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Taxes Archive

Friday

20

May 2011

2

COMMENTS

Should We Weight Votes Toward the Least Productive in Society?

Written by , Posted in Economics & the Economy, Taxes

This is what a terrible idea looks like:

America should implement weighted voting to make voting more objective and fair, and give the young more power, because the consequences of political decisions will affect them the longest. Weighted voting would restore power to twenty and thirty year olds, where it resided before the advent of medical science. With the aid of computers, it would be easy to give everyone a Voting Score, just like we all have a credit score.

Yes, let’s give the most ignorant, inexperienced and disengaged voting bloc extra political power. That sounds like an excellent idea.

Ezra Klein also highlighted the idea, though was careful to note that he did not endorse it, instead pointing out that we weight by other factors such as geography. We do this for a reason, as states are recognized as constituents with independent interests. Unlike voters, they have issues of sovereignty and their own rightful political authority to protect from federal encroachment. And we’ve seen what has happened with the erosion of their political input at the federal level by moving to direct elections for Senators, as the federal government has all but assimilated the states into administrative bodies which exist for no other purpose than to do its bidding.

The young, on the other hand, do not have an independent interest that is different from any other individual voter, they just have a longer time horizon. But does that necessarily mean they are more impacted by political decisions, as implied by the “decisions will affect them the longest” reasoning? I don’t think so.

As the government has become more and more an instrument of redistribution, I’d say it is taxpayers who are most impacted by political decisions, regardless of how much longer they have to live. As such, if we insist on mucking with voting weights, I agree with the suggestion of John Hawkins to weight by total taxes paid.

This would have the benefit of solving what is perhaps the biggest political problem of the day: the ability of non-tax payers to vote themselves benefits at the expense of an ever narrowing tax base. Voters are more likely to vote themselves benefits if they are not contributing to the costs.The burdens then fall on fewer and fewer productive members of society, which both reduces their productivity (and thus the funds available for such redistributions) but it also means a growing population of moochers. It’s a vicious, teat-suckling cycle. This is why James Madison warned of a need for “protecting the minority of the opulent.” His answer was the Senate.

Madison was not talking merely of the super-wealthy routinely attacked by leftists and redistributionists today, but of the productive sector in general, which we can largely equate to today as those who pay income tax. The point of his argument was to protect the minority interests against the majority that would abuse them. And when those who pay for and sustain government are the minority, while those who mooch off their largess are a majority, the end result can be only fiscal calamity. As younger people are less productive and carry less than the average burden of government, weighting in their favor would exacerbate this problem and hasten our headlong rush into national insolvency.

Wednesday

6

April 2011

0

COMMENTS

Why is the IRS Putting Foreign Tax Collectors Ahead of U.S. Interests?

Written by , Posted in Taxes

It’s easy to complain about the IRS, but more often than not the bureaucrats are simply carrying out the bad policies imposed by Congress. There certainly are some egregious cases of IRS abuse, but it’s typically the fault of lawmakers for enacting bad law.

But such is not the case with a regulation currently under consideration which would require that American banks put foreign tax law above U.S. tax law. The regulation deals with the obscure issue of reporting requirements for bank deposit interest paid to foreigners, but the economic impact would be significant. Worst of all, the IRS is seeking to overturn existing law. In some ways, this is the tax equivalent of the EPA’s notorious power grab scheme to impose cap-and-trade with regulatory edicts.

A bit of background. On January 7th, the IRS proposed this regulation (REG-146097-09) to force American financial institutions to report any interest payed to foreigners. Typically, U.S. tax authorities only require information used for U.S. tax purposes. And since Congress wants to attract this investment to the American economy, the law has clearly stated for 90 years that foreigners won’t get taxed, leaving no need to collect any information about this income. But now, as part of global efforts to undermine tax competition and usurp fiscal sovereignty, the IRS is unilaterally asserting the right to demand this information. Only it’s not to enforce American law, but in order to hand the information over to foreign governments so that they can tax this U.S.-source income.

There is good reason why investors would want to protect their personal information.

In many places corruption runs rampant. If you know that any information acquired by your government may be sold to criminal gangs who look to kidnap children of business owners, then financial privacy also becomes a matter of human rights, or even life and death. Or if you live in Venezuela, you need to protect your assets from a thuggish dictator who might expropriate them on a whim. If foreign investors can no longer count on the U.S. as an attractive destination for their investment, one which protects their human rights, they will look elsewhere.

