Category: tax policy

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ideological culture tax policy

Curvewise, Gainswise

The so-called “Laffer Curve” — the graphic representation of the varying relationship between tax rates and tax revenues — really bugs people left of center.

The curve maps an economic reality, showing that not all increases in tax rates can increase tax revenues. Why object to reality?

Perhaps because, on the left, taxes are seen less as a practical means to raise government revenue than as an expression of one’s values. The more “leftist” one is, the more equality matters, which too often boils down to: the more one wants to punish the rich. Higher rates stifle the economy and garner less revenue? Big deal. Consequences be damned. One’s values must be expressed.

This came out in Barack Obama’s first presidential campaign. He famously didn’t care whether a capital gains tax rate increase would decrease revenues, as has happened in the past. For him, “fairness” was more important.

Interestingly, it appears that capital gains tax rates tend to top out Laffer-Curve-wise much lower than income taxes. The reason? One seeks a return on capital from invested savings, but one also fears the possibility of loss.  Risk. Pile higher tax rates onto the already palpable negative of uncertainty, and the investor will be tempted to consume his capital rather than engage further in risking his wealth for less reward.

But I confess: I sort of sympathize with the left’s attitude towards taxation. I don’t really want the government to maximize revenue, either. Government misspends most everything it takes in, so I’d prefer lower rates for reasons maximizing quality, not equality.

I bet that the poor, though, would be far better off were the rich not targeted for extra penalties. But that’s not an egalitarian concern, for me. It’s a humanitarian concern.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies tax policy

Tax Reductions Ahead?

As the president yammers on about making the rich “pay their fair share,” behind the scenes his administration has suggested reducing corporate tax rates by seven points. Meanwhile, Obama’s main challenger, Mitt Romney, promised a full ten point rate cut, if elected.

Why? By international standards, American corporate taxes are obviously way too high.

The U.S. effective tax rate on new corporate investment sits at 35.6 percent today, which, write Duanjie Chen and Jack Mintz for the Cato Institute, “is almost twice the average rate for the 90 countries” the duo studied, in “Corporate Tax Competitiveness Rankings for 2012.”

The U.S. has higher corporate tax rates than France.

And India, Colombia, Brazil, Japan, Venezuela, Korea, Russia, Costa Rica, you name it. This is not something we want to be No. 1 at.

Well, at least Argentina, Chad and Uzbekistan tax at even higher rates.

There’s no consolation in others’ folly, though.

The authors look northward, to Canada, which, since 2000, made some huge adjustments downward on tax rates affecting businesses: 15 percent cuts in federal statutory tax rates, eliminating most capital taxes, removing sales taxes on capital goods, and scaling back on special preferences that tend to make taxation such a mess there as well as here. And all the while revenues from these taxes have remained stable per GDP.

Could we get lower corporate taxes, here? Well, this is not an area where those on the left can enviously eye their beloved European social democracies to make their usual, tedious case for higher taxes. Norway’s rates are ten percent lower than ours, and Sweden’s, Denmark’s and Finland’s are lower yet.

This is Common Sense. I’m Paul Jacob.

Categories
tax policy

Dutch Treat

As long as there are taxes, there will be tax avoidance. This turns out to even be true of at least one government operation:

The state-owned Dutch railway company NS has managed to cut its Dutch tax bill by at least €250m since 1999 by routing the cost of new trains through Ireland, the Volkskrant reported at the weekend.

The tax dodge means the treasury has lost out on income generated by a company it owns, the paper points out. The finance ministry, meanwhile, is said to be ‘unhappy’ about the arrangement, which it has been aware of from the beginning.

Through some tricky maneuvering, the NS’s Irish financial wing bought trains in Ireland, where taxes are lower, and then rented the new trains to the Dutch public railway. Even though the trains had never run in Ireland.

Ah, the advantages of globalism!

Political posturing then ensued, with talk of “lack of morals” rampant. An economist touted for his expertise on railways charged that the “NS is busy ‘playing at being a company.’ But the NS is not a company but a government service, he said.”

Government service or no, the players at the NS had a very businesslike response, claiming (quite plausibly) that the “tax route” allowed it to “better compete in the market.”

The lesson I draw from this is one some politicians won’t want to hear: High taxes are bad. They cripple enterprise, including government enterprise. When your government operations turn to elaborate tax-avoidance schemes, you should be planning tax decreases. And accompanying decreases in spending.

This is Common Sense. I’m Paul Jacob.

Categories
local leaders tax policy

CARE Wins

Communist dictator Mao Tse Tung was fond of quoting Laozi, who said, “A journey of a thousand miles begins with a single step.”

Dennis Collins is neither a Taoist philosopher nor a dictator. The physician’s assistant, husband and father from Jacksonville, Illinois, is fine with that. “I’m just a private citizen,” says Collins. “I saw something that I thought wasn’t right and needed to be righted and it worked out for us.”Dennis Collins VOTE NO TAX INCREASE

What Collins saw was a ballot referendum that would have raised the sales tax in his county. With his area facing a tough economy and job losses, he didn’t think raising taxes made any sense.

