Out of Control

If there was any silver lining to the global food price crisis, it was that countries around the world started tearing down long-standing trade barriers such as tariffs and quotas against food imports. But that silver lining proved short-lived as another threat to free trade emerged: export bans and export taxes on domestic food.

To return soaring food prices to earth and placate irate consumers (read: voters): India announced a temporary ban on some varieties of rice; China slapped export taxes on rice; Pakistan imposed a 35 percent duty on wheat; and Russia quadrupled wheat-export taxes to 40 percent.

But the problem with such measures is that the relief they provide will be temporary – and the pain they cause more enduring. Why? Farmers who can’t command the market price for their produce will have little incentive to invest in yield-enhancing technologies, making it much harder for food production to catch up with demand. Farmers will certainly lose out -- but so will consumers.

The only country that seems to understand this is South Africa which has refused to jump on the export-ban bandwagon. “We don’t believe banning exports will help us in the long run,” noted Lulu Xingwana, the South African agricultural minister.

Bonus:
Check out Noble laureate and Chicago econ prof Gary Becker's brilliant analysis of the Malthusian fallacies underlying the discussion of this issue here.

California's Assembly approved $5.3 million spending on salmon fisheries. Doesn't sound to horrible in isolation, but. . . .

1. California is wrestling with a $14-20 BILLION budget deficit. Time for hard core prioritization.

2. The money to be spent comes from a water infrastructure bond approved in 2006. So the idea is to use debt to pay for a programatic expense, not for infrastructure. So we can pay interest on a one-time expenditure and benefit. Brilliant.

From Dale Gieringer:

DEA raids on California's medical marijuana dispensaries are costing the state's taxpayers millions of dollars in lost revenues, according to records collected by California NORML.

The DEA has not only closed facilities that were paying millions of dollars yearly in sales taxes, but also seized as much as $450,000 in sales tax payments that were in transit to the state Board of Equalization.

The tally includes a $348,078.49 bank transfer to the Board of Equalization stopped when the DEA raided and seized the bank account of an Alameda County medical marijuana dispensary October 30, a $51,935 check to the state BOE that bounced when the DEA seized the bank account of a Kern County dispensary in May, and others.

Keep in mind, those figures are only account for medical marijuana dispensaries lawfully filing state taxes--or at least attempting to!

In November, California Attorney General Jerry Brown claimed that the state had eradicated $11.6 billion worth of marijuana in the last year, some 2.9 million marijuana plants grown under conditions presumed illicit. The dollar value in the case of black market marijuana is likely exaggerated--the state's figures generally count worthless seedlings and mature plants alike--but it is still a sizeable crop (California's wine grape harvest is worth about $3 billion annually). Mendocino County supervisors have considered adding marijuana back into their annual agricultural report in order to shed more light on the subject.

Further reading: Jon Gettman's October publication, "Lost Taxes and Other Costs of Marijuana Laws," provides a national perspective on the theoretical value of marijuana taxes, and Dale Gieringer and Richard Lee estimated the tax value of California's medical marijuana market for Oakland's Measure Z Oversight Committee a year ago.

Oregon voters defeated a tobacco tax proposal billed as an expansion of children's health coverage in yesterday's election. The relevant question for similar plans at the national and state level is, what motivated voters? (We'll assume not all of them read our analysis of the measure.) Generally speaking, tobacco taxes poll well despite the (perhaps grudging) sympathy that Americans still have for smokers. A few polls, including one last August, showed a majority of voters favoring the Oregon tax proposal. Gov. Ted Kulongoski, who championed the measure (though, with his own approval ratings relatively low, he might not have been much help) blames the fact that his campaign was outspent by tobacco companies. From the Bend Bulletin:

“The governor is saying that this is not a vote about whether Oregonians want health care for kids,” said Kulongoski spokeswoman Patty Wentz. “It’s a vote you get when the tobacco industry puts in $12 million, and it will not change the fact that health care for kids is his top priority.”

“It was unprecedented,” said Cathy Kaufmann, manager for the Healthy Kids Oregon campaign. “That $12 million was twice as much as you need to confuse Oregon voters.”

Setting aside the low blow from the campaign in favor of the tax--that it only takes $3 each to confuse Oregon's registered voters--I'd like to think Kulongoski has it right on at least one point. The vote wasn't "against the children" but against a funding mechanism that sidestepped taxpayer protections in the Oregon Constitution and seemed otherwise contrived and unfair at a basic level.

Did the TV ads, accounting for the bulk of campaign spending, help "confuse" or educate Oregon voters? Some of the ads on both sides didn't even mention that the measure was a tobacco tax. See samples for and against and judge for yourself.

Just when you thought telecom services were getting a break from taxation (The House approved the Senate's version of the moratorium taxing Internet services Tuesday, extending it seven years instead of four), along comes the Cook County, Ill., Commission with a proposal to stick a $4 tax on every phone line in the county, which takes in Chicago and its inner ring of suburbs.

It isn't often that AT&T and the Citizens Utility Board (CUB), Illinois' consumer watchdog group, agree. But both think the tax is egregious. The Illinois Chamber of Commerce and social activist groups such as the Ministerial Alliance Against the Digital Divide have also denounced the tax, which stands to add $20 a month in phone taxes to the average household, when landlines, cell phones, faxes and dial-up Internet are factored in. Plus the tax is indexed to inflation, so its only going to get higher each year.