If the IRS is allowed to implement the regulation, it will undoubtedly harm the US economy. Foreigners have more than $4 trillion invested in American financial institutions, according to the Treasury Department, and all told there is more than $10 trillion invested in the U.S. economy by foreigners. Much of this investment capital would leave American shores if the IRS gets its way. A study by the Mercatus Center on a previous version of the proposal, which was more narrowly targeted and applied to just 15 countries, found that $87 billion would leave the US economy. That figure would likely be much higher today.

Despite the likely economic impact of the regulation, the IRS amazingly concluded that it was not a “significant regulatory action,” and thus did not conduct a cost-benefit analysis as required by Executive Order 12866. The order quite clearly defines a “significant regulatory action” as one having “an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.” With trillions in foreign investment at stake, the IRS would have us believe that this regulation does not have an annual impact of $100 million or more, or would not “adversely affect in a material way the economy.” This disregard of legal requirements is something to expect from a banana republic, but it’s becoming disturbingly common as government gets more power in America.

Not only is the IRS dishonestly ducking Executive Order 12866, it is also blatantly flouting the expressed will of Congress. The last time the IRS tried to impose this reporting requirement, over 100 members of Congress voiced their objection, and it was eventually allowed to die without implementation. This time around, and lead by Congressman Posey, the entire bi-partisan Florida delegation in the House has already objected. Many more are expected to do so in the near future. Senator Marco Rubio, for instance, has just recently joined his Florida colleagues to condemn the regulation, noting that it “violates the long-standing intent of Congress not to require the reporting of interest earned by nonresident aliens,” and would “put our financial system at a fundamental competitive disadvantage.” Every time that Congress has addressed this issue, it has specifically chosen to keep America an attractive destination for foreign investment by not taxing interest paid to non-resident foreigners.

It is not too late to speak up. The deadline for public comments on the proposed regulation is the end of the day April 7th. If you think that the IRS should respect the will of Congress and not place the interests of foreign tax bureaucrats above the US economy, you can give your two cents to the IRS here.
Cross-posted at Big Government.

Monday

21

March 2011

0

COMMENTS

Republicans Must Avoid the Tax Hike Trap

Written by , Posted in Big Government, Taxes

The Wall Street Journal reports on a “rift” among Republicans on whether or not tax hikes should be on the table:

Two decades after President George H.W. Bush abandoned his “read my lips” promise, some Republicans are chafing at their party’s stand against new taxes.

A few prominent GOP lawmakers believe they will have to raise some tax revenue if they are to bring Democrats along on a bipartisan compromise to address the U.S.’s long-term fiscal problems. Many Democrats want higher taxes to cover at least part of future budget gaps. That has led to clashes between Republican lawmakers and a Washington advocacy group, Americans for Tax Reform, the self-appointed keeper of the party’s anti-tax flame.

Grover Norquist, the group’s president, said he has “sent up a flare” against placing trust in Democrats, given how bipartisan agreements, including the one struck by then-President Bush in 1990, eventually unraveled. Those tax increases took effect as scheduled, but Democrats didn’t always deliver on promised spending cuts, Mr. Norquist said.

Tom Coburn (R., Okla.), one lawmaker targeted by Mr. Norquist’s group, is having none of it. “These fights … help raise money for interest groups, but they don’t do anything for solving problems,” he said.

I’d be interested to see the rest of Coburn’s quote in full, because he’s making no sense here. What is proven not to solve problems is giving more money to politicians. Grover Norquist is right: everytime Republicans show how ‘reasonable’ they are by bargaining with Democrats for a combination of tax hikes and spending cuts, the result is always more taxes and no cuts. How many times must Lucy pull the football out from under Charlie Brown before he learns his lesson?

This entire “rift” is a function of fundamentally misunderstanding the problem Washington faces. Too many Republicans are content to consider it a deficit or debt problem, but these are just symptoms of the disease that is federal spending. If closing the budget deficit entails placing greater burdens on the economy through higher taxes and larger government, it is a step in the wrong direction. Today’s federal government is simply too large, and must be shrunk. The only proven way to shrink government is to shrink government.

Handing politicians yet more tax dollars to spend not only won’t shrink government, it won’t even reduce the deficit. They will just spend it. It’s time for the Charlie Brown Republicans to stop falling into these big government traps.

