Tag: Political economy

The Tax Man Cometh Again

Remember, as you read through these stories, the cardinal rule of government: everything you have is theirs. If you have such a thing as “take-home pay” it’s only because of their generosity in allowing you to take it home. Sort of the way a highwayman might let you keep enough bread to feed your family while stealing everything else.

First, Chicago. The city of Chicago has figured out what every economist knows: when you tax something, you get less of it. This is why, for example, paying for healthcare reform with cigarette taxes never works. People smoke less in response and revenues fall below expectations. Taxes and fees on cars and gasoline are driving some people to ride bicycles. This is a good thing, right? Less fossil fuel use, more people getting exercise. The only losers are people like me who wear out their brake pads trying not to run over these hippie fruitcakes when they cut across a road all of a sudden with NO consideration for anyone else and NO concept of how much momentum a car has and there’s a Goddamn bike lane right there and we paid taxes to build that thing so why don’t you use it, you self-important piece of …

Sorry, lost my train of thought there.

Anyway, Chicago is floating the idea of taxing bikes.

A city councilwoman’s recent proposal to institute a $25 annual cycling tax set off a lively debate that eventually sputtered out after the city responded with a collective “Say what?” A number of gruff voices spoke in favor, feeding off motorists’ antagonism toward what they deride as stop sign-running freeloaders. Bike-friendly bloggers retorted that maybe pedestrians ought to be charged a shoe tax to use the sidewalks.

Chicago is by no means the only place across the U.S. tempted to see bicyclists as a possible new source of revenue, only to run into questions of fairness and enforceability. That is testing the vision of city leaders who are transforming urban expanses with bike lanes and other amenities in a quest for relevance, vitality and livability – with never enough funds.

Two or three states consider legislation each year for some type of cycling registration and tax – complete with decals or mini-license plates, National Conference of State Legislatures policy specialist Douglas Shinkle said. This year, it was Georgia, Oregon, Washington and Vermont. The Oregon legislation, which failed, would even have applied to children.

Don’t mention the shoe tax, guys. They’ll take it seriously.

Second story: you remember how our budget deficit problems result from not being able to raise taxes? Well, welcome to 2014 when a slew of new taxes will be heading your way.

The new taxes and fees include a 2 percent levy on every health plan, which is expected to net about $8 billion for the government in 2014 and increase to $14.3 billion in 2018.

There’s also a $2 fee per policy that goes into a new medical-research trust fund called the Patient Centered Outcomes Research Institute.

Insurers pay a 3.5 percent user fee to sell medical plans on the HealthCare.gov Web site.

Americans also will pay hidden taxes, such as the 2.3 percent medical-device tax that will inflate the cost of items such as pacemakers, stents and prosthetic limbs.

Those with high out-of-pocket medical expenses also will get smaller income-tax deductions. Americans are currently allowed to deduct expenses that exceed 7.5 percent of their annual income. The threshold jumps to 10 percent under ObamaCare, costing taxpayers about $15 billion over 10 years.

Then there’s the new Medicare tax.

Under ObamaCare, individual tax filers earning more than $200,000 and families earning more than $250,000 will pay an added 0.9 percent Medicare surtax on top of the existing 1.45 percent Medicare payroll tax. They’ll also pay an extra 3.8 percent Medicare tax on unearned income, such as investment dividends, rental income and capital gains.

Oh, and this morning, I found out about this little gem:

The new year is time for change, even in the service industry. Starting January 1, the IRS will classify automatic gratuities as service charges that are taxable as regular wages and subject to payroll tax withholding. That might sound like a bunch of arcane tax law mumbo jumbo, but what it means is that restaurants have to treat those tips like regular wages.

Typically, the IRS left it up to the waiter or tipped employees to declare that money. But with this new change the waiter won’t see those “tips” until payday—instead of the end of the shift. And restaurants will have to withhold federal income, Social Security and Medicare taxes on that money, too.