Jon Van of the Chicago Tribune covers the story here. My favorite quote comes from Doug Whitley, president of the Illinois Chamber of Commerce and former head of Ameritech Illinois, who attests to the growth of government and how it tries to hide the consequences of spending in taxes likes these. "The philosophy is to hide the true cost of government by making the consumer think he's got a high phone bill," he said.

Accordign to this Financial Times artilce high food prices have dramatically reduced the amount governments around the word are paying to farmers in subsidies.

Great! Saving the government money, glad to hear it. I am not holding my breath for a tax refund check. Wonder where they will spend it instead . . .

In what has become an all-too familiar national trend, Oregon lawmakers are angling to expand children's health coverage with a tobacco tax increase. A new Reason Foundation policy brief raises serious questions about the tax proposal, Measure 50, which would break precedent by asking voters to approve the tax as a constitutional amendment on the November 6 special election ballot--thereby avoiding the three-fifths majority vote that supporters failed to raise in the legislature earlier this year. As always, the uncomfortable paradox of taxing nicotine addicts to fund children's programs should be evident: how many of today's children will need to smoke to make sure that tomorrow's children have health coverage?

In a recent editorial in The Regal Courier, Cascade Policy Institute senior analyst Steve Buckstein predicts:

Measure supporters will find themselves torn between two conflicting goals. Fewer smokers will make supporters happy, while less money for kids’ health insurance will make them sad, or will it? The unspoken truth here is that once the Healthy Kids Plan is in place, it may make no difference to supporters whether there is enough tobacco tax money to fund it or not. Any shortfalls simply will lead to cries for other funding sources to feed a program that by then will be firmly embedded in our state’s bureaucratic infrastructure.

In DC its time for that staple of American farming---pork. Despite the higher food costs we all pay and the environmental damage wrought by doing the wrong crops in the wrong places, our crazy agricultural policies march on. And subsidies are at its heart.

My favorite joke about it is: "I saw an employee at the Agriculture department clearing out his desk today. He had to go, his farmer died."

Tracy Mehan has fun article on ag policy silly season it here. He opens with the joke:

"How does a farmer double his income?"

"Get a second mailbox."

My favorite part of the article is:

Apologists for the status quo make three arguments. First, everybody does it. Second, we have the votes in Congress. Third, all this federal largesse is necessary to protect the safest, healthiest food supply in the world. The reader can judge the first and second claims, possibly recalling the fundamental moral lessons your mother told you when you were young.

As to the third, the answer is quite simple. If you withdrew federal subsidies you would have fewer, more efficient, more productive farmers -- not less food.

A Missouri court reportedly is close to a decision on whether the state is entitled to some $500 million in taxes from wireless phone service providers.

The case pits AT&T against 22 Missouri cities, and is one of a several suits between wireless carriers and Missouri municipalities that form a larger legal dispute dating back to 2001. The cities argue wireless carriers are legally liable for a utilities licensing tax that is paid by the state’s landline telecom companies. The cellular companies claim they are not utilities as defined by Missouri and should be exempt.

At stake is an estimate $500 million in taxes, plus interest and penalties that could add hundreds of millions of dollars to the bill, according to the Wall Street Journal, which referenced the Missouri Municipal League as the source.

But it is questionable whether wireless service, a deregulated, competitive business that relies far less on public easements and right-of-way than landline phone networks, really qualifiy as “utilities.” But far be it from the local tax man to shy away from stretching a definition, especially as more users migrate to wireless.

Here’s a snippet from Chad Garrison writing on the Stlog at the St. Louis Riverfront Times.

Moreover, as consumers have canceled their landline phones for wireless service, many cities have seen their tax base drop dramatically. Mulligan says University City collected nearly $800,000 in telecom taxes in 2000. Last year the city collected less than $500,000. Statewide, Mulligan estimates the amount of disputed or back taxes involving cell phones now reaches more than a half-billion dollars.

A ruling is pending from St. Louis County Circuit Court Judge Bernhardt Drumm Jr. on a motion for summary judgment in the AT&T lawsuit. On Sept. 12 Drumm is scheduled to decide whether the case merits class-action status. If it does, it would automatically include more than 200 other municipalities.

Aren’t wireless customers are already overtaxed as it is?

“Our customers are tired of having state and local governments treating them like ATM machines, so we are fighting on their behalf,” John Taylor, a Sprint spokesman, told the Wall Street Journal. He noted the average Sprint customer pays 17 percent of their bill in taxes.

A May 2007 study of telecom taxes published by the Heartland Institute that surveyed 59 U.S. cities found the average tax rate on wireless services was 11.78 percent. This ranged from 21.35 percent in Omaha, Nebraska to 3.62 percent in Carson City, Nevada. The wireless tax rate in Kansas City, Missouri, the only Show-Me State city examined in the Heartland study, was 10.14 percent.

The Michigan House of Representatives has proposed a public safety surcharge of $1.35 on all phone bills to fund a variety of law enforcement programs, most of which have little to do with telecommunications.