Thursday

20

January 2011

0

COMMENTS

States War on Business

Written by , Posted in Big Government, Economics & the Economy, Free Markets, Taxes, The Nanny State & A Regulated Society

Why any entrepreneur would try to make a living for themselves in a state like New York or Illinois is beyond me. Maybe it’s just because I’ve never really gotten the allure of big cities, but why would anyone subject themselves to the rule of such petty bureaucratic tyrants?  The big government regulatory states have no respect for those seeking to earn a living, so not find somewhere that does?  Take this story:

…”They told us we had to move or we’d be towed,” Loera explained as the cops rigged the food truck to the tow truck.

They gave Paty’s truck a $55 summons saying it was not allowed to sell merchandise from a metered spot, Loera said. His mother, Patricia Monroy, who does not speak English, made the ultimate decision to stay put once her family translated what the cops were saying.

“My mother felt like she was not breaking the law,” Loera said. “We still had 45 minutes on the meter.”

…Loera had reached out to the Street Vendor Project after his Nov. 30 arrest, and members of the organization joined Paty’s for Tuesday’s return to raise awareness on issues vendors face: harassment from law enforcement and city offices, a harsh ticketing system and excessive punishment and regulations confusing to vendors and cops alike.

But no one anticipated the towing.

“Even if they were breaking parking rules — and I don’t think they were because I don’t think food is merchandise — that’s why they get a ticket. But that’s not a worth a tow,” Basinski said.

…The food truck was careful to follow parking rules, Loera said. It arrived on the Upper East Side about 10:15 a.m., changing spots about 11 a.m. and again an hour later.

Loera and his mother, who was tearing as the truck was being towed, hopped in a cab to follow it. They did not want a repeat of the last towing, when all of their perishables and other items — including its generator — had been removed from the truck, Loera said.

After they paid the $370 to get their truck back in November, they had to take out a $5,000 loan so they could restart the business that provides the livelihood for six families, Loera said.

And what was the basis of the complaints against the truck?

Paty’s had faced the ire of several residents on Community Board 8, who complain about food trucks in the area. They worry the trucks are illegally hogging metered parking spots and that they are unfairly competing with struggling brick-and-mortar stores.

Hogging metered spots? I’m sorry, but weren’t they paying for them just like anyone else? If the prices aren’t reflecting market value, then raise them. But there’s no basis to complain about people who are paying those prices. Unfair competition? Unfair that they made products that people wanted more than other products? How dare they!

Silly immigrants, they thought they were coming to America because it was free, but there’s no place in America for earning an honest living by providing services that people want. If you aren’t working for the government, your work isn’t legitimate.

Other states, like Illinois, are content to just tax their business into leaving. Some states understand the incentives created by tax and spend policies run amok. Take this statement by Wisconsin Governor Scott Walker:

Wisconsin is open for business. In these challenging economic times while Illinois is raising taxes, we are lowering them. On my first day in office I called a special session of the legislature, not in order to raise taxes, but to open Wisconsin for business. Already the legislature is taking up bills to provide tax relief to small businesses, to create a job-friendly legal environment, to lessen the regulations that stifle growth and to expand tax credits for companies that relocate here and grow here. Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, ‘Escape to Wisconsin.’ Today we renew that call to Illinois businesses, ‘Escape to Wisconsin.’ You are welcome here. Our talented workforce stands ready to help you grow and prosper.

The Associated Press, on the other hand, sneers at the idea that high taxes will drive anyone out of Illinois (Hat-tip: Tax Foundation):

But economic experts scoffed at images of highways packed with moving vans as businesses leave Illinois. Income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

It’s true that taxes are just one piece of the puzzle, but it’s not like Illinois has paired its high tax policies with a business-friendly regulatory regime. Nor is this a small change, as Illinois has moved from the 21st to the 46th highest corporate tax rates among states. I’ll ignore for now the assertion that states should not be competing to produce good policy, and point out instead this story (Hat-tip: Reason):

The founder of Jimmy John’s said he has applied for Florida residency and may recommend that his corporate headquarters move out-of-state as a result of the Illinois tax increases enacted last week.

Jimmy John Liautaud told The News-Gazette on Tuesday that he is angry about the moves, which boosted the individual income tax from 3 percent to 5 percent and the corporate income tax from 7.3 percent to 9.5 percent.

“All they do is stick it to us,” he said, adding that the Legislature and governor showed “a clear lack of understanding.”

