May
20
Weekly Map: State Wine Excise Tax Rates, 2013
This week's map looks at state excise tax rates on wine.
Click on the map to enlarge it.
View previous maps here.
The Tax Policy Blog
March 21, 2006
As the tax code becomes more and more of a spectacle with respect to businesses looking to capitalize on the one-time (and illusive) income boost that taxpayers receive from their refund check each spring, some states are trying to crack down on certain loans that taxpayers are being offered by tax preparation firms. A story in today’s Wall Street Journal details the crack down:
A variety of companies are trying to get their hands on your tax refund before you do, and state law-enforcement officials are cracking down on some of the practices.
As the April tax-filing deadline approaches, businesses from tax-preparation firms to auto dealerships are offering consumers the opportunity to put their expected refund checks to work weeks before the IRS sends them out -- often by loaning them the expected amount for a high fee. Dozens of retailers, including Olive Garden restaurants and AMC move theaters, have begun offering gift cards in exchange for tax refunds to people who file using TurboTax, the popular tax-preparation software. H&R Block Inc. recently launched savings accounts for customers to channel their tax refunds. And hundreds of car dealerships will prepare your taxes if your refund is applied toward a down payment on a car.
But now, state officials are clamping down on some of these programs, claiming they saddle low and moderate-income families, recent college graduates and others with high fees. Last year about three of every four tax filers received a refund, according to the Internal Revenue Service. Those refunds totaled nearly $218 billion, or about $2,171 per household (Full Story, subscription required).
While state governments perceive this as a problem being caused by businesses like Jackson-Hewitt and H&R Block, the primary problem lies in Washington with the federal government continuing to implement a tax system that becomes more and more complicated every year. So while attorneys generals across the country seek to take on these businesses for what they label as deceptive business practices, Americans should instead put pressure on lawmakers in Washington to rid the federal tax code itself of deception, inefficiency, and distortions.
For more on tax reform, check out the Tax Foundation commentary on the Tax Reform Panel's recommendation on simplifying the federal income tax system.
March 17, 2006
As Americans spend their St. Patrick’s Day trying to emulate the Irish by wearing green, eating stew, and doing lots of drinking, we can only wish that this emulation would extend to corporate tax policy. As a recent survey of tax executives in the U.K. reveals, Ireland gets top nods in Europe for corporate tax friendliness. From Tax-News.com:
Despite repeated complaints from industry over the growing UK tax and red tape burden, a recent survey has found that the UK remains significantly more competitive than France, Germany, Belgium or Spain. However, it has a long way to go before reaching the levels of tax competitiveness achieved by Ireland and the Netherlands.
A survey of senior tax executives in 50 large UK-based companies, including representatives from the FTSE 100, FTSE 250 and large subsidiaries of foreign parent companies, carried out by KPMG, the professional services firms in January and February this year, found that 54% placed Ireland in the top three countries for tax competitiveness, with 50% choosing the Netherlands.
Luxembourg attracted the vote of 32% of the respondents, while the UK polled 14%. Belgium and Spain both scored 4% while France and Germany received no votes.
The majority (two-thirds) of the respondents expressed the view that taxation was a consideration when deciding where to locate operations, and over 70% said that tax issues have become more important for international business planning over the past two years.
Ireland’s top corporate tax rate is 12.5 percent, the lowest among any industrialized country. They dramatically lowered their corporate taxes while other countries decided against it; and largely because of this, Ireland has flourished in economic growth while much of other parts of Western Europe have struggled.
For more on a comparison of corporate tax rates around the world, check out a recent Tax Foundation piece entitled “We’re Number One”, detailing the high U.S. taxes on corporate income.
March 17, 2006
The momentum for federal tax reform may have slowed in recent months, but it still creeps forward in Washington. Tax Analysts reports that the House Ways and Means Committee plans a series of hearings on fundamental tax reform in May 2006:
Although many observers have given up tax reform for dead in 2006, House Ways and Means Committee Chair William M. Thomas, R-Calif., said March 15 that his committee is scheduling a series of hearings to examine tax reform options.
Thomas told reporters three or four hearings are in the works, the first of which has been scheduled for May. Witnesses will include members of Congress, tax policy analysts, and academics, Thomas said, and they will comment on the current tax system as well as proposed fixes.