In a state that, according to the Tax Foundation, ranks 12th in the nation in tax burden per dollar of state gross domestic product, where businesses are assessed a hefty tax simply for the privilege of doing business in the state, and where, separately, legislators are proposing an increase in the state income tax, telecommunications had been one of the few areas where residents got a break.

It was nice while it lasted. The bill, HB 4852, would raise all landline and wireless phone bills by at least $1.35. Since the bill’s language calls a tax on each “user,” it is unclear as to whether the surcharge will be assessed per account or per line. If the latter, a family with two conventional phone lines and four cell phones will have to pony up another $8.10 a month. For a Michigan business, it would amount to a head tax on every mobile employee in its organization.

The bill’s title is as misleading as it is cumbersome. Just 24.4 percent of collections from the so-called Emergency Telephone Service Enabling Act will fund emergency telecommunications. Less than 1 percent will go to the 911 non-emergency division. The remaining three-quarters will fund the Forensic Science Division of the Michigan State Police, the Traffic Law Enforcement and Safety Fund, a state criminal justice information system, and the Michigan Commission on Law Enforcement Standards among other agencies.

Some of these services are critical, and it’s often politically difficult to appear to be against “public safety.” But the bigger question is why Michigan, as one of the most heavily taxed states in the country, still finds it necessary to impose special taxes to fund police and fire services. What’s really needed is more discipline in state spending so basic public safety services, which general tax revenues are supposed to fund, don’t go begging.

See the text of HB 4852 and more comments at the Michigan Votes Web site here.

A new report from the Tax Foundation finds that Senator Gordon Smith’s (R-OR) proposal to raise the federal excise tax on cigarettes would cause a majority of states to lose big. Sen. Smith’s intention, to increase funding for the State Children's Health Insurance Program (SCHIP) through raising cigarette taxes by $1 a pack, would actually hurt the households it purports to help.

The report finds that 30 states will face a net negative fiscal impact. Not surprisingly, Smith’s state, Oregon, is not among them.

While trying to help the poor, Smith and co. neglected to internalize the fact that smokers have a very large presence among those below the poverty line, thus directly burdening the exact group the legislation is supposed to benefit.

The Tax Foundation even concludes that increased levies on income would be more effective:

If SCHIP expansion were funded by an across-the-board increase in federal income taxes, low-income families would be much better off as a whole, and the net fiscal redistribution from high-income states to low-income states would be greater.

The solution is crystal clear: abandon Sen. Smith’s legislation and increase tobacco subsidies. Right?

For more from Reason on the government’s affinity for taxing tobacco check out this, this, and this.

Today, Senate Republicans Defeated Big Labor's Card Check bill today; the motion failed to proceed 51-48. If the bill had passed it would have stripped workers of their right to a private, federally-supervised election when it came to deciding on union representation. Under the proposed Card Check system, there wouldn't even be an election. A union would have been organized if 50%+1 simply signed a card stating that they wanted a union. Imagine employers, union organizers and/or co-workers surrounding you and saying, "Just sign the card, sign the card."

USA Today reports today that state revenue growth is sluggish. Collections only grew by 4.4% in the first quarter of the year, the slowest rate since 2003.

Of course the real issue isn't that revenues are off its that spending is through the roof, again. "Spending rose 7.6% in the first quarter, the highest rate since 2001. Medicaid spending, which had unexpectedly declined last year, has taken off again, rising 9.2% in the first quarter. That's the highest quarterly growth rate for the health care program in almost a decade."

State's additicion to spending runs deep -- despite strong growth over the past few years, many states have continued to increases taxes. This is especially true of so called "sin taxes." At least a dozen states entertained a cigarette tax increase, again.

While some states still have surpluses from previous strong growth if they don't change their spending plans (and they never do) we can see the tax man knocking on our door again...especially if a slow down in the economy doesn't coincide with a slowdown in state spending we're in real trouble.

The Texas legislature took long overdue steps to ease some of the tax burden on consumers, voting last week to end the Telecommunications Infrastructure Fund (TIF). The TIF repeal will save Texans $200 million a year, Bill Peacock, Director of the Center for Economic Freedom at the, told me. The only remaining point to be hammered out in a House-Senate conference is whether the tax will sunset this year or in 2008. Texas Gov. Rick Perry, who supports the repeal, is expected to sign it.

The Texas Public Policy Foundation notes the history of the Texas TIF in a statement applauding the legislature’s action.

The TIF was created in 1995 as a 10-year project to extend high-speed Internet infrastructure to schools, libraries, and hospitals. The TIF’s funding came from a 1.25% tax on phone bills that was to automatically expire in 2005. In 2003, the Legislature determined that the TIF’s mission was complete, but rather than canceling the tax, it transferred the funds collected into a technology allotment for public education. In 2005, the Legislature extended the tax again, depositing the proceeds into the state’s general revenue account.

In a recent survey of 59 cities for which tax data was available, Dallas and Austin ranked third and fifth in terms of highest overall telecom tax burden, according to a new report from the Heartland Institute which I co-authored. Here’s hoping the TIF repeal may help knock both cities down a few places on this dubious honor roll.

Check out this witty commentary from London's 18 Doughty Street.com. Taxes are taxes, no matter what side of the Channel you are on.

