Howard Rich's Blog

June 11, 2009

Tax as you go

Filed under: Headlines — willfrable @ 4:44 pm
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From the Washington Times

President Obama said on Tuesday that “Entitlement increases and tax cuts need to be paid for. They’re not free.” To look like he’s getting tough on the deficit, he’s promoting the “pay as you go” rule, which provides a justification for raising taxes. Mr. Obama shouldn’t go there.

The proposal would require lawmakers to make up for new spending programs and tax cuts by cutting other programs or raising other taxes. The rule wouldn’t be retroactive, so it would not pay for the extravagant spending programs Mr. Obama already has introduced, such as the $787 billion stimulus bill he signed in February. The mandate wouldn’t apply to the $2.5 trillion worth of new spending priorities that the Obama administration plans to enact in the future. Steps toward nationalized health care would be exempt.

Mr. Obama has been pretending to be a deficit hawk since his presidential campaign last year. On the hustings, he continually blamed last fall’s financial crisis on the deficit, which he promised to cut by shrinking government spending. During the presidential debates, he complained of an “orgy of spending and enormous deficits” and promised to correct the costly spending cycle.

His rhetoric didn’t change after he moved into the Oval Office. Mr. Obama told C-SPAN on May 23 that “we are out of money now,” and said at a May 14 town meeting in New Mexico that our deficit spending is “unsustainable.” But the president continues to spend at record levels.

The Congressional Budget Office projects that the national debt will surge over the next 10 years from $6 trillion to $15 trillion. In 2019, debt will exceed 80 percent of the gross domestic product. For comparison, in the 2007 budget, the last fiscal year that Republicans controlled Congress and the presidency, the annual deficit was $162 billion. In 2006, it was $248 billion – and Republicans were hardly frugal. CBO’s estimated deficit for this year is $1.8 trillion, but that figure does not account for the soaring unemployment rate that took off after the calculation was made.

On April 14, Mr. Obama boasted: “Already we’ve identified $2 trillion in deficit reductions over the next decade.” The claim was too much for the liberal New York Times, which reported, “Three-quarters of those ‘reductions’ reflect assumptions that the nation would have had as many troops in Iraq in 10 years as it does now, even though President George W. Bush signed an agreement with Baghdad before leaving office that will result in the withdrawal of all American forces within three years.” Administration spokesmen continue to repeat this misleading figure even though the supposed savings resulted from Mr. Bush’s action, not Mr. Obama’s.

“Pay as you go” rules provide politicians with a ready excuse to raise taxes. If deficits are projected, they can point to the rule and say the law requires them to compensate for the revenue shortfall. Spending cuts are a better way to fill budget gaps, but it’s never easy to pry nickels and dimes from profligate politicians, let alone billions. Mr. Obama’s “pay as you go” proposal opens the door to massive new taxation to pay for out-of-control government spending – and it does nothing to address his growing deficits.

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June 3, 2009

D.C. tax would ban free use of plastic bags

From the Washington Times

The District of Columbia moved Tuesday to impose a tax on the use of paper and plastic shopping bags, catapulting the nation’s capital to the forefront of the “green” retail movement while raising concerns that the new levy would impose an economic burden on the poor.

The D.C. Council unanimously approved legislation banning the use of disposable, non-recyclable plastic bags and assessing consumers a 5-cent fee per recyclable paper and plastic bag used to haul away purchases at places such as grocery and convenience stores.

The city’s effort is expected to earn final approval during a council session June 16, and a spokeswoman said Mayor Adrian M. Fenty would sign the bill, which coincides with movements elsewhere in the country to enact similar measures.

“Wherever the fault lies, the fact of the matter is our country’s becoming inundated with plastic bags and plastic bottles,” said council member Jack Evans, Ward 2 Democrat. “This is a first step to try to address that issue.”

The Seattle City Council last summer approved a 20-cent fee on disposable bags at grocery and some other stores, but the issue is scheduled to be brought before voters later this year after opponents gathered enough signatures to bring it to a referendum.