A former Joint Committee on Taxation chief of staff predicted March 15 that Thomas will launch a full-fledged effort to reform the tax code beginning in May. Kenneth J. Kies, now a lobbyist with Clark Consulting, said Thomas is one of the few people on Capitol Hill who still believes tax reform can move in an election year. Something happens every year that changes the legislative landscape, and tax reform could be “the sleeper, and the surprise, and something we really ought to keep an eye out [for]” this year, Kies said at a Washington tax and budget seminar sponsored by Clark Consulting and Baker & Hostetler.
Also speaking at the conference was House Ways and Means Committee member E. Clay Shaw Jr., R-Fla., who told reporters he believes Thomas “would like to leave [tax reform] as his legacy.”
Watch for the date of the upcoming hearings here.
March 16, 2006
This morning we released our famous annual analysis of federal taxing and spending by state—popularly known as the "giving and receiving states" report. Here's a map from the study, illustrating which states received the most and least federal spending per dollar of tax paid (click to enlarge):
So what explains the distribution of federal taxing and spending? As you can see from the map, states that get the "worst deal"—that is, have the lowest ratio of federal spending to taxes paid—are generally high-income states either on the coasts or with robust urban areas (such as Illinois and Minnesota). Perhaps not coincidentally, these "donor" states also tend to vote for Democrat candidates in national elections. Similarly, many states that get the "best deal" are lower-income states in the mid-west and south with expansive rural areas that tend to vote Republican.
News reports commonly interpret this to mean that "red state" lawmakers are more successful at bringing home federal spending than "blue state" lawmakers. It's often suggested that the way to correct this imbalance is for "blue state" lawmakers to step up efforts to capture additional spending for their states, and for "red state" lawmakers to pare back their voracious appetite for ever-growing pork-barrel spending.
This interpretation may be appealing, but it's probably wrong. The much more likely factor driving the persistent imbalance between federal taxing and spending isn't the relative ability of lawmakers to "bring home the bacon," but is the fact that higher income states bear a larger fraction of the federal tax burden—an imbalance that is sharply amplified by the progressive structure of the federal income tax.
For whatever reason, so-called "blue states" tend to be high-income areas that pay the vast majority of federal taxes. Some 84 percent of federal individual income taxes—which account for over 40 percent of federal revenue—are paid by the those in the top 25 percent of the income distribution. The majority of these taxpayers live in wealthy, urban, politically "blue" areas like New York, California, and Massachusetts.
Even if federal spending were equal in all states, wealthy states would still send substantially more federal tax dollars to Washington than they received in spending, simply because they earn a majority of the nation's income. This disparity is greatly magnified by the progressive rate structure of the federal income tax, which taxes higher income states more heavily than low-income states, regardless of the level of spending received.
Still think the problem is not enough federal spending in "donor states"? Consider the table below. In 2004 federal discretionary spending was about $895 billion. How much would the largest "donor states" have had to receive in federal spending to boost their spending-taxing ratio to New Mexico's 2.0, the biggest "beneficiary state" that year?
As the table makes clear, far more than is realistically possible. California alone would need to receive more than half of the nation's discretionary spending. The lesson? The distribution of federal taxing and spending is mostly driven by tax burdens, not the ability of lawmakers to divert spending to their home states.
| Federal Spending and Taxing by State Compared with Total Discretionary Spending, 2004 | ||||
| State | Federal Tax Burden ($ millions) | Federal Expenditures Received ($ millions, actual) | Adjusted Spending Received Per Dollar of Tax Paid | Percentage of Federal Discretionary Spending State Would Need to Match New Mexico's Spending-Taxing Ratio of 2.00 |
| California | $247,967 | $232,387 | 0.79 | 55.4% |
| Colorado | $31,779 | $30,060 | 0.79 | 7.1% |
| Connecticut | $36,753 | $30,304 | 0.66 | 8.2% |
| Delaware | $5,590 | $5,253 | 0.79 | 1.2% |
| Illinois | $88,440 | $76,828 | 0.73 | 19.8% |
| Massachusetts | $57,332 | $53,120 | 0.77 | 12.8% |
| Michigan | $60,866 | $60,488 | 0.85 | 13.6% |
| Minnesota | $34,952 | $28,791 | 0.69 | 7.8% |
| Nevada | $14,558 | $12,769 | 0.73 | 3.3% |
| New Hampshire | $9,659 | $7,959 | 0.67 | 2.2% |
| New Jersey | $77,593 | $55,264 | 0.55 | 17.3% |
| New York | $152,260 | $143,903 | 0.79 | 34.0% |
| Texas | $128,636 | $141,858 | 0.94 | 28.7% |
| Washington | $43,591 | $44,841 | 0.88 | 9.7% |
| Wisconsin | $32,786 | $31,554 | 0.82 | 7.3% |
| Source: Tax Foundation, OMB | ||||
March 15, 2006
Are more tax cuts on the way in 2006 from Washington? An article today from USA Today suggests that support from Republicans for tax cuts during this midterm election year is diminishing.
