Category: Taxes

I don’t trust either, which is why I want divided

From yesterday, two editorial essays describing what Democrats would do if elected. First, from Harold Meyerson in the Washington Post, explaining why returning the Democrats to the majority would be good:

Should they make it through both houses, many of these measures will face a presidential veto. George W. Bush has already vetoed stem cell legislation, and he has staunchly opposed raising the minimum wage since the day he entered politics. What will congressional Republicans do if they’re confronted with a series of vetoes of popular legislation? How large will the lame duck president loom in their calculations?

If they’re so popular, and the public is clamoring for them, how can Mr. Meyerson believe that Republicans wouldn’t try to raise at least one of those flags? Does he believe that the current GOP isn’t so shallow as to support an issue for its supposed popular appeal, regardless of its policy impact? That assumes that President Bush would even sign the legislation. I suspect he’d find his Stem Cell Research-only veto pen.

Of course, it’s worth stepping back from that and asking the more fundamental question of whether or not public policy should be set by popular demand. I hope that popular demand correlates to good policy, but it doesn’t. That makes majoritarian arguments unacceptable.

Next, from Mallory Factor of the Free Enterprise Fund, explaining why returning the Democrats to the majority would be bad:

Next, let’s look at spending. One has to admit that the Republicans have given into the spending temptation, too, in the last few years. But the answer is structural reform to fight Congressional earmarks, not a change in party control. Rep. Pelosi suggests that most new spending would be “pay as you go.” At first, this sounds good, with its hint of not adding new government programs until we can afford them. But “pay as you go” really means “pay before passing go”—and certainly don’t collect any $300 tax refund checks as with the Bush tax cuts in 2001. Rep. Pelosi would be much more convincing on spending if her party had not already proposed $90 billion in new government spending, even before it takes control of the House. The only way to “pay as you go” and fund these programs is for “you” (the taxpayer) to “pay” more. That’s why Rep. Rangel has to say that middle class tax increases have to be considered, too—just raising taxes on the rich won’t pay for everything.

Who will enact this structural reform? The current GOP? Please. And Rep. Pelosi’s spending increases still must pass the president’s desk before we need to worry about her “pay as you go” theory. And does Mr. Factor really believe that the $300 refund check was fiscally responsible, as opposed to political opportunism?

For fun, consider this one extra bit of wishful thinking:

With $90 billion in spending proposals, and 12 years out of power, can we really believe that Democrats will turn on a dime to become the party of spending restraint? Instead, let’s hope that this year’s near-death experience for the Republicans will help keep them focused on cutting government spending and keeping taxes low.

Let’s assume the Republicans might discover fiscal restraint, just for giggles. The word keep in Mr. Factor’s prayer is an interesting choice. For this year’s near-death experience to keep them focused on cutting government spending, they would have to already be focused on it. Who believes that, other than partisans more interested in keeping power than fiscal restraint.

Both sides are wrong, regardless of how they got there. Giving us popular spending won’t help our mess, and arguing that we’re bad, but they’re worse is dumb. Neither party should have complete control. Ever.

I am not a right-wing economist

I haven’t read the associated study, but the way The Observer reported the findings lacked what I think is the correct assumption about the flat tax. Consider:

Flat taxes fail to boost revenues, as their advocates claim, and are likely to be abandoned by the countries that have introduced them, according to research published by the International Monetary Fund.
…

But the IMF analysts who carried out the research cast doubt on the main advantage claimed for flat taxes: that they increase revenues by allowing people to pocket more of their hard-earned cash, and thus persuade them to work harder.

That’s not really the point. Tax equality is the main advantage because income redistribution is ethically wrong. The government shouldn’t be punishing anyone through its tax policy, which is the core result of progressive income taxes. The government should set the tax rate to generate the necessary revenue to meet its (legitimate) expenditures. Ultimately, the flat tax is a means, not the goal.

The report is here.

Will the Decider be a Vetoer?

Hey, guess what? Republicans are economic geniuses. The deficit is down! Of course, it still exists, so there isn’t really much to be happy about. But I’ll let the president bask in his fantasy world:

During his news conference, Bush predicted that the Republicans would maintain control of both the House and the Senate in part because of Democrats’ stand on taxes.

“There’s a difference of opinion in the campaign about taxes,” Bush said. “I would like to … make the tax cuts permanent. And the Democrats will raise taxes.”

President Bush is lying, or at least delusional, if he thinks his actions as president will lead to permanent tax cuts. Trillions in unfunded liabilities means there will be a tax increase coming. Just because it doesn’t happen while he occupies 1600 Pennsylvania Avenue does not mean he did not raise taxes. That doesn’t mean I think Democrats are correct to want to raise taxes (“only” on the “rich”). They’re not, even though they’ll try, because slashing spending is much more immediate, with more predictable results. But with two sides of the budget problem, spending and revenue, focusing on one, however misguided, is better than focusing on neither.