What it means for the diner is that those automatic 18% gratuity charges on tables of 6 or more may well be a thing of the past. The addition has been added onto large parties to ensure that servers are paid for catering to a large group.

That doesn’t mean you should use this an excuse to start stiffing people. Remember, the minimum wage laws here in the states for tipped workers is still at a shocking $2.13 an hour. And, as evidenced by this video, a few extra bucks means a lot to the service workers of America.

What surprises me — actually it doesn’t surprise me — is how much this stuff is going to hit the middle and working classes. Cycling taxes, insurance taxes, tip taxes — these will hit hardest on young people, the working poor and the middle class. This is a running theme in Obama’s America: the plebs get screwed; the elites pat themselves on the back for caring so much. Even when the elites do bad things, they are never punished for their misdeeds, not to the extent the rest of us would be for smoking a joint or chewing a pop-tart into the shape of a gun. It’s enough to make you think the system is broken beyond repair.

Enjoy your new taxes.

Sunday Six Pack

NPR recently had group of economists discuss policies that they think are great for the country but that politicians consider radioactive. The group of economists was actually quite diverse, ranging from George Mason libertarian (and frequently linked Cafe Hayek blogger) Russ Roberts to Cornell liberal Robert Frank. What six policies could that group possibly agree on? And why wouldn’t politicians embrace policies that enjoy such a broad consensus?

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

One thing they don’t talk about: the mortgage interest deduction is a lot smaller than most people think it is. People see they can deduct $10,000 off their taxable income and think that’s pretty big. But mortgage interest is deducted only if you throw out the standard deduction, which is $12000 for a married couple. For most people, if their home costs less than about $250,000, they are gaining little, if anything. The host says the deduction saves him $5000. Assuming he’s calculating that correctly (i.e,. what it gives him above the standard deduction), that means he’s paying off a half million dollar mortgage.

The home mortgage interest deduction has its destructive aspects, too, distorting the real estate market. As noted above, it mostly subsidizes the purchase of large and expensive homes, driving up that end of the market. But even worse is that by creating the perception that the government is paying up a third of your mortgage, in induces people to buy more home than they can afford. Ironically, this drives up the cost of housing for the poor and middle class.

I don’t think the market can take the shock of an immediate cessation. But phasing it out would be a great idea. Even better, as we’ll see later, would be to scrap the entire tax system.

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Have the tax deduction for all health insurance or have it for none. Encouraging people to get insurance through their employer has been one of the biggest drivers of healthcare cost over the last few decades, pushing consumers further and further away from the actual costs. The Wyden-Bennett bill, one of the things I hope becomes part of the “replace” part of “repeal and replace”, would have done this.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

The Fair Tax is one of the more coherent plans on this subject. I’ve detailed before why I oppose it. A VAT would work much better but only if it mostly replaced the existing system. A lot of libertarians oppose the VAT because they see it as a gateway to big government. My opinion is that we already have big government and, given our commitments to seniors, it’s not going to get small anytime soon. The question is how to pay for it without crippling the economy and a VAT has the minimum of deadweight loss.

I lived in Texas, which does not have an income tax, for four and a half years. It was awesome. You weren’t taxed until you spent money. I would love to see the entire nation enjoy that freedom and empowerment.

Note also something important in the broadcast: the most ardent advocate of eliminating the corporate tax? The two liberals on the panel. They know how destructive corporate taxes are to our economy.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

This is the one that will cause the most disagreement on the blog. I don’t want to open another global warming debate. I would support a carbon tax but if and only if it came with steps three and four of eliminating our current tax system. It is infinitely preferable to the cesspool that would be cap and trade.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

We’ve talked about this before. No need to rehash.

Here’s where the NPR segment falls on its face: they imagine a politician putting forward the above platform and being rejected by the public. There’s some validity to that. If you cornered politicians, they would probably agree that most of these ideas are sensible but fear the public backlash. However, I think that if you polled the American people on that platform, they wouldn’t be too opposed either. Oh, they might have reservations about one or two policies but they would probably accept it over the current system.

