Taxing companies out of the state

Illinois needs more money.  So it has slapped more taxes on its businesses.  Whereupon more businesses are leaving the state.  So Illinois needs more money.  Here is a lesson in unintended consequences, how governments trying to raise revenue by raising taxes can end up killing the golden goose.  George Will tells the tale, focusing first on the effects of an Illinois law requiring that its on-line businesses charge their customers sales-tax, which has resulted in those on-line businesses leaving the state.  He concludes with this:

According to the Tax Foundation, Illinois has not only the fourth-highest combined national-local corporate income tax in the nation but also in the industrialized world. In Peoria, Doug Oberhelman, chief executive of Caterpillar, has told Illinois Gov. Pat Quinn that he is being “wined and dined” by other governors and their representatives encouraging Caterpillar to invest in their states.

It recently picked Muncie, Ind., for a major manufacturing plant. Says Indiana Gov. Mitch Daniels of his neighboring state, “It’s like living next door to ‘The Simpsons’ — you know, the dysfunctional family down the block.”

A study by the Illinois Policy Institute, a market-oriented think tank, concludes that between 1991 and 2009, Illinois lost more than 1.2 million residents — more than one every 10 minutes — to other states. Between 1995 and 2007, the total net income leaving Illinois was $23.5 billion. The five states receiving most refugees from Illinois were Florida, Indiana, Wisconsin, Arizona and Texas. Two are Illinois’ neighbors, three have warm weather, two — Florida and Texas — have no income tax. In January, a lame-duck session of Illinois’ legislature — including 18 Democrats who were defeated in November — raised the personal income tax 67 percent and the corporate tax almost 50 percent. This and the increase — from 3 percent to 5 percent — in the tax on small businesses make Illinois, as the Wall Street Journal says, “one of the most expensive places in the world to conduct business.”

via Working up a tax storm in Illinois – The Washington Post.

The issue isn’t so much lame ducks as golden geese.

Where your taxes go

President Obama, in his State of the Union Address, said that taxpayers would soon be able to access an online “receipt” to show what all your taxes are paying for.  That site is now up, and it’s kind of interesting:  Your 2010 Federal Taxpayer Receipt | The White House.

HT:  Mary J

Who pays taxes?

A news story in the Washington Post follows the Democratic party line in complaining that the rich don’t pay their fair share of taxes.  But notice how the facts get in the way of the thesis!

As millions of procrastinators scramble to meet Monday’s tax-filing deadline, ponder this: The super-rich pay a lot less in taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The top income tax rate is 35 percent, so how can people who make so much pay so much less than that in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college and even for paying other taxes.

The top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank. . . .

The sheer number of credits, deductions and exemptions has Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate to 25 percent from 35 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Obama said last week that he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama’s proposal would result in $1 trillion in tax increases over the next 12 years.

The proposals from the GOP and Obama included few details, putting off hard choices about which tax breaks to eliminate.

In all, the tax code is filled with $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the independent national taxpayer advocate within the IRS.

More than half of the nation’s tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.

Obama wants this to change so “the amount of taxes you pay isn’t determined by what kind of accountant you can afford.” . . .

The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.

via For richest, federal taxes have gone down; for some in U.S., they’re nonexistent – The Washington Post.

So it turns out that the rich already pay taxes at a rate nearly twice that of the average, that the top 10% in income already pay half of the nation’s taxes, that the top 5% already pay 44% of those taxes, and the 45% of Americans who pay nothing at all are not the wealthy but poor and middle income people!

Isn’t it a bad thing for so much of the government’s income to come from only 5% of its citizens?  And that nearly half of Americans cannot claim the stakeholder status of “taxpayer”?  Not that I begrudge anyone’s good fortune in getting tax breaks, but if taxes should be raised (not that I think they should be), shouldn’t those who don’t pay any get targeted before people who are already paying half of the government’s income?

As a matter of principle, shouldn’t everyone chip in something, if only a couple of bucks?  When the topic is tax fairness, isn’t it unfair for a few to pay so much, while so many pay nothing?

Full faith and credit

Remember how government bonds have been considered a sure investment because they are backed by  “the full faith and credit” of the United States of America?  Well, the Standard & Poor bond rating agency is having its doubts about what our government’s “full faith and credit” is worth:

S&P changed its outlook on the United States from “stable” to “negative” and said the federal government could lose its AAA rating if officials fail to bring spending in line with revenues.

The AAA rating identifies the United States as one of the world’s safest investments — and that has helped the nation to borrow at extraordinarily cheap rates to finance its government operations including two wars and an expensive social safety net for retirees.

Stock prices fell nearly 2 percent in the hours after the report’s release, before ending the day down about 1 percent. The dollar and Treasury bond also slid in the wake of the report, but recovered by the end of the day.

via S&P lowers its outlook on U.S. debt; stocks decline – The Washington Post.

Spillionaires

A new word for people who got rich from British Petroleum from the oil spill in the Gulf:

The oil spill that was once expected to bring economic ruin to the Gulf Coast appears to have delivered something entirely different: a gusher of money.

