases. They tell you they're not going to tax your family. (Laughter.) No, they're just going to tax "businesses." So, unless you buy something from a business, like groceries or clothes or gasoline -- (laughter) -- or unless you get a paycheck from a business, a big business or a small business, don't worry, it's not going to affect you! (Laughter, cheers, applause.) They say they're not going to take any water out of your side of the bucket, just the other side of the bucket! (Laughter.) That's their idea of tax reform.
While candidate Obama hasn't explicitly said he would raises taxes on business (besides oil companies), let's assume that Thompson is correct in his initial assumption that Democrats would raise taxes on business. (Obama would raise taxes on some businesses that file under the individual tax system.) Would such tax increases take water out of a bucket? The answer is yes, but while such an analogy may sound good, the fact of the matter is that not everybody is in the same exact bucket. While their buckets may be loosely connected, Bill Gates is not in the same bucket as Joe Blow.
Sticking with the buckets theme, Obama's tax plan is more like this. Obama takes a glass and dips it into the rich person's bucket. In the process of trying to transfer it over to the poor person, some drips onto the floor. (Deadweight loss: Some income that was once there is no longer there to be taxed. How much, we don't exactly know, but some would be lost.) The amount that didn't fall onto the floor would go into the poor person's bucket (redistribution).
The poor would be hurt indirectly by the rich person's tax burden through slightly lower wages and slightly higher prices (some of what was in his bucket would evaporate), but the dollar amount of redistribution from rich to poor would likely outweigh any adverse harm imposed on the poor from the rich's tax hike.
(This also ignores the fact that the rich may benefit to some degree from greater mandatory redistribution...if redistribution to the poor is a public good.)
Robin C. Capehart of West Liberty State College and Raymond Keener III of Marshall University have a well-written piece in today's Tax Notes examining the Supreme Court's handling of the nexus issue. States have always had the power to tax income earned and goods and services sold, as well as property located within, their borders. Ability to tax outside those borders has been limited only to individuals and businesses physically present in the jurisdiction. The Supreme Court, in two major cases, curtailed these efforts by ruling that states can only force a seller to collect taxes if the seller has property or employees located within the state.
States, sometimes because they have poor business tax climates, or just because it is politically advantageous to shift tax burdens to out-of-staters, are increasingly reaching out beyond their borders to tax income and even transactions that occur in other states. Such states have argued that while businesses conducting these activities are not physically present in the jurisdiction, they are economically present (that is, they have customers in the state). This economic nexus argument is problematic because it allows citizens to have a larger government than they are willing to pay for, making up the difference by taxing citizens in other states. The race to loot out-of-staters quickly hurts the national economy because we're all out-of-staters to 49 states. It can also lead to multiple taxation as some transactions (over the Internet, for instance) can be "economically" present in more than one state. There are also serious compliance issues associated with keeping updated and in good standing with over 8,000 sales taxes and 40 income taxes.
In 2005, a case challenged West Virginia's imposition of an income tax on the earnings of an out-of-state credit card company that had no property or employees in the state. The West Virginia courts ruled for the state, and the U.S. Supreme Court declined to hear the case (at least four justices must want to hear a case, and they ultimately hear less than 100 of the 7,000+ appeals each year). They may have done so for any number of reasons. Capehart and Keener argue that the decision not to take the case reflects the existing judicial philosophies represented on the Court:
[E]ach philosophical side possesses a different motive for permitting the parade of expansionist state court cases to stand. Apparently, the liberal constructionists on the Court are content to allow the state courts to aggressively extract tax revenue from out-of-state corporations while textualists on the Court stand by their belief that it is the duty of Congress to step in and make political decisions regarding the regulation of commerce among the states.
In short, the Court's "liberals" are unwilling to interfere with what they view as the proper role for states, and the Court's "conservatives" are unwilling to interfere with what they view as the proper role for Congress. I think it's an apt characterization; I would just add that two justices may think differently on this issue. Justices Anthony Kennedy and Samuel Alito, in their dissent in the Kentucky v. Davis case, suggest that they aren't willing to give states a free ride to discriminate at will.