San Francisco in 2007 enacted a ban on plastic bags in grocery stores. In New York City, Mayor Michael R. Bloomberg recently backed off a bag-tax budget proposal.

Lawmakers in California, Connecticut, Maine and Texas also have debated bag-tax proposals.

Rep. James P. Moran, Virginia Democrat, introduced legislation in April that would place a 5-cent tax on “single-use” bags between 2010 and 2015 and a 25-cent tax on them after Jan. 1, 2015. The federal legislation was referred to the House Ways and Means Committee and the House Natural Resources Committee.

The District’s bill, if passed, would not take effect until January. Its chief author is council member Tommy Wells, Ward 6 Democrat.

The bill would allow affected retailers to keep 1 cent of the bag fee and place 4 cents into a fund targeting cleanup of the Anacostia River, which officials say is littered with 20,000 tons of trash each year.

A carryout bag credit program would credit customers at least 5 cents for each bag they provide and let them keep 2 cents per bag sold.

D.C. Chief Financial Officer Natwar M. Gandhi has said the bag-tax measure would bring the city $3.6 million in fiscal 2010 revenue and $9.5 million between fiscal 2010 and 2013, along with reducing the use of disposable bags by 50 percent in its first year of implementation.

Officials noted that the Swedish retailer IKEA implemented a 5-cent fee on plastic bags in 2007, resulting in a 90 percent reduction in their use.

Opponents of the measure include Ward 7 resident Trish Chittams, who said she thinks the money generated by the tax will diminish and the river won’t be cleaned up, especially without enlisting Maryland’s help.

“I’m going to shop in Maryland and Virginia, so not only am I not going to help but my tax dollars are going to go into Maryland and Virginia,” she said. “You’re kind of discouraged with them because they don’t give a hoot and a holler about the people.”

George Franklin, head of the Covenant Food Pantry and coordinator of the Ward 8 Food Pantry Collaborative, said many D.C. residents would be surprised by the new fee, particularly during difficult economic times.

He said his pantry uses bags donated after church members’ trips to the grocery store and is worried the new fee will diminish his supply.

“Members of the council are the only people who think its a good idea to impose a new useless tax on people in the middle of a recession,” Mr. Franklin said. “This just is not the right time for this.”

The legislation directs city officials to conduct a public information campaign about disposable bag reduction and form a public-private partnership to provide reusable carryout bags to city residents, particularly seniors and low-income households.

Mr. Franklin called the logistics of distributing free cloth bags “daunting” and expressed concern about what happens when the bags need to be replaced.

The measure does have the support of Bread for the City, the District’s largest food pantry.

Bread for the City spokesman Greg Bloom said that helping the poor and the economy can go hand in hand, and “we’ve been told that there will be a supply of bags available to us.”

Council member Kwame R. Brown – at-large Democrat who attached an amendment to the bill that would allow residents to purchase commemorative license plates to help fund the river cleanup efforts – acknowledged that 5 cents per bag could add up for some residents, but stressed the green impact of the tax.

“The No. 1 objective is to try to get the Anacostia River clean …,” Mr. Brown said. “You try to find a way and you try to be helpful to everyone.”

May 19, 2009

Soak the Rich Lose the Rich

With states facing nearly $100 billion in combined budget deficits this year, we’re seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the “fair” way to close his state’s gaping deficit.

Mr. Quinn and other tax-raising governors have been emboldened by recent studies by left-wing groups like the Center for Budget and Policy Priorities that suggest that “tax increases, particularly tax increases on higher-income families, may be the best available option.” A recent letter to New York Gov. David Paterson signed by 100 economists advises the Empire State to “raise tax rates for high income families right away.”

Here’s the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states.

And the evidence that we discovered in our new study for the American Legislative Exchange Council, “Rich States, Poor States,” published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

Martin Feldstein, Harvard economist and former president of the National Bureau of Economic Research, co-authored a famous study in 1998 called “Can State Taxes Redistribute Income?” This should be required reading for today’s state legislators. It concludes: “Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust. . . . A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees.”

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.