Cable TV, wireline and wireless phone calls on average are taxed at twice the rate of other goods and services, according to a research report released today by the Heartland Institute.

The high tax rates on telecom services no doubt come as no surprise to anyone who has signed up for a $49.99 calling plan only to see it morph into a $56 to $65 bill come month’s end.

The report, Taxes and Fees on Communication Services, written by David Tuerck and Paul Bachman of the Beacon Hill Institute of Suffolk University; and financial analyst John Rutledge and myself, finds that nationally, the average rate of federal, state and local taxes, surcharges and fees on telecom amounts to 13.52 percent, more than two times the average sales tax of 6.5 percent Americans pay. That translates to an average telecom tax of $250 a year from every household, compared to $124 paid in retail sales taxes. All told, telecom taxes soak up $37 billion from the economy every year.

Perhaps the real question to ask about the so-called “digital divide,” isn’t how to address it, but whether it exists at all, at least when it comes to rural telecommunications.

Universal service came up during two policy sessions at the National Conference of State Legislatures' Spring Forum in Washington this week. And comments and presentations left me wondering to what extent rural America was “underserved.”

During Friday’s session “Local Competition in Local Telecommunications: Do Americans Have a Real Choice?” (as an aside: all the evidence presented points to the answer as a resounding “Yes!”), Brian Ford, policy analyst for OPASTCO, the trade group that represents some 520 small rural telcos, said some 90 percent of its membership is offering broadband Internet. And that group of 90 percent makes broadband available to 90 percent of their customers. In addition, half of the OPASTCO membership is offering wireless services and half (not necessarily the same or opposing half) are offering video.

This nice article breaks it down.

Here’s a statistic that combines two of April’s most significant annual events, baseball’s Opening Day and the tax filing deadline: All the people who combine to pay 30 percent of all income taxes paid in California could easily fit into Dodger Stadium.

Of course, there would be a lot of grumbling from those who didn’t get a luxury box.

To be sure, these are people accustomed to sitting in luxury boxes. They are the 37,837 tax filers who reported adjustable gross incomes of more than $1 million. They represent 0.4 percent of all tax filers in California. Combined, they paid $10.8 billion in state income taxes, or 30 percent of the total.

These figures are from the most recent annual report released by the Franchise Tax Board and cover the 2004 tax year. The new figures reinforce a truism about California’s progressive income tax structure: It’s the rich who pay taxes.

These mythical Dodger fans (perhaps bluebloods really do bleed the Dodger team color) represent only the thinnest slice of the pie. The Tax Board calculates that the top 1 percent of taxpayers paid 42.7 percent of income taxes in ’04, up from 38.8 percent in 2003.

Cut a bigger slice still, and you find that the top 5 percent paid 64.3 percent of income taxes.

In my post yesterday on the Gov's budget = bullshit I was just pissed about his lying about it being balanced.

George P. and I dissect the budget proposal and its failings in more detail over at California Political News and Views. Lies about it being balanced are the least of its ills.

Dan Clifton at American Shareholders Association put out some great stuff on how tax cuts are accounted for in federal budgeting...and how they're always wrong.

"The Joint Committee on Taxation forecasted the 2003 capital gains tax cut would “cost” the Federal Treasury $5.6 billion through fiscal year 2006. The new numbers today showed the federal treasury received an “unexpected” $133 billion of capital gains tax collections through 2006. Capital gains tax collections in FY 05 and FY 06 were nearly double the initial forecast. Policymakers who believe they can generate tax revenue to the federal government by raising the capital gains tax are simply mistaken."

You can see Dan's full analysis here.

Greg Mankiw’s Piguo Club—named after the economist A.C. Pigou who pioneered the use of taxes and subsidies to correct externalities—is getting plenty of pub. In fact, one day Mankiw may be more famous for his Piguo Club than for being the guy who took a (horribly unfair) drubbing for defending offshore outsourcing.

Anyhow, Russell Roberts does not Pigou. Here he sounds off on the prospect of raising the gas tax and links to a podcast where he explores the issue with Mankiw.

Key nugget:

It would be naive to argue that we shouldn't worry about pollution because people will feel guilty polluting and that will discourage pollution. Similarly, it strikes me as naive to encourage government to solve the pollution problem via a gasoline tax if you know that the level of the tax will be set wrong and that the money will be badly spent.

Related: Why I prefer tolls to taxes

The state's pension share went from $160 million in 2000 to an estimated $2.6 billion in 2005. In California in 2006 there was about $5 billion in expenditures taken directly out of operating budgets to help pay for retirement healthcare for public employees, said Steven Frates of the Rose Institute of State and Local Government. "By 2019 we expect that number to reach $30 billion," he said. "That's more money than the state spends on public safety."

. . .

Some governments are thinking about cutting back retiree benefits to help balance the growing debt. Another solution would be for unions like CalPERS to think about making the transition to contribution based benefits packages, such as 401K. That is what most businesses in the private sector offer.

. . .

Until then the debt can only be covered by selling government property, cutting services -- which has already begun -- and raising taxes.

Full story here.

Last month CA voters approved a stunning $40 billion in new debt. Reason pointed out the financial insanity of this. Now Steve Frank at CPNV is doing a great job keeping track of the consequences.