On Friday, the Texas Supreme Court denied rehearing in the First American Title Ins. Co. case. The Tax Foundation had filed a friend-of-the-court brief supporting the petition for rehearing, following a 5-4 decision by the court to uphold a decision by the state Comptroller to increase taxes on out-of-state insurance companies, disrupting the interstate retaliatory tax system in place for the last two decades.
The arguments in our brief will most certainly come up again when other states begin to follow Texas's move of discriminating against out-of-state companies.
We've all heard that cigarettes are bad for us and for society as a whole and should therefore be taxed. Many people also believe that certain sexual behavior is bad for individuals and society, so why not tax it as well? Stephen Dubner, co-author of Freakonomics, provides us with a satirical "Immodest Proposal" for taxing sexual activity. My favorite part of the proposal was this, because it would be all too true if such a sex tax were actually imposed:
Let it be clear that the aim of said tax is not to deter sexual activity itself, but rather to capture some of the costs imposed by certain extraneous sexual activity that, especially once made public, tends to divert precious resources from more worthy subjects; to this end:
Married couples will receive a substantial credit for sanctioned, in-home sexual activity; and, conversely:
The highest rates shall be paid for premarital, extramarital, and otherwise unusual or undesirable sexual activity; and:
Sexual activity between members of the same gender; or activity between more than two participants; or in an airplane, on a beach, or in other "nontraditional" settings shall surely be taxed at a higher, though heretofore undetermined, rate. Also to be determined is a scale for noncoital activity.
What would optimal tax theory say? Beyond the Pigouvian reasons Dubner cites, actually, optimal tax theory would argue that sex should be taxed just like any other consumptive good under a world of perfect information. The problem stems from the fact that it cannot be easily measured and administered.
Ask yourself this: if prostitution were legal, shouldn't it be subject to a consumption tax? The answer is obviously yes. But while this may sound geeky, what about those who don't pay for sex? Isn't there imputed income being earned there, just as the Bureau of Economic Analysis treats owner-occupied housing? Both services increase utility.
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.
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.
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.
I recently authored a commentary criticizing a recent report from the Center of Budget and Policy Priorities, where they cherry-pick new Census data and recast what most people would consider good news into disturbing trends. I compare it to cynical spin that treats the 1970's as some ideal economic climate worth emulating:
These statements are both true and misleading. The narrow definition of poverty used by CBPP ignores the fact that poverty in 2008 means something very different than poverty in 1973, or even in 2000. Over 90 percent of American households have a color TV, telephone, automobile, microwave, and cell phone, and about 100 percent have electricity, a radio, a refrigerator, and a stove.
The CBPP report cherry picks bad-sounding statistics from a rather positive report. Employer-based health coverage dropped from 2007 to 2008, they report, overlooking the fact that Census reported a mild uptick in the number of Americans with health insurance. (It will get worse again "in 2008, and probably in 2009 as well," they reassure us.) They applaud the drop in the number of uninsured children, but reach back to the last year when the number was even smaller (2004) and shake their heads at the "trend." They hack people out of the population until they find some narrow subset where income didn't rise. They highlight the increase in children living in poverty (2008 poverty, not Oliver Twist poverty).[...]
There are, of course, worrisome issues out there, but Americans today can and do access the best economic opportunities, medicine, science, transportation, and virtually anything else, in the history of the world.
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.
In Tax Foundation Fiscal Fact No. 143, "Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures," Tax Foundation Vice President for Economic Policy Robert Carroll, Ph.D., uses various methods to compare U.S. corporate tax rates with member nations of the Organization of Economic Cooperation and Development (OECD) and the G-7 countries.