The problems Republicans are having passing a relatively small set of tax cuts this year point to bigger trouble for President Bush: His tax-cutting agenda is in jeopardy, lawmakers and lobbyists say, dimming prospects for extending the big tax cuts passed in 2001 and 2003.
Republicans say rising federal budget deficits and the costs of Iraq, Afghanistan and Hurricane Katrina make it harder to argue for tax cuts. Though this year's package probably will pass, Bush's signature domestic policy goal faces hard times ahead.
"As deficits increase, it puts more pressure on most members to question how much further we go in terms of cutting taxes," says Rep. Jim McCrery, R-La., a leading candidate to become the next chairman of the House's tax-writing Ways and Means Committee. "We are going to have to ... get spending much better under control before we can continue to cut taxes to the extent that many would like to."
However, the best line of the article appears near the bottom:
Some tax cuts passed in 2001, such as those that benefit married couples and parents, have less economic impact, says Douglas Holtz-Eakin, former director of the Congressional Budget Office.
" 'Make the tax cuts permanent' has always struck me as too sweeping a mantra," he says. "Make the good parts of the tax cuts permanent." (Full Story)
Holtz-Eakin is correct. Passing any and every tax cut available is not necessarily the best tax policy. Rather, the best tax policy would be to reform the entire federal tax system in a way that would broaden the federal tax base by treating income from all sources equally and allowing lower across-the-board tax rates – assuming we retain an income tax and don’t move to a consumption-style tax system.
While many lawmakers in Washington consider every tax deduction or credit they enact to be a tax cut, this practice of treating one economic activity differently than another with respect to the tax system often leads to huge distortions in the marketplace. These “targeted tax cuts”, typically enacted for targeted political reasons are generally not the best method to promote economic growth and are in practice end up serving as little more than central economic planning of the U.S. economy.
Two crucial points need to be made: (1) enacting targeted tax preferences is not the same as enacting base-broadening tax reform; and (2) not all tax cuts are created equally. Some tax reductions are economically better than others.
For more on reforming the federal income tax system, check out the Tax Foundation section on tax reform.
March 10, 2006
For updated version, visit http://taxfoundation.org/tax-topics/state-tax-and-spending-policy.
The Tax Foundation has just released the much-anticipated 2006 edition of our "Facts & Figures" pocket-sized booklet of state tax and spending data. The booklet compares the 50 states on 38 different measures of taxing and spending, including individual and corporate tax rates, business tax climates, excise taxes, tax burdens and state spending.
Many of the tables in the booklet are also available in our "Tax Data" section of the website, both in PDF and Excel format.
March 09, 2006
We've released a new "Fiscal Fact" analyzing Maryland's so-called "Wal-Mart tax," which mandates increased health benefits for Wal-Mart employees. Various groups are working to introduce similar bills in over 30 states, hoping that Maryland’s enactment will lead to a cascade of similar bills elsewhere. Here's an excerpt from the analysis:
Maryland ’s Wal-Mart tax violates the principle of tax neutrality. According to that principle, tax laws should apply broadly throughout the economy, with no intention of manipulating the behavior of firms but merely of raising revenue for necessary government functions. The Wal-Mart tax is the antithesis of such a principled tax. By manipulating the language of the statute in arbitrary ways, the legislature cynically targeted the law so narrowly that only one firm will be hit by the tax.
By setting an arbitrary standard for health care expenses, the tax will lead to lower wages for Wal-Mart employees in Maryland and/or higher prices for consumers or lower dividends for shareholders. By applying only to corporations with more than 10,000 employees, the tax will distort Wal-Mart’s investment in capital versus labor and depress hiring and wages in the short and long term. Finally, by mandating that Wal-Mart provide a certain level of benefits for its employees, the tax might run afoul of federal law on state regulation of benefits.