No, I don’t think the problem is necessarily one of marketing. I think the problem — a problem that NPR glosses over — is that our politicians and political class are simply too invested in the current mess. Part of it is special interests that would rather have a tax system tailored to them or a booming prison industry or a booming housing market. Part of it is simple inertia in favor of policies we have pursued for decades. Part of it is spinelessness — the unwillingness to propose policies that, as NPR noted, can be easily demagogued.

But the largest problem is that our politicians like the system we have. The system we have — especially the tax system — keeps titans of industry, atlases of production and prometheii of invention groveling to them. The system we have keeps special interests on bended knee, constantly asking for and getting favors from politicians. Remember how, earlier this year, Apple had to start ramping up their political contributions and lobbying under threat of regulation and lawsuit? Politicians love that.

The system outlined above isn’t actually libertarian. It sounds like it, because I’ve cast in libertarian terms. But steps 1-4 would be accomplished by replacing our tax system with a VAT — versions of which have propped up some of the most socialist countries in the world. That and step 5 just detail how taxes are collected, not how much are collected. It would create a tax system that was essentially “Dial a Revenue” — capable of supporting either an expansive welfare state or a limited federalist state. Opposing those changes and supporting the current system is not an issue of big government versus little government. It is an issue of just how much of our lives and our industry Washington can control.

Even step 6 isn’t a necessarily libertarian issue; it’s more a matter of common sense. I’ve heard support for marijuana legalization from all parts of the political spectrum. My mother has never voted Democrat. My best friend from college has never voted Republican. Both think marijuana should be legal.

So, no, it’s not that the above platform would necessarily be Republican or Democrat. Or conservative or liberal. Or libertarian, for that matter. The problem with it is not that it would produce smaller or bigger government but that it would produce less invasive government, less powerful government. It would disperse the groveling lackeys and toadies are politicians have grown used to. It would produce a government less besieged by special interests and lobbyists. It would produce a government that spends a lot less time looking over shoulder and poking through our underwear drawer.

And that’s the reason it can’t happen. Our establishment enjoys the genuflection too much.

Bush’s Victory

A couple of days ago, George W. Bush pointed out — correctly at it happens — that if the Bush tax cuts were not called “the Bush tax cuts”, they wouldn’t be so controversial. Ezra Klein affirms, pointing out that the Democrats have basically conceded at least part of the issue.

Most of his tax cuts are, at this point, an almost foregone conclusion. No one is talking about taking the 10% bracket and raising it back to 15%. No one is talking about raising the 25% bracket back to 28%, or the 28% bracket back to 31%, or the 33% bracket back to 36%. And not only do both parties support the expanded child tax credit, but Democrats have expanded it further. The bulk of the Bush tax cuts are now a bipartisan affair.

To put it differently, Democrats have, for the most part, admitted that Bush was right, and the Clinton-era tax rates were too high on most Americans. For all that Democrats talk about returning to the Clinton-era tax rates, they only ever mean for the top two percent of taxpayers — the folks who are now in the 35% bracket, but whom they would like to see in a 39.6% bracket.

Ezra has a higher opinion of the Democrats than I do. Klein, bless him, is serious about fiscal matters and believes that the Democrats are equally serious. I don’t. If the Democrats were really worried about debt, they would be talking about raising taxes for everyone else. They would certainly be up for ending or tapering the payroll tax holiday. Their support for tax hikes on the rich — whether wise or stupid — is motivated by politics, not budget math. They want to portray the Republicans as the party of the rich. That’s about as far as their thinking goes.

Look, I’ve said taxes are probably going to have to go up. We have an aging population, a mountain of debt and many obligations. But anyone who thinks about revenue seriously knows that you simply can’t close the deficit on the backs of the rich. Returning to Clinton-era taxation levels for only the rich would net a trillion or a little less: not nothing, but not enough. Hell, you could take all their money and you still wouldn’t get there. Even the so-called Buffet Rule would only bring in a few billion a year.