The U.S.'s combined federal-state statutory corporate tax rate (39.3%) is now well above the weighted average for both the member nations of the OECD (31.9%) and the larger G-7 countries (33.8%). Moreover, both groups of countries continue to lower their tax rates. Since the early 1980s, the weighted average corporate tax rate has fallen by 38 percent for OECD nations and 37 percent for the G-7 countries, not counting the U.S.
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.
In South Bend, Mayor Steve Luecke said despite several rounds of staff reductions during his 12 years in office, the city will cut 53 firefighters and 40 sworn police officers -- 15 percent of the city workforce -- to meet an expected $21.3 million cut in property tax revenue next year.
Even municipal pools are no longer open seven days a week, and by the time the full effect of HB 1001 is felt in the summer of 2010, Luecke said, they may not open at all.
"We cannot survive without additional revenue from some other source, probably in the form of an increase to the income tax," Luecke said[....]
No sane city administrator would cut a public safety budget to enjoy the fruits of recreation and neighborhood development programs. Threatening to lay off police officers and firefighters, the most visible public employees, simply scares the public into supporting a local option income tax hike. The ultimatum of higher taxes or reduced police and fire protection can produce support the Mayor's oh-so-clever hint at higher local income taxes.
It's hard to believe that a city with an operating budget of $177 million would consider such drastic cuts in response to $21 million reduction in revenues. Surely, the mayor can suggest some appropriate cost cutting before proposing a tax increase.
More on the Washington Monument ploy here, here and here.
Yesterday we reported that the U.K. investment firm Henderson Group announced that it is reincorporating in Ireland to lower its overall tax bill. Henderson is the third U.K. firm to announce such a move this year.
However, the Telegraph is reporting that the engineering firm Charter and the office space management firm Regus have joined the exodus of British firms seeking a better tax climate:
Charter yesterday spelt out the reasons for its decision to quit the UK, highlighting the overseas nature of its business and the fact that it has made investments worth more than £100m in areas such as China, central Europe and South America.
The company said that by moving out of the UK, it would be able to "provide a suitable platform on which to develop and expand Charter's businesses internationally and will lead to a lower overall tax rate and lower tax compliance costs than would be achievable if the ultimate parent company of the Charter Group were to remain in the United Kingdom."
The common characteristic of these companies is that their international profits dwarf their domestic profits yet the British tax system taxes them on their worldwide profits at a rate of 28 percent. In Ireland by contrast, that same company would pay 12.5 percent on their worldwide profits.
The Northeast Mississippi Daily Journal recently published an editorial on Governor Barbour's special tax study commission's recommendations. 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.
By swapping out the grocery tax for an increase cigarette tax, the state does not reduce the tax burden on low to middle income earners. In fact, utilizing higher cigarette taxes in lieu of a grocery tax may harm the poor. Food stamps allow for tax-free purchases of necessary grocery items, but not cigarettes. Those who qualify for the food stamp program (426,000 in Mississippi) would not gain from a grocery tax exemption, and pay higher cigarette taxes.
Taxing smokers with the intent of reducing consumption violates the sound tax principle of neutrality. Smokers, who have a rather inelastic demand for cigarettes, will find a way to obtain cigarettes whether legal or otherwise. Cigarette taxes provide incentive for smuggling and black market activities. This may sound like something from an old gangster movie, but it happens across the United States as noted here, here, and here.
Politicians often use cigarette taxes as an easy revenue source. The lack of political support for smoking allows for a "guilt free" tax increase aimed at correcting for the negative externalities associated with smoking. Many studies suggest that current federal and state taxes overcompensate for the social costs of smoking.
Swapping one regressive tax for another will not improve the overall well-being of Mississippi. Changes in Mississippi tax policy should focus on the issues outlined here and here.
The British Treasury has been rocked again by the recent announcement by the investment firm of Henderson Group Global Investors that they are considering changing their domicile to Ireland from the U.K. in order to lower their tax bill. Should it make the move to Ireland, Henderson will join the pharmaceutical firm Shire and the media firm United Business Media who have already changed their domicile.