March 09, 2006
Yesterday, the Senate Appropriations Subcommittee for D.C. heard testimony regarding the proposal to put forth a voluntary flat income tax for the District’s residents, designed in part to “test the waters” of how a flat tax would hold if implemented nationwide. From Reuters:
The District of Columbia would become a laboratory for a flat federal income tax system if Kansas Republican Sen. Sam Brownback (news, bio, voting record) has his way.
Brownback, who chairs the Senate Appropriations subcommittee on D.C., said on Wednesday he intends to seek support from Senate leadership for legislation to create an optional flat tax in the U.S. capital, with a low rate but none of the traditional deductions for expenditures like home mortgage interest and retirement savings.
"The federal government has a unique opportunity to try out a flat federal income tax in the District of Columbia," Brownback said.
Under Brownback's theory, a flat tax in D.C. would boost the city's economy, driving up local revenues while drumming up broad U.S. support for a national flat tax. D.C. residents could still file under the old system, but few would want to, he said. (Full Story)
Putting forth an income tax system that broadens the income base, eliminates most deductions and credits, while providing lower rates to everyone should be the tax policy for the entire country, and tax reform of this sort should be a top priority of all lawmakers in Washington.
A few points need to be made, however, with regards to how useful D.C. would be in terms of serving as a guide for future nationwide tax policy. While making D.C. a test pilot for a flat tax throughout the rest of the country sounds intriguing, its predictive value is most likely small.
The District’s federal income tax profile is not one that follows closely the rest of the country. For example, in 2003 (the most recent year in which IRS data is available), only 16 percent of all returns filed in D.C. were joint returns. Compare this to the national average of around 40 percent, and you will see that the District has a disproportionate number of single filers, and this should make sense to anyone who is familiar with D.C.’s demographics. This also means that there are fewer dependents claimed by D.C. residents. The average child tax credit per all returns in D.C. is only $100. Compare this to the national average of around $174. In summary, the stark uniqueness of D.C. would make it difficult to use it as a model of what would happen throughout the rest of the country; and while it may lead to a short-run economic boom in D.C. and a slight expansion of the entire economic pie in the country, much of the benefit D.C. would gain in terms of additional economic activity would be at the expense of other parts of the country as a result of a tax policy that would be non-neutral across geography.
In terms of budget costs to the federal government, there would be two competing factors playing out, one static, the other dynamic. First off, lower taxes for D.C. residents would most likely lead to less federal tax revenue since everyone’s tax bill would be cut. On the other hand, lower taxes for D.C. residents would lead to higher after-tax incomes and a lower tax burden for the employee and employer. Since the federal government is the top employer of D.C. residents, the before-tax wages they would have to pay in order to compensate their employees would fall. The level of government savings from this dynamic effect would depend upon the economic incidence of the labor market.
In closing, more research needs to be done in order to validate any claim with respect to this plan’s distributional effects. This tax would be voluntary; therefore, nobody’s tax would rise. Who would reap the immediate benefits, however, remains unclear, and many politicians on both sides of the aisle should hold off in merely assuming how a “flat tax” would benefit certain groups of people over others because not all “flat tax” proposals are the same.
March 07, 2006
As Hurricane Katrina has forced the NBA's New Orleans Hornets to play in Oklahoma City, the state of Oklahoma, trying to be seen as supporting a professional sports team, has decided to exempt ticket purchases for the Hornets' games from its state sales tax. From Sports Illustrated:
Tickets for the Hornets will be exempt from state sales tax under a bill Gov. Brad Henry signed into law Monday as state officials work to make Oklahoma City more attractive as a permanent home for the NBA team. The Hornets have committed to play most of their home games here this season and next because of damage Hurricane Katrina did to its home city of New Orleans.
"This law is important because it allows us to continue to offer our fans in Oklahoma City the most affordable tickets in the NBA," team owner George Shinn said at a news conference. Tickets to Hornets' games start at $10.
Henry said he hopes the Hornets will stay. (Full Story)
The obvious and simple question is why should the state of Oklahoma give special tax preferences to professional basketball? By providing this exemption on basketball tickets, while maintaining the sales tax on other goods and services, the state is creating a distortion for consumers, leading to overconsumption of NBA tickets relative to other goods. While this may be the goal of the policy, not only should the question of priorities be asked, but other questions need to be asked as well, like whether or not this will really achieve the goal of keeping the team in Oklahoma and if so, what benefits of a pro basketball team remaining in the state would even exist.