This is not about revenue or debt. Reagan, who raised taxes in combination with reform, was serious about debt. Bush and Clinton, who raised taxes on everyone and cut spending (eventually) were serious about debt. Simpson-Bowles, which contemplates tax increases in combination with reform, is serious about debt. The modern day Democratic proposals are showmanship. They are partisanship. They are, and I hate to resort to cliche, class warfare.

The Democrats are simply showing how unserious they are about our deficit. Let’s not pretend there’s any thought behind it.

The Rainy Day

How often do you find Matt Yglesias and Megan McArdle agreeing on something? Yglesias, talking about the need to be conservative with future budget projections, says:

The other thing, of course, is that “stuff happens.” Nobody sitting down in 1925 to write a 25-year budget forecast would have made the funds available to win World War II. It’s nice to think that you have a plan that leaves headroom to engage in some deficit spending if it turns out a meteor is going to strike the earth, or Jack Layton is the leading edge of a Viltrumite invasion.

We don’t even need to go back to World War II. We can go back to 2001, when we had a projected surplus. So we spent and cut taxes. And … suddenly we didn’t have the money for a trillion dollar war. We can look at Japan, which invested zillions in “stimulus” spending, got themselves into massive debt and then got hit by one of the biggest natural disasters in history. Hell, we can look at our current situation, where we were pushed to the maximum sustainable debt and suddenly had an economic collapse. We see it in states that cut back on snowplow budgets in warm years, then scream for help when they get a blizzard.

McArdle makes the comparison to people’s personal finances.

Have you ever known anyone who got into trouble with credit cards? I don’t mean someone who had something go wrong and ended up deep in credit card debt because they had to pay the rent somehow; I mean someone who wakes up one day with $21,000 in debt, a closet full of shoes, and no idea where the money went?

The way they get into that trouble is often that they don’t budget. They consider each purchase in isolation: “can I afford these shoes? Can I make the payments on that television?” And in fact, they can afford each of their purchases. They just can’t afford all of them.

We hear this constantly on the spending side. “What kind of country are we if we can’t afford education?” “Surely, this country can afford to provide healthcare to everyone!” “Farm subsidies are such a small part of the budget!” Yes, we can afford some of these things; the problem is that we’re trying to afford all of them simultaneously.

And we’re setting ourselves up to make the same mistakes again. The liberal plans to sort of balance the budget all have taxes rising to historically high levels. The problem is that you now have no room if something really bad happens. Technically, yes, you’ve “balanced the budget”. But you’ve put yourself into such a tenuous fiscal position that a war, a disaster or an economic downturn is ruinous.

A time of peace and prosperity is not the time to be pushing your taxation level to the “break glass in case of emergencies” level. You have to leave some room for the unexpected.

Tax insanity to keep the behemoth from dying..

Check out the latest plan by the people that feel gas is too cheap: tax mileage.

The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive. The plan is a part of the administration’s “Transportation Opportunities Act,” an undated draft of which was obtained this week by Transportation Weekly. This follows a March Congressional Budget Office report that supported the idea of taxing drivers based on miles driven. Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

So not only are they going to make vehicles more expensive – who do you think will have to pay for this mileage tracking equipment, huh? – they want to milk you for driving around. They may pretend that it’s about raising revenue, but it’s obvious that the end result of this policy is to force people to use public transportation – so all those demcorat friendly & donor corporations that stand to gain billions in tax payer subsidized projects can rake in even more cash – and to control & limit the average serf’s mobility. Oh yeah, this new tax will of course be on top of an already existing federal gas tax and whatever state gas tax there may be as well.

What’s next? They are going to want to tax bowel movements? Breathing? People have to do those sooner than later, and thus, they can make some serious cash from that all. It’s just getting ridiculous what these crooks are doing “for the good of us all”. This nanny state is quickly turning into a real tyrannical and abusive state.