A lack of understanding apparently shared by the alleged economists unearthed by AP.

Is it any wonder why these states are economic and fiscal basket cases?

Friday

7

January 2011

1

COMMENTS

What You Need to Know About CBO Scoring

Written by , Posted in Big Government, Health Care, Welfare & Entitlements, Taxes

Claims that Obamacare would reduce the deficit ought never to have passed the laugh test, but because the bill was written specifically to game the CBO score, many think repealing it will actually add to the deficit. This is wrong. To understand why, you need to know a little bit about how CBO operates.

First, CBO stands for the Congressional Budget Office. It is part of the legislative branch. It is not, therefore, independent of politics. Both chambers of Congress appoint the Director of the CBO, but he can be removed by a simple resolution of either chamber. In other words, he has a strong incentive to ensure that his organization produces research that pleases politicians. This means, among other things, a heavy bias toward tax and spend policies.

Here’s an example of a CBO double standard that favors big government. When it comes to tax rates, CBO uses a baseline known as current law. This means, for instance, that when the Bush tax rates were extended, CBO said this “cost” money because they were set to expire under existing law, even though the rates were not changed from what they were last year. But when it comes to government spending, CBO takes an entirely different approach. Rather than current law, they use current policy. If a spending program is set to expire under current law, CBO will go ahead and count it as being continued in the baseline because that is the current policy, thus ensuring that there is no “cost” to extending the program. CBO may be “non-partisan,” but that doesn’t prevent its methodology from being ideological.

Second, CBO is significantly constrained in what it can analyze by law. It must respond to requests and bills as they are presented by Congress. It doesn’t matter, for instance, if Congress tells CBO they will not pass some recurring expense down the road despite the fact that they always have in the past, CBO must take them at their word and score any current legislation in front of them accordingly. It is a garbage-in-garbage-out organization. As you can imagine, this can lead to analysis that is near useless in the real world where politicians routinely say one thing and do another.

Third, CBO’s analytical methodology is opaque and historically inaccurate. Despite the current level of unemployment, for instance, CBO has constantly claimed ridiculous job creation numbers as a result of Obama’s stimulus. These same models have failed to accurately predict the observed data.  CBO’s Director confessed that they used Keynesian models to score the stimulus, which guarantees the result merely based on the policy, and not from any observed data. It doesn’t matter what the real world data shows, CBO’s model will always show the stimulus as producing millions of jobs. Who are you going to believe, so to speak, their Keynesian models or your lying eyes?

Yet here we sit, with the faux-authority of the CBO being used to beat anyone over the head who understands that you can’t nationalize health care and expand coverage without significantly increasing costs. I’d suggest that CBO is in need of serious reform, but that’s been the case for decades and it hasn’t happened. Given the likelihood that it won’t happen in the decades ahead either, it’s probably best to just abolish the organization altogether. Between Congressional offices and non-profit think-tanks, there are more than enough outfits capable of analyzing the economic costs of legislation, and at least when these other organizations do it, there isn’t a false pretense that their numbers are beyond reproach. No numbers are beyond reproach and no is methodology above criticism, no matter how desperately the proponents of big government try to claim otherwise.

Wednesday

15

December 2010

0

COMMENTS

Sunday

12

December 2010

0

COMMENTS

Don’t Fall Into the Keynesian, Demand-Side Trap

Written by , Posted in Economics & the Economy, Liberty & Limited Government, Taxes

This post from Pejman Yousefzadeh on the tax deal is a few days old, but it’s worth talking about because it illustrates a trap into which conservatives too often fall. His point is that the temporary extension of the tax rates likely will not help the economy. I don’t dispute this, as whatever benefit the tax rate extension provides comes from the fact that it means taxes won’t be going up. It’s good only insofar as it prevents politicians from doing something really bad, at least for another 2 years.

What I take issue with is his reasoning. Here’s what he says:

The thing is, a temporary extension of the Bush tax cuts will not be enough to stimulate the economy. Per Milton Friedman’s permanent income hypothesis, consumption patters (sic) even in the aftermath of a temporary extension of the Bush tax cuts will be tempered by long term expectations that eventually, the tax cuts may be allowed to expire. As a consequence, consumers are more apt to save money that comes from a temporary tax cut, rather than spending it in order to offer the economy any kind of economic stimulus.