Its announcement underlined concerns about the waning competitiveness of the UK tax system, which led to the departure of two multinationals in the spring. Many others are examining their options, including Brit Insurance, which on Wednesday confirmed it was "actively considering the issue of tax domicile".
John Cridland, deputy director-general of CBI, the employers' group, said: "The UK's uncompetitive corporate tax system is driving firms overseas, and until this is recognised and tackled we fear more internationally mobile firms will follow this path."
Besides the difference in the U.K.'s 28 percent corporate rate versus Ireland's 12.5 percent rate, the U.K. taxes multinational firms on their worldwide profits. Ireland does not.
As we have written before, the U.S. corporate tax regime is similar to the U.K. system in that it taxes companies on their worldwide earnings rather than on just the profits earned domestically. U.S. firms are even more disadvantaged than U.K. companies because the combined federal-state corporate tax rate is 39.3 percent, the second highest among industrialized countries.
The flight of companies from the U.K. has been a wake-up call to the British government. The question is, whether American politicians react to the early warning signs before it is too late.
After reading TaxProf Blog's post about rolls of toilet paper with the Form 1040 imprinted on them, we wondered how many rolls one would need to put the entire Internal Revenue Code in toilet paper form.
We have a one-volume version of the Code, printed on about 10,000 dual-column pages of ultrathin paper using what appears to be around 5-point font. Assuming you doubled the font size, and assuming that each column amounts to about one sheet of toilet paper, that brings you to about 40,000 sheets.
One of our helpful interns determined that toilet paper rolls have between 300 and 1,000 sheets each, the lower number for the high-quality stuff and the 1,000 for the ones you find in dorm room bathrooms. So, if you printed the Internal Revenue Code on toilet paper, you'd need between 40 and 133 rolls (at 500 sheets per roll, it would be 80 rolls). That'd be a pretty big multi-pack at the grocery store.
We might pass on the 80 rolls and instead go for toilet paper with the EITC instructions, the AMT worksheet, the capital gains worksheet, the phase-out of itemized deductions and the personal exemption, or Schedule A.
Roth & Co ("An 8.0 earthquake would cause less damage. A Californian must really hate his state.")
Taxable Talk ("Instead of increasing tax rates California needs to drastically cut tax rates. I don't see that happening yet that's the real solution to our budget crisis. Frankly, should Mr. McCauley's initiative get approved and be found constitutional (a very unlikely prospect), California would go bankrupt as any individual who has such high funds would leave the state (good luck to the FTB trying to collect such funds), venture capital would leave the state, and Arizona, Nevada, Oregon, and Colorado would find themselves with a lot more industry than they currently have.")
Political Angst in America ("Here is a tax proposal that should drive even more people out of California in the unlikely event that it is approved by the voters.")
Buckeye Blog ("Oh, my goodness. I wonder how much moolah Ohio could have raked in if it had arrested Howard Metzenbaum at the border on his way to Florida?[...] Until then, however, this isn’t a formula for tax collections. It’s a formula for poverty.")
Directive 10-289 Watch ("Taxes were once predicated on the notion that if you live in a jurisdiction, then you should pay for the government services you receive while residing there. Now, taxes are also to be based on the services you will be not be receiving because you do not live in that jurisdiction. Wealth taxes, such as the estate tax and this proposed migration tax, are especially obscene in that the wealth that is being taxed has already been subjected to several underlying tax regimes: income taxes, sales taxes, property taxes. To suggest that such wealth should be subjected, one last time, to yet another tax — “just because” — reflects a public greed that swamps any example of private greed that has ever manifested itself.")
Ace of Spades HQ ("That's where these people always wind up. They want to raise taxes to the skies. When confronted with the reality that if they do that, people will flee, they always respond, "Then we won't let them leave.")
Periodic Ramblings of a CPA ("This man is looney. Why would anyone want to live in a State where these are the rules? They are basically saying that the American dream is now impossible. Once you are almost there, the government is going to step in and make sure you never get there.")