One thing is for certain: The empirical evidence is clear that sports teams are constantly over-rated in terms of their economic significance. In nearly all cases, the costs (including opportunity costs) of providing government assistance to professional sports franchies are not worth the benefits.
March 06, 2006
Another excellent article appeared yesterday in the New York Times regarding the home mortgage interest deduction, this time detailing its history and why most economists argue that it is bad tax policy. Roger Lowenstein explains the historical context of the deduction:
The first modern federal income tax was created in 1894. Interest — all forms of interest — was deductible; the Supreme Court, however, quickly ruled that the tax was unconstitutional. In 1913, the Constitution was amended and a new income tax was enacted. Once again, interest was deductible.
There is no evidence, however, that Congress thought much about this provision. It certainly wasn't thinking of the interest deduction as a stepping-stone to middle-class homeownership, because the tax excluded the first $3,000 (or for married couples, $4,000) of income; less than 1 percent of the population earned more than that. The people paying taxes — Andrew Carnegie and such — did not need the deduction to afford their homes or their yachts.
There is another reason Congress could not have had homeownership in mind. The great majority of people who owned a home did not have a mortgage. The exceptions were farmers. But most folks bought their homes with cash; they had no mortgage interest to deduct.
When Congress made interest deductible, it was probably thinking of business interest. Just as today, the aim was to tax a business's profits after expenses had been netted out, and interest was an expense like any other. In a nation of small proprietors, basically all interest looked like business interest. Whether it was interest on a farm mortgage, or interest on a loan to purchase a tractor, or interest charged to a general store that purchased its inventory on credit, it all would have looked like a business expense. Credit cards did not exist. So Congress just said, "Deduct it."
It was not until the 1920's and the spread of the automobile that home mortgages outnumbered farm mortgages. In the 1930's, the mortgage industry got a huge assist from the feds — not from the tax deduction, but from agencies like the Federal Housing Administration, which insured 30-year loans, and, over time, the newly created Federal National Mortgage Association, or Fannie Mae. Before then, the corner bank would issue a mortgage and wait for the homeowner to pay them back; now savings and loans could replenish their capital by selling their mortgages to Fannie Mae — meaning they could turn around and issue a new mortgage to someone else. (Full Story)
The article is right – the mortgage interest deduction essentially treats individuals’ housing expenses like a business expense, allowing them to deduct it from taxable income. But the big difference between a business deducting interest and an individual deducting housing-related interest is that the business must pay taxes on the net income for which that expense was incurred, whereas no one pays tax on the imputed income they earn from owning a home.
For more on the home mortgage interest deduction, check out this recent Tax Foundation piece on the topic, as well as the blog archive.
March 02, 2006
A new CBS/NY Times poll suggests that Americans would be willing to cope with higher gas taxes, but only under certain conditions. From the New York Times:
Americans are overwhelmingly opposed to a higher federal gasoline tax, but a significant number would go along with an increase if it reduced global warming or made the United States less dependent on foreign oil, according to the latest New York Times/CBS News poll.
The nationwide telephone poll, conducted Wednesday through Sunday, suggested that a gasoline tax increase that brought measurable results would be acceptable to a majority of Americans.
Eighty-five percent of the 1,018 adults polled opposed an increase in the federal gasoline tax, suggesting that politicians have good reason to steer away from so unpopular a measure. But 55 percent said they would support an increase in the tax, which has been 18.4 cents a gallon since 1993, if it did in fact reduce dependence on foreign oil. Fifty-nine percent were in favor if the result was less gasoline consumption and less global warming. The margin of sampling error is plus or minus three percentage points. (Full Story)
Given that the original question of favorability toward a general gas tax hike was asked, the second question is based on a false premise, making it misleading to the respondent. Here’s why:
Regardless of the definition of "dependence on foreign oil," there is nothing substantive in asking a second question about whether respondents would support a gas tax if it reduced our "dependence on foreign oil." If you define “dependence on foreign oil” as the percentage of oil that comes from other countries (compared to domestic production), then a higher gas tax at the pump is not going to reduce that number at all. That tax would apply to all oil, whether it comes from Texas or Iran, meaning the percentage “dependency” will not change.
