Tag Archives: taxes

Online Sales Taxes and State Revenues

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Governor Christine Gregoire (D, WA) and Sally Jewell, President and CEO of REI, have an op-ed in a recent Wall Street Journal.  In it, they claim a desire to “level the sales-tax playing field” by imposing a national requirement for online retailers to pay local state sales taxes.

Local retailers—who create jobs for our families, friends and neighbors—have long been required to collect and remit state sales taxes.  By contrast, online vendors that operate from out of state are under no such requirement, even though the taxes are still owed by the consumer in the 45 states that collect sales taxes.  This disparity undermines the competitiveness of the retail marketplace….

They claim a “cost:”

… diverts $23 billion from state and local treasuries every year.

And

For every supposedly tax-free sale, fewer dollars are available for schools, infrastructure, public-safety providers or (in flush times) tax reductions.

Never mind that online retailers also create jobs for “families, friends and neighbors.”  Those families, friends, and neighbors aren’t constituents of any concern.  Never mind the evident lack of tax reductions.  There’s always a good cause on which Democrats—and too many Republicans—should spend OPM.

A clue bat is here, in Gregoire’s and Jewell’s own words, but the bat swung and missed [emphasis added]:

Imagine a customer who walks into a sporting-goods store and asks for help in buying the coolest new running shoes.  An attentive salesperson spends half an hour with the customer to find the most comfortable fit, the best performance and the right price.  Just as the salesperson thinks she has found the ideal pair, the customer decides to make the $100 purchase via smartphone from an online competitor who doesn’t charge sales tax.

They omit another path to “leveling the playing field:” lower their in-state sales and other taxes levied on their brick and mortar businesses.  Watch the increase in economic activity from the suddenly lowered costs to the consumer/taxpayer, which increase will produce a net increase in revenues for the state government.  Besides which, the states (and I’m not just picking on Washington here) have not established they really need all that revenue, that they really are not doing things better left to the private sector.

Public pension systems have become famous for their bloat, for the overly optimistic assumptions state governments make concerning expected rates of return and state bureaucrat investment acumen.  Were these moved from defined benefit to defined contribution, the private sector would do a fine job of managing these public employee retirement programs, for instance.  As a first step in this transition, the state governments should publish widely the return on investment assumptions on which they base their pension benefit and taxpayer contribution requirements; alongside these, state governments should publish their empirically achieved return on investments.

Schools?  Get out of the way of school choice in the hands of the parents.  Pouring more money into the coffers of failing public schools only enriches the unions running those schools; it does nothing for the students damaged by those schools.

Infrastructure?  Stop paying union rates for the construction unless those rates win a truly competitive bid process.

And so on.

It’s for the several states to fix their own gaping potholes on America’s Main Streets.

RINO Surrender?

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Fox News reported over the weekend that Senator Bob Corker (R, TN) now is saying Republicans

should cave to President Barack Obama on [tax rate increases] in order to not only resolve the current crisis but move on and start negotiating spending cuts, which could result in more significant deficit reduction.

Never mind that excessive spending—and runaway entitlements—are part of the current crisis.  Furthermore, with Obama getting his tax increases, there’ll be no spending cuts and no entitlement reform.  Corker knows full well that Democrat promises of spending cuts tomorrow in return for tax rate increases today are worthless.  And he’s begging for surrender anyway.

Corker said this to rationalize his surrender recommendation:

The focus then shifts to entitlements, and maybe that puts us in a place where we actually can do something that really saves this nation[.]

This is…naïve.  If the Republicans surrender on the tax rate increases, why should President Obama believe they won’t surrender on the debt ceiling, on spending cuts, on entitlement reform?  Why should any of the rest of us?

Corker wants to surrender.  That’s his right.  But let him do so as a private citizen.  This RINO needs to be replaced at the next election.  Republican acquiescence with Progressives’ demands over the last 80 years are how we got into this mess in the first place.  And the magnitude of the destructiveness of their demands has been especially manifest these last four years.  Our nation can’t afford any more of those policies.

Taxes and Fairness

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There’s this example from a recent Wall Street Journal op-ed.

[I]t is worth noting that from 1958 to 2010, the taxes paid by the top 3% of earners, as a percentage of total personal income (which can’t be reduced by shelters), increased to 3.96% from 2.72%, while the percentage paid by the bottom two-thirds of filers fell to 0.51% in 2010 from 2.7%.

We went from everyone paying roughly the same rates on personal income to some Americans being forced to pay 8 times the rate as other Americans.

And those earlier, higher tax rates that are supposed to be so much more fair?  They were coupled with things like this:

The tax code of the 1950s allowed upper-income Americans to take exemptions and deductions that are unheard of today.  Tax shelters were widespread, and not just for the superrich….