You cannot both reduce tax complexity and create lots of new special interest deductions and credits. Simplifying our tax code is a great idea, and the plank is correct in noting that the Internal Revenue Code is littered with deductions, credit, exemptions, and exclusions that cause much of the complexity. However, far from proposing to eliminate these and lower rates overall, the platform actually proposes to create new special interest deductions and credits, worsening the complexity.
Among the proposals (each with their vested interests and lobbyists) are expanded EITC and child tax credits; exclusions for small business capital gains and seniors earning less than $50,000 per year; and new tax credits for health insurance, "college students who serve," and for "keep[ing] and maintain[ing] good jobs here in the U.S." Each special interest granted an exemption, of course, means that taxes must go up on everything that's left. A better approach would be to junk all these special interest provisions, tax everything the same, and broadly lower rates with the money saved.
Why is having to pay income taxes an affront to seniors' "dignity and respect?" Or if it is, why only seniors' dignity and respect?
As for "ask[ing families] to give back a portion of the Bush tax cuts," do they mean "ask" or "require by law?"
Later on, the draft platform pledges to "finally end the tax breaks that ship jobs overseas." Of course, there is no line on the corporate tax return giving you credits for each job you send overseas. Perhaps the reference is to the U.S.'s practice of taxing all income worldwide earned by citizens (most other countries tax only income earned within their borders), necessitating credits for taxes paid overseas, and taxing income only as it returns to the U.S. Fiddling with this system should not be done piecemeal or lightly, as it could have huge impacts on cross-border investment.
Is this headline accurate? Technically, yes. Sen. Barack Obama wants to raise taxes on high-income Americans, some fraction of whom are veterans. But this headline is also misleading because Barack Obama does not single out veterans for tax increases. I could have also said that he favors raising taxes on people who give to homeless shelters or that he favors tax cuts for convicted felons, and those statements would have been technically true as well, although misleading.
But this type of misleading advertising is currently at work in Barack Obama's ad against John McCain's proposal to cut the corporate income tax. Obama and his surrogates constantly quote the fact that McCain's tax plan would cut taxes for Exxon Mobil. That's true, but misleading. His plan is to cut the corporate income tax rate across the board, thereby lowering taxes for all corporations that had a positive income tax liability, thereby leading to higher returns for shareholders and, in the long run, higher wages for workers (ignoring the adverse effects on capital from higher deficits).
Obama has also labeled these corporations "wealthy," which is ridiculous because no corporation is wealthy. Some of its shareholders may be wealthy, but then again, some aren't. A corporation is merely owned by people, whose wealth includes their ownership of that corporation's assets. But I guess this shouldn't surprise anyone. Rhetoric that sounds good yet makes little sense if you think about it for more than 10 seconds is championed in presidential politics. One need look no further than the current White House for empty soundbites.
Now Obama isn't the only one in this campaign to put forth misleading information on tax policy. McCain has almost clinched the gold in that event, as we've documented here, here, here, and here. But Obama appears destined to post a strong silver showing.
One of today's news items is a proposal in Alabama to increase health insurance premiums on overweight Alabama state employees. Dubbed a "fat tax," it's not, since the money presumably won't be going to the state budget. It remains to be seen whether the increase (a nice round $25 per month) is designed to cover the costs imposed by the overweight on the health insurance program, or just a nannyish penalty designed to express disapproval and change behavior.