On the other hand, if you measure “dependency on foreign oil” by the actual amount of oil coming in from other countries, then of course you will be reducing your dependence on foreign oil. But that would also be reducing our “dependence” on Alaskan oil or Texas oil. You would merely get lower oil consumption period, regardless of the location from which it comes. And you would get that same result from the general gas tax posed in the original question, where respondents overwhelmingly (85 percent) said no.
March 02, 2006
An excellent piece by David Leonhardt on the economics and politics regarding the housing sector appears in today’s New York Times Business Section:
In New York, inflation-adjusted prices dropped almost a third in less than a decade. The fall was even worse in Los Angeles, and it wasn't pretty in Boston, San Francisco or Washington, either. Thousands of families were forced into much smaller homes. Many have never lived as well as they did in those giddy pre-crash years. It was a painful preview of what the dot-com meltdown of 2000 would bring.
What? You don't remember any of this? You think I just made up those numbers about plummeting house values?
I didn't. The real estate crash really happened. The median house price in the New York area fell 12 percent from 1988 to 1995, which is nearly 33 percent in inflation-adjusted terms.
But the rest of it did not happen. Large numbers of people did not lose their homes. If anything, the drop in prices allowed a lot of families to buy their first house or trade up to one that they never could have afforded in the 1980's. You may know one or two people like this, and they probably still annoy you by bragging about the great deal they got.
He goes on to discuss how tax policy has played a role in fueling these rising housing prices:
So there is a good argument that society has a compelling interest in keeping house prices from getting too high. Reasonable prices allow young, middle-class families to buy a house without going into too much debt. They also let people live where they want. Right now, there are a growing number of workers making long commutes from places like Hagerstown, Md., and Stockton, Calif., solely because they cannot afford a decent-size house in a close-in suburb.
They can blame our tax policy for part of their plight. It pushes up home prices by handing out $80 billion a year in subsidies for home ownership, mainly through the mortgage interest deduction. People who get that deduction love it, for the same reason that any of us would love a government policy that sent us a few thousand dollars every year.
But there really is no sound argument in favor of it. It overwhelmingly benefits well-off families who would buy a home even if it didn't exist. About 70 percent of tax filers get nothing from the deduction, in large part because many don't make enough money to itemize their tax returns. Consider that other countries without the deduction, like Australia and Britain, have home ownership rates just as high as this country does.
To read the full text of the article, click here. (Registration is required for NY Times online access)
While reform of the mortgage interest deduction may be appear to be a long shot to some, these points made by Mr. Leonhardt on the economic costs of the mortgage interest deduction need to continue to be made, especially as the status of the housing sector continues to receive close attention by media, investors, and current and prospective homeowners.
But it is also interesting to ponder what could happen with regards to tax policy at other levels of government should the housing market stumble. One likely consequence that has not been discussed closely is that local governments that rely heavily on property tax revenue (like school districts) could be put in a revenue bind should prices, and thereby assessments, fall. Let's hope most districts understand the possibility of this future budget trouble in their current spending decisions.
For more on housing and tax policy, check out a recent Tax Foundation piece that puts a face on the home mortgage interest deduction. Also, check out our previous blog posts here, here, here, here, here, here, here, and here.
March 01, 2006
By Chris Atkins
I had the pleasure of attending the oral argument in DaimlerChrysler v. Cuno this morning. The crowd was like a “who’s who” in state tax law and policy. It was definitely the closest the tax world will ever come to a rock concert (without the noise, of course).
DaimlerChrysler went first, represented by former U.S. Solicitor General Ted Olsen. He spent about 10 minutes talking about standing, and tried to spend time discussing the merits. The justices wanted to come back to the standing issue, however, and he barely got any time to discuss the merits. Olsen is a suave presenter, and he was never tripped up by any of the questions, handling them all with ease.
Next up was Ohio Solicitor Douglas Cole. He also spent a few minutes answering questions about standing, but spent the bulk of his time on the merits. At the end of his presentation, Justice Stevens asked whether a subsidy equivalent to the Ohio tax credit would violate the Commerce Clause. Cole answered that, though the Court has intimated in the past that there is a distinction between the two, the two are identical economically speaking.
Finally, Peter Enrich spoke, representing the respondents in the case. He spent about 15 minutes answering standing questions, and another 15 answering questions about the merits. At one point, Justice Scalia asked: “under your theory, wouldn’t a state with a lower tax rate discriminate against interstate commerce?” Chief Justice Roberts and Justice Souter joined the fray at this point, and they were both obviously concerned about the breadth of Enrich’s argument.