Government Can’t get Enough Money...More Big Bonds in 2008?

State Revenue Down by $657 Million In November

Special Interests Lobbying to Increase Size of California Deficit

The formula is really very simple. CA already spends more than comes in. We are borrowing billions that has to be paid back with interest. We are unwilling to take a hard look at our spending and prioritize and make cuts were necessary and sensible. All this only adds up to one thing--tax increases. At some point it will finally come home to roost, and the false choice will be presented to Californians--tax hikes or cuts in the most emotionally appealing government programs. No discussion of doing the hard work of managing an organization within a budget will occur. Then we'll see if the taxpayers can be fooled again. I hold out little hope since they have a track record of believing the false choice.

An article of mine from TCS Daily:

To many, George W. Bush is a dimwit who stands in the way of progress. Take the gas tax. Many smart people want to raise it. Even former Fed Chairman Alan Greenspan, a man of the right whose every utterance commands the world's attention, recently added himself to the list. But W. folds his arms and refuses to budge. It may look like obstinence, but this time the cowboy president may be on to something.

Whole thing here.

Voters in South Dakota turned down a proposition that would have eliminated the state’s 4 percent gross receipts tax on cell phone service. Initiated Measure 8, was defeated by a margin of 61 to 39 percent.

Opponents raised concerns that loss of the tax would cut off revenues to local governments and would result in tax increases elsewhere, even though the tax itself raised only $8.5 million last year, of which just 40 percent ($3.4 million) gets passed through to local governments, according to www.votesmart.org, a non-partisan voter information Web site. Given that South Dakota’s total state budget for 2005 was $2.35 billion, and its proposed budget for 2006 was $2.57 billion, a hike of some $220 million, you think that with a little work, someone could have found way to cut a measly $8.5 million, which represents less than 4 percent of the 2006 increase and three-tenths of 1 percent of the overall state budget.

Reason has teamed up with Americans For Prosperity and the Pacific Research Institute and hit the road today on the California Taxpayer Trust Tour. We are hitting a number of locations around the state this week to highlight some of the absurdities of state spending--from the beach house in Malibu to thousands of missing state vehicles.

At our Sacramento kick-off this afternoon, we highlighted the scandal over Rob Reiner and the First Five organization using tax money to promote universal preschool while Reiner was leading an effort to put a state funded universal preschool program on the budget.

Our point on the tour is essentially to point out to folks that we all know the state is not managing the tax money we already send them well. Reason's Citizen's Budget identified $30-40 billion in savings from the state budget, and the California Performance Review by state employees identified over $30 billion savings. But the state's leaders are not interested in how to do better with current funds. They are interested in getting more of our money. So in November we face initiatives for 5 bonds and 4 new taxes. In the best of circumstances Californians should be skeptical and more debt and newer taxes. Given the wasteful "lowlights" we are reminding people of on the Taxpayer Trust Tour, the potential savings that are on the table, we should be demanding that state leaders do their job and make much better use of the taxes we already pay.

A while back I pointed to this NYT piece that suggested that, except for the likes of dopey W, almost everybody is on board with hiking the gas tax. Now WaPo uses the same narrative:

raising taxes on gasoline or crude oil. Economists and policy experts across the political spectrum think it's a good idea. And with gasoline prices falling, now might be the perfect time to do it without eliciting cries of pain from U.S. drivers who have become somewhat accustomed to high fuel prices.

But on the long road to a new energy policy, the idea of a higher gasoline or crude-oil tax is just another bit of roadkill.

And if the NYT’s parade of smarties wasn’t enough for you, here’s another one for the list:

Kenneth S. Rogoff, a Harvard economics professor and former chief economist of the International Monetary Fund. "A sharp hike in energy taxes on gasoline and other fossil fuels would not only help improve the government's balance sheet, but it would also be a way to start addressing global warming."

Even the Wall Street Journal gets in on the act by publishing a piece by former Bush economist Greg Mankiw:

With the midterm election around the corner, here's a wacky idea you won't often hear from our elected leaders: We should raise the tax on gasoline.

Piece reprinted here.

Some of my arguments against the hike here.

The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services like education and public safety.

This opens an good AP story on what is destined to be the next classic story on the pathology of government's incentives to get things wrong. Some tidbits:

"A surprising number of public entities didn't even make informal estimates of long-term costs prior to the new accounting rules," Whitworth said.

. . .

"When the numbers are produced, they're going to be shocking," said Ronald Snell, director of state services for the National Conference of State Legislatures. "They'll be in the hundreds of billions, and it's definitely something that policy-makers are going to have to take notice of and act upon. ... There are consequences of decisions made in the past."

I'll say. It is always tempting for today's politicians to make decisions that create benefits now and push the costs off to the future. And we are learning just how many of them succumb to that temptation.

Leave it to Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University to meticulously document and qualify what many of us have long-suspected—that the Universal Service Fund (USF) encourages rural phone companies to keep costs high. The more they spend, the more subsidies roll in, to the tune of $7 billion a year. Competing technologies that would drive down real costs of providing service, and relieve the USF burden on ratepayers, don’t have a chance in this regime.