For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership.  Huge numbers of professionals signed up for all kinds of money-losing schemes.  Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss.

Now, it’s true enough that the Clinton-era tax rate tables, so beloved of the Progressives today, didn’t allow for such uneconomic activities as write-offs.  But the Clinton-era spending rates also didn’t allow for the spending rates so beloved of the Progressives today.

Welfare and Economic Mobility

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I’ve written elsewhere of the trap for Americans that is welfare in  the form of handouts. The CBO’s Nov 2012 report, Effective Marginal Tax Rates for Low- and Moderate-Income Workers, makes this explicit.  Here are two examples from the report:

[T]he single parent who moved from not working to working part-time would face a marginal tax rate of 36 percent because even a modest level of earnings would result in the reduction or loss of several transfer benefits [the tax].  Earnings from part-time work would result in a loss of eligibility for assistance through the Temporary Assistance for Needy Families program, some reduction in the housing voucher, and a decrease in benefits available through the Supplemental Nutrition Assistance Program.

And

The marginal tax rate associated with moving from part-time to full-time employment…would be higher—47 percent.  Earnings from full-time work would place the single parent in the EITC’s plateau range and would allow him or her to claim the maximum EITC [Earned Income Tax Credit] amount ($3,169 in 2012).  However, because moving from part-time work to full-time work does not increase the EITC as much as does moving from not working to working part-time, marginal tax rates in this scenario would be higher than in the first scenario.

The disincentive to get work is large, but by remaining in her current situation, the single mother (yes, I’m assuming) is foregoing opportunity to improve her economic situation: there is potential for advancement, pay raises, and so on with a paying job.  Remaining on the government’s dole leaves this woman dependent on her government for her livelihood.  And doing so makes it even harder for her child(ren) to move up the economic ladder in his own time.  Upward mobility is severely handicapped, if not foreclosed altogether.

The Obama Tax Increases

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Here’s a partial enumeration of the taxes which President Barack Obama is willing to blow up our economy in order to get.

Income tax: Across the board.  Top rate rises to 39.6% from current 35%, bottom 15% rate disappears.  Obama claims to be interested only in the top rates, but his evident lack of seriousness in his proposals counters this claim.  See the table below

Self-employment tax:  Rise from 2.9% to 3.8%.

Exemption Phase-Out: Otherwise allowable exemption amounts will be reduced by 2% for each $2,500 or part of $2,500 ($1,250 for married filing separately) that the taxpayer’s AGI exceeds the AGI threshold for the year based on the taxpayer’s filing status.

Itemized Deduction Phase-Out: Resumed income-based phase-out of these deductions: taxes, interest (except investment interest), charitable contributions, employee job expenses and other miscellaneous itemized deductions, etc.  Additionally, and independent of income (in the sense of a phase-out), the threshold for deductibility of medically related items rises from 7.5% to 10% of AGI.

Long-Term Capital Gains Rates Increase: See the table below

Coverdell Education Accounts: Dollar limit on contributions for any one beneficiary is reduced to $500 from $2,000, contributions can be made only by individuals; the income phase-out range for the annual contribution limit rises from twice the amounts for single filers to a hard $150,000-$160,000 for joint filers instead of simply; contributions for special needs students age 18 or over no longer allowed; qualifying expenses elementary or secondary school expenses no longer allowed; contributions to a Coverdell account and a Sec 529 Qualified Tuition Program no longer allowed in the same year; education credits in a year in which a Coverdell withdrawal is made no longer allowed.

American Opportunity Tax Credit: Disappears.

Child & Dependent Care Credit: Falls from $3,000 ($6,000 for two or more qualifiers) to 2,400 ($4,800 for two or more qualifiers).

Estate tax: Rise to 45% from current 35% (and from 0% just a couple of years ago) on everything above $3.5 million estate value, down from current $5.12 million exclusion.

Investment surcharge: An Obamacare tax for 2013 and beyond—higher-income individuals hit with an additional 3.8% Medicare tax on net investment income, including long-term gains and dividends.

Medical device tax: 2.3% on top-line revenues of companies making devices such as prosthetic limbs, pacemakers, and operating tables.  This is levied even if the respective company doesn’t earn a profit.

Employer Health FLEX-Spending Plan Contributions: Maximum amount available for reimbursement of incurred medical expenses in an FSA for a plan year cannot exceed $2,500, down from…unlimited.

Codification of the “economic substance doctrine“: Allows IRS to disallow tax deductions and other tax-minimizing plans solely on the IRS opinion that the matter lacks “substance.”