This result was all the more remarkable given that these were years when the stock market boomed and Wall Street gains were in the trillions of dollars. Examining data from a 2008 Princeton study on the New Jersey tax hike on the wealthy, we found that there were 4,000 missing half-millionaires in New Jersey after that tax took effect. New Jersey now has one of the largest budget deficits in the nation.

We believe there are three unintended consequences from states raising tax rates on the rich. First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state. Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place. This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.

Those who disapprove of tax competition complain that lower state taxes only create a zero-sum competition where states “race to the bottom” and cut services to the poor as taxes fall to zero. They say that tax cutting inevitably means lower quality schools and police protection as lower tax rates mean starvation of public services.

They’re wrong, and New Hampshire is our favorite illustration. The Live Free or Die State has no income or sales tax, yet it has high-quality schools and excellent public services. Students in New Hampshire public schools achieve the fourth-highest test scores in the nation — even though the state spends about $1,000 a year less per resident on state and local government than the average state and, incredibly, $5,000 less per person than New York. And on the other side of the ledger, California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores.

Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation — much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.

One last point: States aren’t simply competing with each other. As Texas Gov. Rick Perry recently told us, “Our state is competing with Germany, France, Japan and China for business. We’d better have a pro-growth tax system or those American jobs will be out-sourced.” Gov. Perry and Texas have the jobs and prosperity model exactly right. Texas created more new jobs in 2008 than all other 49 states combined. And Texas is the only state other than Georgia and North Dakota that is cutting taxes this year.

The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it’s too late.

Mr. Laffer is president of Laffer Associates. Mr. Moore is senior economics writer for the Wall Street Journal. They are co-authors of “Rich States, Poor States” (American Legislative Exchange Council, 2009).

May 1, 2009

Survey finds taxes, regulations are top barriers for businesses

Filed under: Headlines — howierich @ 7:49 pm
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From the Colorado Springs Gazette:

Government regulations and high taxes and fees are the top barriers for businesses in the Colorado Springs area, according to a survey about the area’s business climate conducted last month by a new local nonprofit group.

More than one-third of the 186 business persons who responded to 13 questions in the survey said they were “not very satisfied” with the local business climate and about 30 percent said government regulation was among the top three barriers to doing businesses in the area. More than three- fourths of those responding also rated the local business climate as either worse or much worse than it was both two years ago and 10 years ago.

Cheyenne Mountain Civic Solutions, headed by former Gazette editor Jon Stepleton, released the survey results Thursday during the Limited Government Week conference at the Cheyenne Mountain Resort. The online survey was conducted by Summit Economics LLC and attracted nearly 300 respondents, though only about 180 answered most questions. More than 30 percent of respondents headed real estate or construction firms.

Business owners also were concerned about economic issues and cited a lack of leadership and vision at all levels, including political, civic and business, as a problem, the survey found. While they were satisfied with local utility and telecommunications service and the quality and availability of workers, business persons were dissatisfied with the availability of tax incentives for expansion and the time it takes to get permits required to expand.

The top ways to improve the local business climate, the survey found, would be to exempt business equipment from personal property tax and exempt purchases of such gear from sales and use taxes as well as improving the city’s image in the media. Despite listing high taxes and fees as barriers, fewer than 30 percent of those responding to the survey listed reducing property taxes or corporate and personal income taxes as ways to improve the business climate.

The results aren’t all that different from another survey of business leaders and local residents conducted earlier this year by AngelouEconomics and released last month as part of a $160,000 study of local economic development efforts. That survey found a mistrust of government and a lack of leadership and vision among government leaders as the biggest issues for economic development, eroding public support for public improvements and services.

April 30, 2009

Cap-And-Trade: Al Gore’s Cash Cow

From Investor’s Business Daily:

Global Warming: At the cap-and-trade hearings, it was revealed that not everyone will suffer from this growth-killing energy tax. A congresswoman wanted to know why sea levels aren’t rising but Gore’s bank account is.