So many people cashed in that they earned nicknames: “spillionaires” or “BP rich.” Others hurt by the spill wound up getting comparatively little. Many people who got money deserved it. But in the end, BP’s attempt to make things right — spending more than $16 billion so far, mostly on damage claims and cleanup — created new divisions and even new wrongs.

Some of the inequities arose from the chaos that followed the April 20 spill. But in at least one corner of Louisiana, the dramatic differences can be traced in part to local powerbrokers.

To show how the money flowed, ProPublica interviewed people who worked on the spill and examined records for St. Bernard Parish, a coastal community about five miles southeast of downtown New Orleans.

Those documents show that companies with ties to parish insiders got lucrative contracts and then charged BP for every possible expense. The prime cleanup company submitted bills with little or no documentation. A subcontractor billed BP $15,400 per month to rent a generator that usually cost $1,500 a month. Another company charged BP more than a $1 million a month for land it had been renting for less than $1,700 a month. Assignments for individual fishermen also fell under the control of political leaders.

“This parish raped BP,” said Wayne Landry, chairman of the St. Bernard Parish Council, referring to the conduct of its political leadership. “At the end of the day, it really just frustrates me. I’m an elected official. I have guilt by association.”

via ‘Spillionaires’ are the new rich after BP oil spill payouts – The Washington Post.

Would it be fair to say that the environmental damage from the oil spill was much less than it was hyped up to be, and that BP was the victim of extortion?

Spain’s Postmodern Socialism

A discussion of Spain’s financial woes blames in part Prime Minister Zapatero’s postmodernist worldview:

Economists both inside and outside of Spain had been warning for many years that the country’s construction boom was unsustainable, and that urgent measures needed to be taken to diversify the economy and to make it more competitive.

Instead, Zapatero wasted valuable time and energy denying that there actually was a problem. Spanish Socialists, like many postmodern relativists, believe that all problems are by definition imaginary and can be wished away by avoiding negative thoughts. In an effort to downplay the scale of Spain’s economic troubles, the Socialist government has established a seven-year track record of using an arsenal of postmodern euphemisms to avoid unpleasantries and to create a virtual Spanish reality.

In an interview with the Socialist mouthpiece El País, for example, Zapatero famously asserted that the idea that Spain was actually in trouble was “opinionable” and said that “it all depends upon what we mean by crisis.” He said that those warning about an impending economic crisis were being “unpatriotic” and that such talk was a “fallacy, pure catastrophism.” Zapatero also warned: “Let’s not turn economic forecasting into a fetish.” Think positive, he said: “To be optimistic is something more than a rational act. It is a moral requirement, an act of decency and, if I may say so, elegance.”

After Zapatero was finally badgered into using the word “crisis” in a late-night television interview, when a journalist read him the word’s dictionary definition, his government tried to pin the blame for Spain’s self-inflicted economic woes on a foreign scapegoat. Spain’s industry minister said Spain was facing an “imported problem.” The deputy prime minister blamed Spain’s problems on “radical liberalism,” which in euro-speak means the free market. The labor minister blamed “the neo-conservative thinking preached by U.S. President George W Bush, which has resulted in capitalism without ethical limits.” Zapatero himself blamed “the neo-conservative model based on capitalism without borders nor limits nor ethics.”

In February 2010, Zapatero blamed Spain’s economic crisis on an “Anglo-Saxon” conspiracy and ordered his country’s intelligence agency, the National Intelligence Center (CNI), to investigate whether the Americans and Britons were conspiring to undermine the Spanish economy. . . .

Up until the austerity measures recently foisted upon Spain by international investors, one of Zapatero’s main diversionary tactics had been to try to shield Spanish voters from exposure to the reality of market economics. In doing so, he has gone on a seven-year spending spree that has left Spain deeply in debt.Just one example: Zapatero’s 2008 re-election promises totalled €22 billion, or a whopping 2.1 percent of Spain’s GDP. For the 1.7 million Spaniards eligible to vote for the first time, for example, Zapatero promised rent subsidies, and for the under-30s he promised to build 150,000 low-cost homes. In a bid for the female vote, he proposed that working women should pay less tax than men. And for low wage earners, he promised to exempt them from paying income tax altogether.

Zapatero also promised to raise pensions and the minimum wage, to create 300,000 new child care slots, to increase autonomy for the region of Catalonia, to financially compensate companies that adapt their working hours to those of schools, and to provide new fathers with one month of paternity leave.

In an effort to reverse Spain’s demographic crisis, Zapatero launched the so-called “cheque bebé,” a government scheme to bribe Spanish parents into having children by paying them €2,500 ($3,500) for every newborn baby. As a sop to the environmentalist greens, Zapatero also promised to plant 45 million new trees (at one for each Spaniard, the Socialists will have to plant 30,821.9 trees every single day for the next four years). Another €3.5 billion would go towards the postmodern-sounding “Liberty, Coexistence and Rights in a Globalized World.”

via Pajamas Media » How Postmodern Socialism Destroyed Spain.

Is this happening here?


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