So he took the first step; he called some neighbors and, together, they formed “Morgan County CARE.” CARE stands for Citizens Acting for Responsible Education.

“We knew we were outgunned from the start, but we just did the best we could,” Collins recalls in a video produced by the Illinois Policy Institute.

On a budget of just $3,100 and shoe leather, group members went door-to-door and made countless phone calls. “We went out and gave an honest message,” Collins explains, “and ended up making a change.” They defeated the tax hike.

“When I go to the store and see the sales tax receipt it feels very good,” Collins explains after the victory at the polls. “I’m thinking about the less fortunate and the elderly that are on fixed incomes and knowing they aren’t going to have to struggle any more than they currently are.”

“Individual citizens do need to step up and try to make change,” says Collins. That’s not the voice of a history-making dictator or a philosopher, but a community-protecting American citizen.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies tax policy

Fair is Fair

President Barack Obama is not targeting the country’s 99 percent against the wealthiest 1 percent. In a news conference, yesterday, he instead singled out the top 2 percent.

Even though they account for 46 percent of all income taxes collected, Obama says members of this group don’t pay their “fair share.” Meanwhile, the bottom 50 percent of income earners pay just 3 percent of income taxes.

Though the president readily confesses to being in that top two-percent, sadly I’m not. But hey, even if I’m not rich, this country is as much mine as any wealthy person’s. If tax hikes truly are necessary (and this is for the sake of argument — I do not believe they are), shouldn’t I be part of his tax-hike solution to our national deficit and long-term debt?

Even those making less could afford to hand over an extra percent or two of their income for essential government services, eh?

And why leave out the poor? A surcharge of $20 (or $10 or $2.50) a year — even if that’s only removed from their earned income credits or food stamps or welfare payments — would put their “skin in the game.”

We should all be in this together, so why didn’t Obama propose a solution that included sacrifices by everyone?

My guess: It has nothing to do with revenue, everything to do with November’s election.

Obama is asking Congress to extend the Bush tax cuts for everyone making less than $250,000 a year. But he seeks a mere one-year extension.

Why?

My guess is that the over-$100,000 cohort is next on his list.

But he needs their votes, first.

This is Common Sense. I’m Paul Jacob.

Categories
tax policy

French Rolls

Jim Dixon, Kingsley Amis’s infamous Lucky Jim, put the logic of wealth redistribution in everyday terms: “If one man’s got ten buns and another’s got two, and a bun has got to be given up by one of them, then surely you take it from the man with ten buns.” Remarkably simple, leaving out, as it does,

  1. the making of buns;
  2. the effect of expropriating buns now on future bun production;
  3. trade in buns and
  4. consequent changes in ratios of bun ownership, sans expropriation;
  5. what effect the nabbing of buns has on the demand to take more buns in the future; and
  6. the necessity of taking buns in the first place (which Lucky Jim’s interlocutors noted).

Think about it longer than a minute, and it’s easy to see that the “soak-the-rich” plan quickly runs into trouble, one bit of difficulty neatly stated in the old adage often attributed to Margaret Thatcher: “The problem with socialism is that eventually you run out of other people’s money.”

Sometimes you even run out of other people. As France may show next.

Socialists there have won the recent elections. They promise to reinstate the old, ugly wealth tax, as well as up the income tax on “the rich.” And so of course some of the richer French folks contemplate exile — at least as far as the welcoming cantons of Switzerland.

There are problems with this option, though. Under Sarkozy, the French government had instituted a whopping exit tax. But, if Mathieu van Berchem is to be believed, even this will prove “unlikely to stop any ‘exodus.’ There are often more reasons to leave than to stay, while the Socialist government could turn on the wealthy even more.”

If so, expect future French buns to have Swiss crosses stamped upon them.

This is Common Sense. I’m Paul Jacob.

Categories
judiciary tax policy too much government

Supreme Oxymorons

With the Supreme Court’s decision in National Federation of Independent Business v. Sebelius, the Patient Protection and Affordable Care Act has achieved its first milestone: The repudiation of logic, the Orwellian assertion that A both is and is not A.

The reform package, popularly known as Obamacare, requires that individuals buy medical insurance. If you fail to do so, the law imposes a fine.Justice Roberts

The zillion page legislation refers to this financial penalty 18 times. It never refers to a tax.

Its principal booster, President Obama, repeatedly insisted it wasn’t a tax. And as Justice Antonin Scalia wrote in his dissent, “We have no doubt that Congress knew precisely what it was doing when it rejected an earlier version of this legislation that imposed a tax instead of a requirement-with-penalty.”