When Gore left office in January 2001, he was said to have a net worth in the neighborhood of $2 million. A mere eight years later, estimates are that he is now worth about $100 million. It seems it’s easy being green, at least for some.

Gore has his lectures and speeches, his books, a hit movie and Oscar, and a Nobel Prize. But Rep. Marsha Blackburn, R-Tenn., was curious about how a man dedicated to saving the planet could get so wealthy so quickly. She sought out investment advice we all could use in a shaky economy.

Last May, we noted that Big Al had joined the venture capital group Kleiner Perkins Caufield & Byers the previous September. On May 1, 2008, the firm announced a $500 million investment in maturing green technology firms called the Green Growth Fund.

Last Friday, Gore was the star witness at the hearings on cap-and- trade legislation before the House Energy and Commerce Committee. Blackburn asked Gore about Kleiner-Perkins, noting that at last count they “have invested about a billion dollars invested in 40 companies that are going to benefit from cap-and-trade legislation that we are discussing here today.”

Blackburn then asked the $100 million question: “Is that something that you are going to personally benefit from?” Gore gave the stock answer that “the transition to a green economy is good for our economy and good for all of us, and I have invested in it but every penny that I have made I have put right into a nonprofit, the Alliance for Climate Protection, to spread awareness of why we have to take on this challenge.”

Last May, we also noted that on March 1, Gore, while speaking at a conference in Monterey, Calif., admitted to having “a stake” in a number of green investments that he recommended attendees put money in rather than “subprime carbon assets” such as tar sands and shale oil.

He also is co-founder of Generation Investment Management, which sells carbon offsets that allow rich polluters to continue with a clear conscience. It’s a scheme that will make traders of this new commodity rich and Bernie Madoff look like a pickpocket. The other founder is former Goldman Sachs partner David Blood.

As Stephen Milloy, author of “Green Hell,” points out, Goldman Sachs is lobbying for climate change legislation and is part owner of the Chicago Climate Exchange, where carbon credits from cap and trade would be traded.

Others hope to cash in along with Gore. On Earth Day 2007, the various NBC networks gave 75 hours of free air time to Gore to hype climate change. NBC is owned by General Electric, perhaps the largest maker of wind turbines and other green technology in the world. It, too, stands to benefit financially from cap and trade, as Fox News commentator Bill O’Reilly has noted, connecting dots others won’t.

Gore’s altruism is phony. According to a March 6 Bloomberg report, Gore invested $35 million of his own money not in green nonprofits, but with the very profitable Capricorn Investment Group LLC, a Palo Alto, Calif., firm that directs clients to green investments and invests in makers of environmentally friendly products.

As reported on Green Hell Blog, Capricorn was founded by the billionaire former president of eBay Inc., Jeffrey Skoll, who also happens to be an executive producer of Gore’s Oscar-winning documentary, “An Inconvenient Truth.”

Gore has not taken a vow of poverty even as he advocates legislation that will push millions into it. He has said greed and corporate profits are behind the studies disproving his alarmism. Maybe it’s his desire for profits that’s behind his manipulation of the truth.

March 23, 2009

Tax code escalates as Dems’ tool

From the Washington Times:

For the Obama administration and its Democratic allies in Congress, the power to tax is increasingly becoming the power to get their way on policy matters big and small.

Corrected: From reforming the nation’s health care system to helping victims of Wall Street fraud mastermind Bernard Madoff, the White House and Congress have turned to the tax code to push their policy priorities. With Congress gearing up to tackle President Obama’s proposed $3.6 trillion budget for fiscal 2010, the tax battles are certain to intensify.

Using the tax code to push a presidential agenda is nothing new. But with a budget that proposes expensive and far-reaching reforms in health care, energy and education, Mr. Obama has taken the tactic to a new level.

See related story: Obama cool to high tax on bonuses

“Speaking very broadly, it’s pretty common,” said J.D. Foster, a tax policy analyst at the conservative Heritage Foundation. “The tax code, from bow to stern, is full of policies that are proposed by the president and congressmen that are intended to manipulate the economy or social structures and social behavior.”