Hazlett’s 91-page paper dissects the inefficiency of the USF concluding that its processes, which ignore current telecom market realities such as wireless and VoIP, actually undermine the “Universal Service” mission. Funds rarely find their way into the hands of those who truly need them, instead, they flow directly to the coffers of small and mostly rural phone companies, some in quite wealthy areas, like Jackson Hole, Wyo., where they act largely as huge reimbursements for hefty infrastructure investments, the necessity of which are never adequately reviewed.

Apparently, only now is the US government confident enough in the outcome of the Spanish-American War to nix the luxury tax implemented to finance victory.

The brief Spanish-American War ended more than a century ago, but not the federal tax assessed to fund the victory.

Until now.

On Thursday, the U.S. Treasury said it would stop collecting the 3% federal excise tax on long-distance calls, a fee originally assessed in 1898. The government also said it will issue refunds requested by consumers and businesses that paid the fee over the past three years. Taxpayers will be able to request refunds when they file 2006 tax returns in early 2007.

The Treasury also said the Justice Department would cease litigation in support of the tax after a handful of federal appeals courts ruled the fee illegal in decisions rendered within the past year. The most recent loss in federal court occurred earlier this month.

"The Federal Appeals courts have spoken across the board," Treasury Secretary John Snow said in a statement. "It's time to 'disconnect' this tax and put it on the permanent 'do not call' list."

... In announcing his decision, Treasury Secretary Snow also called on Congress to eliminate federal taxes on local phone calls. That tax is separate from the long-distance fee.

Full story here.
U.S. Treasury Department Press Release here.

Even amidst a strong economic expansion, the most recent census data reveal a renewed migration out of our urban centers. This gives considerable lie to the notion, popularized over a decade, that cities are enjoying a historic rebound. The newest figures are troubling on two accounts. Not only are the perennial losers -- Baltimore, Philadelphia, Cleveland and Detroit -- continuing to empty out, but some of our arguably most attractive cities, like Boston, San Francisco, Minneapolis and Chicago, have lost population since 2000. Even New York, where foreign immigration has managed to counteract large scale outmigration, seems to be slowing down.

Continue reading Joel Kotkin’s article, The Ersatz Urban Renaissance, here.

Bonus bit:

[L]ong-established elite business centers, including Boston, New York and San Francisco, have seen little or no growth in either financial or professional business services since the national recovery began to take shape three years ago. This is in sharp contrast to the late 1990s dot-com boom, which created a sizable, albeit ultimately fleeting, surge in high-end employment. Nationally the economic outmigration also parallels the demographic one. Like people, jobs are shifting from the high-tax, expensive Northeast and coastal California to relatively affordable locales such as Phoenix, Reno, Las Vegas, Ft. Myers-Cape Coral, Fla., Boise, Idaho, and Provo, Utah.

Open most any newspaper’s metro section and sooner or later you’ll find an article that touts the supposed rebirth of various urban centers. Often the authors say empty-nesters just can’t wait to get back to the city. This is true in some cases, but, like the urban renaissance meme in general, it’s overstated.

Consider leisure time. I can’t recall the exact figures, but one of empty-nesters favorite activities is gardening and it’s much easier to tend to the begonias in the suburbs.

The "homeshoring" revolution is already upending the call-center industry, enabling companies like Jet Blue and 1-800-Flowers to staff customer-care operations with people working from their own homes. More than 100,000 people are employed through such arrangements, and the tally grew 20% last year.

Now companies like oDesk are taking the homeshoring concept beyond the call center:

Its success will depend on whether companies are willing to reshape whole businesses, such as IT, design, or writing, that are traditionally staffed at the office. It's a big risk. For one, it's a lot harder to track and monitor people working on what are often longer-term projects, many critical to a company's success, than it is to count how many calls an employee can log in an hour.

oDesk does all sorts of things to build employers’ trust:

The company conducts tests and checks references to ensure applicants know all the languages and skills they say they do. Only about 20% make the cut, oDesk says. The company also uses a self-policing feedback system akin to one pioneered by auction site eBay (EBAY ) that lets prospective workers and employers vouch for each other when they've had a good experience and pan one another if they've gotten swindled. Contractors who get positive feedback have been able to up their monthly rates, oDesk says.

The bigger hurdle to scale was helping companies monitor worker productivity and time management. Companies have a hard time policing employees in the next office over, much less thousands of miles away…

To keep everyone honest, oDesk takes random screen shots of what people are working on every 10 minutes. There's also a Web cam, so employers can physically see whether someone is at their desk, and a log showing how many mouse clicks or keystrokes are made per minute. It's not meant to be unduly intrusive, but rather to give the same degree of privacy -- or lack thereof -- people find in office settings where a manager can easily peer over a shoulder.

Finally, oDesk handles all the billing and payments -- which can get tricky with overseas currency conversions. It takes an employer's credit card before anyone can be hired, and automatically cuts a check to the contractor every week unless the employer objects. Of course, it takes a healthy chunk of that, tacking on 30% to whatever price people charge for their services.

More here.

Related stuff here (bottom half of post for JetBlue’s story).

And might tax policy trip up homeshoring?

This December 2005 piece by CEI’s Marlo Lewis, Jr. if filled with good stuff.