But Chief Justice John Roberts, a George W. Bush-nominee, joined the four liberal justices to declare that what was not a tax, when proposed and passed, now is a tax — so that it could be declared constitutional under Congress’s taxing power. Roberts explains:

Congress did not intend the payment to be treated as a “tax” for purposes of the Anti-Injunction Act. The Affordable Care Act describes the payment as a “penalty,” not a “tax.” That label cannot control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act.

Only were Obamacare not a tax could it be litigated at this time under the Anti-Injunction Act. Accordingly, the majority says it is not a tax. But it can only be ruled constitutional if it is a tax. So, the High Court calls it a tax and not a tax at the same time.

The dissent called this “remarkable.” Stronger words spring to mind.

This is Common Sense. I’m Paul Jacob.

Categories
initiative, referendum, and recall tax policy

Fighting Taxpayers

Some opponents of citizen initiative and referendum argue that voters will always opt for tax cuts. I only wish.

Yesterday, North Dakotans decided not to eliminate their state’s property tax. Measure 2 wouldn’t have lowered property taxes, it would have abolished them. Even in a land booming with new-found oil and gas, and a state government surfing in surpluses, a whopping 78 percent of voters weren’t willing to go that far.

Chalk it up to fear — unfounded fear. North Dakota State government is running a surplus bigger than the state’s property tax take.Fighting Sioux

As is too often the case, voters saw a one-sided campaign, with spending by the forces of big government — public employee unions and those extracting financial gain from the political status quo — completely outmatching the resources taxpayers had to get their message out. On Measure 2, the No side outspent the Yes side by more than 26 to 1.

Empower the Taxpayer, led by Bob Hale and Charlene Nelson, made the argument that property taxes are particularly malicious because people can lose their homes and farms if they can’t afford the taxes. That argument did not win the day.

But there will be other days. I often tell the story of a 2002 Arkansas initiative campaign to “ax the food tax.” The measure to end the sales tax on food and medicine was slaughtered at the ballot box. Still, now a decade later, the tax has been reduced from 6 percent to 1.5 percent.

North Dakotans voted to keep the state university’s Fighting Sioux mascot. The Fighting Taxpayers may be around even longer.

This is Common Sense. I’m Paul Jacob.

Categories
tax policy too much government

A Tale of Two States

Tuesday is Election Day for Wisconsin’s gubernatorial recall, pitting Republican Gov. Scott Walker against Democratic Milwaukee Mayor Tom Barrett in a rematch of their 2010 contest, won by Walker. Polls show Walker leading, and likely to become the first “recalled” governor to ultimately defeat his recall and retain his office.

In fact, after all the massive protests and the recall campaign, Walker’s popularity has increased.Governors Walker and Quinn

Why?

Mr. Walker has done what he said he would. He hasn’t raised taxes. He staked out his position on ending collective bargaining for most public employees as well as requiring them to pay something toward healthcare and pension benefits, and, against a flurry of opposition, stuck to his guns.

Now the Badger State’s unemployment rate is down below the national average and economic prospects are up.

For a very different story, look south, to Illinois.

Gov. Patrick Quinn supports initiative, referendum and recall, but gets demerits for his response to the current economic difficulties. In 2010, Illinois raised the state income tax by 66 percent. But the $7 billion in extra revenue has done little to solve the state’s chief budget woe — Illinois was $8 billion in the hole when the income tax was hiked, and somehow faces that same $8 billion shortfall today.

So, just a week ago, lawmakers slapped a $1-per-pack tax on cigarettes.

If a state could tax itself out of trouble, Illinois would be a near paradise today.

Walker took on the government employee unions; Quinn took on the taxpayers. That’s why Wisconsin — including their embattled governor — is on the upswing and Illinois is not.

This is Common Sense. I’m Paul Jacob.

Categories
tax policy

Regressive Europe

Some folks love to compare the U.S. to Europe unfavorably.

Not me.

Though I’m fine with learning from European states and cultures (hey: I like Switzerland!), I shudder when I hear someone suggest that America should be “more like Europe.”

Obviously, I’m not with our current president on this. He says we should tax the rich more, make them pay “their fair share.” And his left-leaning admirers append the phrase, almost under their breath, “like in Europe.”

Ugh.

But reserve some of that “ugh” not at the proposal, but at the assumption that European states tax the rich with higher “progressivity.” Veronique de Rugy, reporting on a new book by Bruce Bartlett, says that view is off base. European states tend to rely on the VAT, which is heavily regressive. Additionally, Europe’s high income tax rates kick in at lower incomes, so that Europeans lower down on the middle class ladder feel the bite of high taxes.

De Rugy concludes that America is a lot like Europe, on the whole, but that America’s “tax framework may be worse. . . . It disproportionately relies on the top earners to raise revenue, it exempts a large class of taxpayers from paying any income taxes, and it conceals spending in the form of tax breaks.”

This is all very interesting. But my take-away is not to emulate Europe, but — instead — the distinctively American policies we’ve let slip away. Our limited government principles don’t require us to endlessly chase new revenue streams.

This is Common Sense. I’m Paul Jacob.