Meanwhile, Alabama has not updated its property tax law in a long time, and it shows. Here's what the Tax Foundation has dug up regarding property that is exempt from the Alabama property tax (among others): From Alabama Code Section 40-9-1:
(7) The property of deaf mutes and insane persons to the extent of $3,000 and the property of blind persons to the extent of $12,000;
(8) All family portraits;
(10) All cotton, wherever grown, stored in licensed warehouses in the State of Alabama for a period not exceeding 12 months;
(14) All articles manufactured in Alabama, including pig iron, in the hands of the producer or manufacturer thereof, for 12 months after its production or manufacture;
(16) All poultry;
(17) The property of all incompetent veterans to the value of $3,000;
(21) Tobacco leaf stored in hogsheads;
(26) All vessels and equipment thereon, used predominantly in the business of commercial shrimping by the owners thereof
The Arizona Supreme Court is expected to rule today on a 1 percent statewide sales tax increase proposal that proponents are seeking to put on the November ballot.
Proponents need 153,365 petition signatures to put the measure, which would use the increased sales tax revenue for transportation purposes, before voters. Supporters turned in over 260,000, but the clerk struck 21,000 of them because the circulators did not have their signatures notarized. A random check of the remainder had a 42 percent invalidity rate, "for a [sic] reasons ranging from incorrect addresses to wrong dates with the signatures." On August 21, a judge rejected a lawsuit to put the measure on the ballot anyway, stating that proponents had waited too long to file it.
So who were the "bootleggers"—that is, the vested economic interests who tacitly collude with the "Baptists" to push for the tax? Interestingly it appears to have been large grocery retailers, who benefited from a large increase in sales of branded "re-usable" grocery bags, something that likely gave them a competitive edge over smaller retailers unable to afford such complimentary items[...]
Unfortunately, it's unclear that the plastic bag tax led to any net environmental gains. For one, plastic bag production is highly energy efficient, so it's not obvious that the reduction in littering outweighs the boost in carbon-based pollution required to manufacture and ship the heavier and more energy-intensive paper and re-usable carriers that replaced them.
This week the last of the summer interns at the Tax Foundation departs. While here, they were invaluable in assisting with research and data work along with many other miscellaneous tasks. Working closing with our team of economists and policy analysts, each also contributed substantively, to the blog and other written work. Everyone at the Tax Foundation joins me in thanking these individuals for their contributions!
Sarah E. Larson is currently pursuing an MPA at the School of Public and Environmental Affairs (SPEA) at Indiana University. In the fall Sarah will begin doctoral studies in a joint SPEA and Political Science Pubic Policy Program, with a focus toward public policy, Congressional Systems, and theory and methods for quantitative research. Sarah graduated from Miami University (Ohio) in the spring of 2007 with university honors and departmental honors in political science. Along with her political science studies, she completed a minor in Spanish and a plethora of mathematics courses.
William J. Luther recently completed an Economics undergraduate degree with honors at Capital University, with a minor in Mathematics. In the fall, he will be attending George Mason University to pursue a PhD in Economics. He is interested in development economics and spent several months studying at the University of Cape Town, South Africa in 2007. Specifically, he plans to focus on the informal sector and hopes to promote sound economic policy and a greater appreciation for liberty through teaching and academic research. William's internship was supported by the Charles G. Koch Summer Fellowship Program.
Robert K. Schmidt is a graduate student at Indiana University, where he is working on his master's degree in Public Affairs with concentrations in Public Finance and Policy Analysis. Prior to attending Indiana University, Bob earned a Bachelor's degree in Economics and Political Science from Valparaiso University. For the past two summers, he has worked as an adjunct lecturer in economics at Valparaiso University, teaching undergraduate microeconomics. After graduation, Bob hopes to continue teaching economics classes on a part-time basis while working in federal or state government finance.
Keren (Kevin) Zhou is a rising senior at the University of California, Berkeley, pursuing his bachelor's degree in Mathematics and Economics. He previously interned at Sun Microsystems during the summer of 2007, doing java style conversions for open source projects. As co-founder and former head administrator of DotA Gaming International (DGI, now DXD), he has maintained a fair and competitive environment for over 2,000 gamers. Upon graduation, Kevin plans to work in the private sector before pursuing his MBA, and he eventually hopes to work as a financial advisor on Wall Street. Kevin's internship was supported by the Foundation for Teaching Economics Internships for Leaders program.
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