What is unusual about Mr. Obama’s agenda, he said, is that “he is trying to redesign our nation in such broad strokes, covering so many areas at once.”

Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities, praised the thrust of the Obama budget.

“All the tax increases either affect only people earning more than $250,000 or close tax loopholes that should not have been there in the first place,” he said, adding that the Obama budget would peel back the $120,000 average tax cut on those making more than $1 million, while the “vast majority” of small-business owners would benefit from the president’s health care reform.

The administration looked to the tax code when trying to help victims of Madoff’s Ponzi scheme. The 20-year fraud, uncovered in December, took in charities, hedge funds, universities and celebrities. The personal savings of many small investors were wiped out.

The Internal Revenue Service announced last week that the tax agency had issued two rulings intended to soften the losses for the thousands of individual and institutional investors taken in by financial scams, such as the $64 billion scheme operated by Madoff.

The new guidelines clarify rules letting victims of Ponzi schemes claim “investment theft losses” on their tax returns, allowing for greater deductions than could be claimed under other types of capital losses.

Congressional Democrats turned to the tax code again for a quick fix in the furor surrounding bonuses paid to executives of insurance giant American International Group Inc. The bonuses were paid after the company had accepted more than $170 billion in taxpayer aid to avoid bankruptcy.

The House of Representatives, after just a couple of hours of debate, passed a bill Thursday to tax 90 percent of the bonuses granted to top earners at AIG and any other company that received more than $5 billion in taxpayer bailout funds. The Senate may take up its own confiscatory tax bill targeting AIG as early as this week.

“By any measure, you are disgraced professional losers,” Rep. Earl Pomeroy, North Dakota Democrat, said during the brief House debate. “And by the way, give us our money back.”

Mr. Obama has not said whether he would sign the measure if it reaches his desk.

“What he has said is that he’s going to look at any legislation. And I’m sure he will do that,” Christina Romer, chairman of the White House Council of Economic Advisers, said on “Fox News Sunday.”

Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr., called the bill “a dangerous way to go.”

“I think the president would be concerned that this bill may have some problems in going too far – the House bill may go too far in terms of some – some legal issues, constitutional validity, using the tax code to surgically punish a small group,” he said Sunday on ABC’s “This Week.”

But the resort to highly targeted taxes – even against such an unpopular target as AIG – has left others uneasy. “People have to understand that using the tax code for punishment is a horrible, disastrous precedent,” said Rep. John Campbell, California Republican.

“It’s ‘everybody grab the pitchforks,’ ” said Sen. Judd Gregg, New Hampshire Republican and one of several lawmakers who warned that the AIG tax increase was unconstitutional.

As the administration searches for money to fund its biggest campaign promises, Mr. Obama has backed away from some proposed tax increases in the face of popular opposition.

The administration hastily dropped a proposal to require some disabled veterans to pay for medical treatments through their private insurance companies, heeding a chorus of outrage from veterans groups and Capitol Hill lawmakers who said the idea was immoral, unconscionable and un-American.

The White House scrapped the plan after meeting with a contingent of veterans and military advocacy groups last week.

Conservative critics say one of the most far-reaching tax changes in Mr. Obama’s budget involves greatly expanding the practice of giving tax refunds to low-income people who owe no taxes – “refundable tax credits.”

“Obama’s basic ethos that he ran on was that he wanted to spread the wealth, to take money from people that he perceived to have too much money and give it to people he perceived did not have enough money,” said Ryan Ellis, tax policy director at Americans for Tax Reform, which pushes for lower taxes. “He’s very consciously using refundable credits a lot in order to give money to people that aren’t taxpayers, which is a big deal.”

The difference between a tax credit and a refundable tax credit is that a normal tax credit reduces liability down to zero. For example, if the refundable credit is $500 and a taxpayer owes $300, the taxpayer receives a $200 check from the government.

Mr. Obama “wants to take existing credits in the code, bulk them up, and them make them refundable,” Mr. Ellis said. “This is the way he’s spreading the wealth, doing his social engineering.”

• David M. Dickson contributed to this report.

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