Some nuggets:

Economists Robert J. Shapiro and Nam D. Pham estimate that Senator Byron Dorgan's (D-N.D.) "Windfall Profits Rebate Act of 2005" would reduce the shareholder value of oil company stock by as much as $122 billion … [T]he financial losses from "windfall profits" taxes would be widespread, because mutual funds and retirement accounts hold approximately $267 billion worth—about 41 percent—of oil company stock. …

Oil industry profits are large in absolute terms because the customer base is large. Oil companies sell astronomical quantities of fuel—the equivalent of about 230 million barrels of oil every day. The amount of money they earn per gallon of gasoline sold is relatively small—a profit of 9 cents per gallon in the third quarter of 2005. Although that is almost double the 5 cents per gallon profit they earned in the third quarter of 2004, it is still well below the 18.4 cents per gallon that the federal government collects in gas taxes, or the 44.5 cents per gallon that the State of New York collects. Oil companies achieve multi-billion-dollar profits by making modest returns on gigantic sales volumes—not by "gouging" their customers.
…

According to the Congressional Research Service, the "windfall profits" tax Congress enacted in 1980 diverted $79 billion from potential investment in energy infrastructure, reduced domestic oil production by as much as 6 percent, and increased petroleum imports by as much as 16 percent.

But wait, another mantra of the windfall tax pushers is “energy independence.”

An opinion survey conducted for Colorado DOT (CODOT) finds very strong support for toll express lanes (TELs) in a survey of people within 2 miles of existing tollroads or planned TELs.

78% see TELs as a good way to reduce congestion on Denver area highways, and 66% approve of them as a means of facilitating traffic flow.

68% of those surveyed see tolling as a good way to finance extra capacity, whereas there is strong majority opposition to raising taxes to fund extra capacity.

More here.

Related: DC commuters prefer tolls to taxes

Related: Brits still support road pricing

If we simply divide Exxon Mobil's net income by sales, we discover that the company reported a 10.7% profit margin in the quarter. That's probably a bit above the U.S. industrial average, but it is hardly remarkable.

For instance, the nation's moist prominent critic of "oil profiteering" - Fox News personality Bill O'Reilly — works for a company (News Corp.) that reported a 10.2% profit in the fourth quarter.

If you're after big earners, check out Yahoo (a 45.5% profit margin), Citigroup (33.4%), Intel (24%) or Apple (22.7%).

Returns on invested capital over a longer time frame are even more telling. Analysts at Goldman Sachs found that returns on investment capital in the oil and gas sector from 1970-2003 were less than the U.S. industrial average over that same period. The oil industry would have to earn record profits for some time before it would produce above-average returns for its long-term investors.

Column here.

Those who are peeved about oil industry profits are often left unsatisfied when they ask who sets the price of gas and analysts reply “the market.” Many imagine some cigar-chomping fat cat gleefully setting whatever price he chooses, however:

World crude oil prices - and thus retail gasoline prices — are established in commodity spot markets. Exxon Mobil executives do not plot in back rooms to decide what to charge at the pump. Instead, Exxon Mobil's contracts with its own stations tie wholesale fuel prices to prices in the nearest spot market plus transportation costs.

Likewise, if you sell your house, who sets the price? Sure you could put your railroad-adjacent fixer-upper on the market for $20 million, but no one will buy it. If you really want to sell your house you’ll pay attention to what the market says the price is.

Related: What the Oil Execs Should Have Said

Here’s Don Boudreaux:

Did you know that the modern federal income tax in the United States was a chief cause of alcohol prohibition here (from 1920 through 1933)? … [Prohibition’s repeal] had next to nothing to do with prohibition's ineffectiveness and almost everything to do with Uncle Sam's desperation, in the early 1930s, for additional tax revenue.

More here.

And from Jacob Sullum’s latest column:

How is a mugger different from the Internal Revenue Service? Both take your money, but the mugger doesn't make you fill out forms.

Every year the Tax Foundation calculates the cost of this added indignity. Since it's hard to put a dollar figure on annoyance and anxiety, the Washington-based think tank sticks to estimating the time involved in keeping records and completing returns: some 6 billion hours in 2005.

The group's analysts multiply these hours by the average hourly compensation for professional tax preparers or, for the share of taxpayers who file their own returns, the average hourly compensation for U.S. workers. The resulting figure represents the cost of complying with the federal income tax, which the Tax Foundation projects will be $279 billion this year.
…
Not surprisingly, compliance costs have increased as the tax code has become more complicated. The number of words dealing with income taxes in the Internal Revenue Code and IRS regulations rose nearly tenfold between 1955 and 2005, from 718,000 to more than 7 million.

Seems like a good time to visit the The Wine Commonsewer. He’ll give you tax advice and then sooth the pain with a nice pinot (actually he probably won't supply you with the good stuff but he can make recommendations).

The Washington Post reports:

U.S. states may find that what it costs them to provide medical care for retired state employees will dwarf how much they pay for their retirement benefits, according to a new report.

and

State and local governments now face grim choices, such as raising taxes, cutting spending or benefits or setting aside dollars now. . .

The article is based mainly on a new report from the Rockefeller Institute of Government. Given the crushing impact pension obligations are already having, the news emerging that medical benefit obligations are even larger paints a truly ugly picture.