At one point, Souter said that if a company chooses to locate somewhere else, “that’s not discrimination, that’s a free choice.”
Roberts later asked Enrich whether state homestead property tax credits would be unconstitutional under his theory. Enrich hesitated, but admitted that there would be problems with them under his theory.
Finally, late in Enrich’s argument, Scalia noted that political controversy over tax incentives, saying “Let the people fight it out. Why should that be an issue that the court should decide?”
We should know by this summer how the Court will dispose of the case. It was nice to see several members of the Court (from diverse philosophical perspectives) struggle with the implications of Enrich’s theory against investment tax credits. That has always been our chief concern about the Cuno case, and the bulk of our amicus briefs urged the justices to wrestle with the broader implications of the Cuno ruling.
March 01, 2006
The drama of the past two years over a new Nationals baseball stadium being fought between the DC City Council, the Mayor’s Office, and Major League Baseball has had more turns than a roller coaster. Like all stadium funding deals, how much the local government should pay for a new stadium and how it should be funded are the key questions. MLB, who owns the team now, wants a deal in place so that it can get the most money it can when it sells the team to new ownership. News of the latest proposal comes to us from the Washington Post:
D.C. Mayor Anthony A. Williams (D) has told Major League Baseball officials that the city has identified $20 million to cover potential cost overruns for a new stadium, a proposal that could resolve the acrimonious standoff over the project.
But several D.C. Council members expressed concern yesterday that the plan would put the city's investment in the stadium over the $611 million spending cap the council approved last month.
The latest negotiations appear to be the final chance to resolve the standoff before Monday, the deadline set by the council for MLB to endorse the spending cap.
Over the next two years, the District is projected to earn about $20 million in excess revenue from a gross-receipts tax on businesses, a utility tax on businesses and federal buildings and taxes from concessions at Robert F. Kennedy Memorial Stadium. Those taxes were implemented last year to pay off debt service on the construction bonds. (Full Story)
So part of the funding for this new stadium will come courtesy of a government imposed tax on concessions. We see many cities often believe that this is the proper method of stadium funding, and in theory it is nice because it adheres to the benefit principle nicely. But it raises the question: Why does the government need to be involved on that specific issue in the first place? They could just lower the public funding for the stadium and let those who earn the profits (instead of taxes) from concessions pay for that part of the stadium themselves.
As for part of the funding coming from taxes on other businesses, the relevant question is basically “why”? We have a government essentially taking resources from some businesses and giving it to another business. Beyond the obvious issue of fairness, any economists will tell you that this type of central planning will essentially always lower economic efficiency. That is a far cry from the “economic boom stories” that you will hear from proponents of public funding across the country who constantly ignore the reality that there is no such thing as a free lunch.
To read an in-depth detail on why sports teams are in nearly all cases not the economic engines that proponents make them out to be, you can read online the full text of Sports, Jobs, and Taxes by Roger Noll and Andrew Zimbalist.
March 01, 2006
ABC News has a a new video news report detailing how costly those instant refund programs that you see advertised for during tax season can be to taxpayers. The report on these instant refunds:
"It is a good deal for the tax company, not for you. These instant rebates are actually loans and you get stuck paying fees on top of high interest charges."
These refunds often target lower-income earners who have big refunds coming, typically as a result of the earned income credit (EIC), which is a program that attempts to encourage people to work by offering them refundable tax credits.
Many believe that running an income transfer program like EIC through the tax code and letting the IRS handle it is superior to establishing a welfare program and having it ran through some agency like HHS. But as this report demonstrates, administering it through the tax code has its costs too and may lead to results inferior to the desired social outcome. Specifically, a large portion of the gains from EIC are going to tax preparation agencies, leaving the intended recipients with significantly less. This is in addition to the heavy administrative costs that EIC creates for the IRS.
Moreover, these two issues of administrative costs and benefit allocation are not independent either. Recall a recent article that demonstrated the large number of delayed (frozen) EIC refunds due to IRS auditing. If individuals begin to expect large wait times for their refunds as a result of the IRS reviews (which is itself a result of the huge complexities of EIC), they will be more likely to demand these instant refund programs from companies like H&R Block and Jackson-Hewitt. In summary, the costs of complexity are compounding.
For more on the complexity in the tax code, check out the Tax Foundation's section on compliance costs.
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The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.