My recommendation? The president should say I told you so when tax increases land on his desk in 2007 as he stamps a veto on the legislation. Rinse and repeat every time the Congress sends the same tax hike his way. Mmmmm, gridlock.

He must complicate it to simplify it

I love tax reform ideas especially when they come from sitting members of Congress. Rep. Bob Goodlatte is thinking of ways for you and me to keep more of money from the IRS:

I believe that our country is in desperate need of tax reform. The current system has spiraled out of control. At a time when Americans devote 7.4 billion hours to comply with the tax code, we need simplification.

I have twice voted to abolish the current code, and recently introduced legislation that forces Congress to address reform. My bill, H.R. 4725, the Tax Code Termination Act, is quite simple. It abolishes the Tax Code, and then calls on Congress to approve a new Federal tax system.

I believe that only after the current code is scheduled for elimination, will Congress engage in serious discussions about alternative tax proposals. I am certain that if Congress is forced to address reform we can create a code that is simpler, fairer, and better for our economy than the one we are forced to comply with today.

I believe the key ingredient for tax reform should be: a low rate for taxpayers, tax relief for working people; promotion of savings and investment; and encouragement of economic growth. Taxes may be unavoidable but they don’t have to be unfair and overcomplicated. I will continue to look for ways to simplify this needlessly complex tax process.

It’s amusing that Rep. Goodlatte believes the Congress will act on telling itself it needs to address the problem when it won’t address the problem it already acknowledges, but he’s probably smarter than I am. That must also be why I fail to see how installing extra special benefits for some people, as well as placing incentives in the tax code designed to get taxpayers to use their tax savings the right way, will somehow make the tax process simpler. I’m at a loss, although the save and invest part will probably work out after Rep. Goodlatte and his colleagues ban every form of recreational spending not related to saving and investing. Witness the shift of $6 billion to mutual funds now that the Congress double super banned gambling on The Internets. Well done, Congressman.

Utah enacts tax code polygamy

Utah implemented an optional flat tax plan for its residents, beginning in the 2007 tax year. Under the plan, residents can choose to pay taxes at 6.98% with deductions or 5.35% without deductions. I doubt this will be the most effective way to win over flat tax dissenters, since “the poor” wouldn’t want no deductions, but the specifics can be analyzed at another time. For now, it’s just interesting that a state is trying. Maybe it makes the government better, maybe it makes it worse. We’ll find out, but residents have a choice. I consider that a good start.

What’s less encouraging is this:

The legislature also approved a local optional sales tax hike to meet transportation needs. …

Utah State Senator Ed Mayne, a Democrat and the minority caucus manager, said the state needs tax reform but said money was taken from public education. “I’m very, very disappointed,” he said.

I’m sure State Sen. Mayne is sincere, but redirecting state tax revenue from public education to public transportation doesn’t mean that education will suffer. Surely local governments can raise additional revenue through tax increases if local taxpayers deem their schools insufficiently funded. In that view State Sen. Mayne’s disappointment seems aimed more at decreased state control than at the potential harm to education within Utah. That seems misguided to me, but I don’t think that unlimited wishes for public expenditures implies that every wish should be funded. That’s especially true when the discussion involves state versus local provision.

Capitalists Unite: Demand Fairness!

Who wants to bet we’ll hear no outrage from our politicians?

For a rare episode of the Gasoline Price Wars, turn to Gainesville, where station manager Kristin Daggle pulled out the equivalent of a laser-guided missile: a big, white, plastic “1” placard.

Daggle — a 25-year-old field general on a well-traveled stretch of Lee Highway — posted the number, followed by two “9” placards, on a 20-foot-tall sign in front of her 17-month-old Exxon station over the weekend. And just like that, a milestone in the competitive world of gasoline retailing was reached.

“This is the first day we’re below $2” this year, Daggle said, as customers streamed in Saturday. “Our goal is to be competitive.”

The Congress must rectify this unfair increase in Windfall Savings&#153 by customers. Are customers, as the beneficiaries of risk-taking by business owners, not entitled to a cap on their savings? Gas station owners have to pay their mortgages, too. We clearly need legislation and the politicians just sit around allowing the laws of economics to screw businesses.

Other nuggets of goodness exist in the article, particularly surprise that supply and demand conspire based on market forces rather than the whim of evil corporations, but you can read those on your own. Just remember how little you’re hearing from Washington about this “travesty” for gas station owners the next time gas prices spike upwards. They’re all hacks.

I lost the government’s birth lottery

From Cato @ Liberty:

Social Security turns 71 today. One can argue about whether or not the program was a good idea in 1935, but there should be no question about its inadequacies today. And its flaws just get worse with each passing year.