My problem is his implication that the primary benefits from cutting taxes comes from increases in consumption.  This is essentially the Keynesian view of economic growth. It is this consumption-based view of growth which has led both Bush and Obama to try “stimulating” the economy through gimmick rebates and handouts. Each attempt has failed more miserably than the last.

Just to be clear, I’m not disputing Friedman’s permanent income hypothesis (that personal decisions on spending are based not on current income, but long-term expectations),  just its relevance to this situation. It’s not germane here because even if it were not true and consumption would increase in response to a temporary extension, it wouldn’t have any significant pro-growth impact. Otherwise, the other stimulus attempts would have worked.

The benefit from lowering tax rates, particularly those on capital, comes when it reduces government disincentives to savings, investment and entrepreneurship. Increased consumption is just the consequences of growing the economy. To see it as something to try to increase in its own right is to implicitly admit the validity of the Keynesian, interventionist approach which has never worked.

Wednesday

8

December 2010

1

COMMENTS

Kamikaze Democrats

Written by , Posted in Economics & the Economy, Taxes

As has been widely publicized, the White House and Congressional Republicans have forged a compromise that will prevent tax rates from going up at the end of the year (except for the death tax which will return with a 35% with a $5 million exemption).  In exchange for extending the current individual, capital gains and dividends rates for 2 more years for all Americans, Republicans agreed to support another year’s worth of unemployment benefits (which will reduce employment) and some various tax credits, which will do nothing. Overall, compared to what would happen if capital gains and dividends rate went up, this is a good deal. It’s certainly not the best policy (permanent extension would do a lot more to reduce uncertainty), but it’s better than tax increases (even, yes, on the wealthy).

It’s hard to see what democrats can really complain about either. They get their entitlements, and even by CBO’s gimmick accounting (where keeping tax rates the same has “costs”) most of the bill’s costs still comes from their entitlements, so they cannot complain about that. So why are so many so pissed off that they’re willing to try and scuttle the deal, taking America’s economy down with it?

The only explanation that makes any sense is that they’ve backed themselves into a corner with a decades worth of nonsensical class warfare demagoguery. They’ve falsely blamed Bush’s rate cuts “for the wealthy” (I’d point out for them yet again that Bush made the tax code more progressive, and not less so, but we all know I’d be wasting my time with these people) for everything from spending induced deficits to the financial crisis. Most of them probably really didn’t even believe this crap, but class warfare sells. Why argue for policy based on principle or careful analysis when you can just get one group of Americans pissed off at another group?

Democrats weren’t always this way. JFK argued for significant tax cuts as a way to grow the economy, and he was right. But for the hard left, to not raise taxes now would be to admit that their last ten years worth of rhetoric was a lie. We all know it was, but they are desperate not to admit it. And to protect their baseless ideology, they’ll happily fly the class-warfare fighter into the American economic ship.

Monday

6

December 2010

0

COMMENTS

Suddenly They Don't Like Compromise

Written by , Posted in Economics & the Economy, Taxes

The news is indicating that the rumored tax compromise is now a done deal. Obama will accept that he must refrain from raising taxes in the midst of a sluggish economy, and in return Republicans will allow passage of an unprecedented third year for unemployment benefits, transforming the once temporary assistance program into a new permanent and never ending entitlement.

Some Democrats, and in particular Obama’s hard left base, are revolting.  Not being able to raise taxes is apparently where they draw their line in the sand (and to think they routinely manage to deny the label of tax and spend liberals with a straight face). It seems they really, deeply, truly wanted to take American down with the class-warfare ship.

But what I want to know is: what happened to the great benefits of compromise? For years these hard left radicals have feigned offense at the “partisan culture” of Washington that supposedly made compromise impossible. To hear them tell it, you’d have thought compromise was next only to godliness. But as soon as they are asked to do something so simple as not raise taxes when the unemployment rate is 9.8% in exchange for a massive handout and entitlement extension, they freak out.

True colors.

Monday

8

November 2010

0

COMMENTS

Debunking White House Propaganda Video

Written by , Posted in Taxes

The latest video from the Center for Freedom and Prosperity offers a point-by-point rebuttal of the recent White House propaganda video calling for higher taxes. As Dan Mitchell explains, the White House video makes the mistake of treating the economy as a fixed pie to be distributed rather than grown, ignores the impacts of taxes on behavior, and takes the philosophically reprehensible position that money belongs first to the state, and is only “given” back to those that earn it.

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About Me

profileI serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.

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