Social Security will begin running a deficit in just 11 years. Of course, in theory, the Social Security Trust Fund will pay benefits until 2040. That’s not much comfort to today’s 33-year-olds, who will face an automatic 26 percent cut in benefits unless the program is reformed before they retire. …

Let me ponder for a moment that I’m 33, and will reach my (government-accepted) retirement age of 67 in July 2040. Yay, me. Is this the part where I state that leadership is preparing today for what tomorrow will bring, while politics is preparing tomorrow for what yesterday brought? I thought so.

Economics is not a four letter word

This article is old, but it contains a helpful segment in what is a good overall argument in favor of the flat tax. Consider:

Once tax codes have degenerated to the extent they have in most rich countries, laden with so many breaks and exceptions that they retain nothing of their original shape, even the pretence of any interior logic can be dispensed with. No tax break is too narrow, too squalid, too funny, to be excluded on those grounds: everybody is at it, so why not join in? At the other extreme, the simpler the system, the more such manoeuvres offend, and the easier it is to retain the simplicity.

Believing that it will be easier to retain simplicity might be a smidge optimistic, at least for the United States, but the idea is defensible. What’s important is that we achieve intelligent tax reform. The tax code needs to be simple. The quickest way to understand the correct path is to realize that the tax code cannot be used to create growth without picking winners and losers. Reform should seek to destroy as little economic incentive as possible. It should let merit and effort create favorable outcomes.

Free ice cream for everyone! And a unicorn!

I want tax reform in the United States. I know I’m not alone. For example, this editorial by Ed Feulner, president of the Heritage Foundation, discusses the guidelines of a sensible approach. Simplicity, fairness, and all that. I agree. I just don’t understand how the wishful thinking extends to betting on Sen. Ron Wyden as (potentially) the man to deliver real reform.

I discussed Sen. Wyden’s plan in the past. I reached an unfavorable conclusion that he’s the guy to reform anything. As Mr. Feulner mentions, Sen. Wyden is concerned with crafting a legacy. The correct goal is to overhaul the federal tax code. Expecting credit for it is the dream of a politician, not a leader. Fixing what needs to be fixed is in Sen. Wyden’s job description. Does he want a cookie and a medal, too, if he enacts tax reform?

Wyden says he wants to help deliver this fairer, flatter system, but that will require real persistence. He has, alas, disappointed tax reformers before. This is the same man who voted to repeal the death tax in 2002 but flip-flopped this year and voted to keep that pernicious tax alive. And if we look at the fine print of his tax-reform plan, it appears that he’s better at rhetoric than real change. His so-called reform would leave tax rates at 35 percent and actually increase the double-taxation of savings and investment.

But if Wyden abandons class-warfare politics and fights for the right sort of reform, he could have a chance to join the political immortals. He also could help all taxpayers and improve the American economy at the same time. Fixing the tax code will be difficult, but it’s not impossible. It’s time to get it done.

I agree with the last three sentences of that excerpt. The sentences that preceeded it suggest I’d have better luck at generating economic growth by wagering my savings on the Phillies in a Vegas casino than by counting on Sen. Wyden to deliver on the promise. I stand by my original assessment of his reform leadership.

Hokies thank you for free WiFi

This story is a few months old, but since I visited Blacksburg last week, I learned about it now. The facts:

The New River Valley will soon be more connected than ever as Blacksburg Transit goes wireless with a pilot program offering Internet service aboard select buses.

The new service, created as the result of a partnership between Citizens Telephone Cooperative, based in Floyd, and Blacksburg Transit, has already begun wireless Internet service aboard a single bus, but plans are in the works to add six more by the end of May. “We’re still testing, but we should have them all done by the end of the month,” said Tim Witten, manager of BT Access.

“We’re doing it as a pilot program. We’re deploying this to see how it works, and hope it would be a really attractive part of our service, and serve as an example to the rest of Virginia,” Witten said.

That’s fancy enough, but I don’t imagine students clamored for this service. Although my experience is eight-plus years old, I’m confident that local travel patterns among Virginia Tech students haven’t changed that much. Most users aren’t on the bus long enough to scan for the wireless network and connect, much less to check the status of their fantasy football. Those students who are on the bus long enough and want to download the latest Paris Hilton song should pay for it themselves.

The program is being paid for by a series of grants from the Virginia Department of Rail and Public Transportation and the federal government, thus restricting the number of buses that will receive wireless service.

Because it’s some tech nerd’s vision of cool does not mean it’s a public good. Should I also point out that Blacksburg Transit does not intend to test the program on specific routes? That the routes could change daily? I’m sure that will inspire riders to bring their laptops on a regular basis. Hopefully this flawed premise will help the program fail. As long as it’s in place, when the Hokies take the field and the leaves change colors this fall, you should stop by Blacksburg and surf the free wireless you’re providing.

………….

(General hat tip to Kip for the basic structure of this post.)