The Tax Foundation released their 3rd Annual State Business Tax Climate Index today:

The ten states with the most business-friendly tax systems this year are: Wyoming, South Dakota, Alaska, Florida, Nevada, New Hampshire, Texas, Delaware, Montana and Oregon.

This ranking comes from the third edition of the Tax Foundation’s State Business Tax Climate Index, by Foundation economist Curtis S. Dubay and Scott A. Hodge, President of the Tax Foundation. The study ranks the 50 states on how “business friendly” their tax systems are, providing a roadmap for state lawmakers concerned with keeping their states tax-competitive. [...]

“Every one of the best tax systems raises sufficient revenue without imposing at least one of the three major state taxes—sales taxes, personal income taxes and corporate income taxes,” said Dubay.

The ten states with the least hospitable business tax climates are: New York, New Jersey, Rhode Island, Ohio, Vermont, Maine, Kentucky, Nebraska, Iowa and Arkansas.

“States do not enact tax changes in a vacuum,” said Hodge. “Every tax change will affect a state’s competitive position relative to its neighbors, as well as globally.”

The press release is here, and the full report is here.

Petitioners in Maine have gathered enough signatures to put a Taxpayer Bill of Rights (TABOR) on the November ballot:

Supporters of a citizen petition known as the Taxpayer Bill of Rights learned today that the Office of Secretary of State has verified enough signatures of registered Maine voters (50,519) to put the measure before the voters in November.

Petition organizer Mary Adams of Garland said "This is great news for the people of Maine because they can now vote in November to create a friend called the Taxpayer Bill of Rights. The Taxpayer Bill of Rights puts money in taxpayersí pockets each year and gives them control over all future tax and fee increases."

Adams, who led the petition drive which successfully repealed the state property tax in l977, stated "There is nothing to fear and everything to look forward to under a Taxpayer Bill of Rights. No jobs will be lost or programs cut, because this spending limit allows government to grow at a reasonable rate of inflation plus population growth."

She pointed out that government at all levels can exceed the limit only if voters approve. Most of the money collected beyond the limit (80%) goes back to the taxpayers in some form of tax relief each year. The remaining portion (20%) is retained annually in a savings account to smooth out inevitable economic downturns. "At last, government will have to live on a budget like the rest of us."

Maine's not alone...the South Carolina Senate is currently considering a TABOR. Be sure to check out our TABOR update from last year's Annual Privatization Report for more info.

See this brilliant editorial cartoon...its so true.

Has your wallet been feeling lighter over the last decade? If so, you're definitely not alone:

If it seems like your taxes have been going up, they probably have — at least at the state level.

State taxpayer burdens increased by an average of 41 percent from 1994 to 2004, according to newly released data from the Census Bureau. Only one state, Alaska, saw the amount it collects per person decline.

Even when the numbers are adjusted for inflation, the individual tax burdens increase in 43 states.

Hawaiians last year paid the most to state government — $3,050 per person on average. Texans paid the least — an average of $1,368.

Rising education and Medicaid costs have fueled spending growth, which has led to higher taxes, analysts said.

. . . .

Many states raised taxes early in the decade because of budget shortfalls caused by the economic slowdown. Many of those states now have budget surpluses, leading some, including Hawaii, to debate tax cuts.

"Many states are having an unexpected surplus of revenue, and that is because of economic growth," said Stephen Slivinski, director of budget studies at the Cato Institute. "It's mainly because their estimates on economic growth were very low."

The pre-State-of-the-Union mill was rife with rumors that President Bush was going to make expanded Medical Savings Account the centerpiece of his domestic reform agenda. Alas, health care reform got barely two grafs in his hour-long address.

In these, Bush lamented the sky-rocketing cost of entitlements – conveniently ignoring that he himself ushered in the biggest increase in entitlement spending in the past four decades by pushing for free prescription drug coverage for Medicare seniors.

Be that as it may, Bush touted the wonders of MSAs because, like corporations, they would allow individuals to purchase health coverage from their pre-tax dollars, thereby leveling the playing field between individuals and companies. In addition, MSAs would attach coverage to individuals, not employers, making it more portable.

But there is a better way – to use the words of Virginia’s Governor Tim Kaine – to achieve these objectives: Abolish the health care tax breaks for employers and give them to employees or individuals instead.

Arguably, competition between insurance companies will be even more intense if they have to compete for the business of individuals – as opposed to companies – simply because there are so many more of them. Also, individuals are likely to be more prudent shoppers than corporations that have too much money and too little purchasing accountability (anybody who has worked at a large corporation knows that $1,000 toilet seats and hammers are not just a Pentagon phenomenon). More savvy shoppers will bring down health insurance costs for all and control national health care spending.

So how about it Rebel-in-Chief? A man who can plant democracy in a centuries-old dictatorship abroad can certainly fix ridiculous distortions in his own country’s tax code? Why settle for half-measures like MSAs when you can conquer the whole messed-up health care system?

Gov. Mark Sanford's plan to put greater limits on government growth into the state Constitution were introduced Thursday in the Senate.

Sanford's quote says it all: "The bottom line is we don't believe government should be growing more than twice as fast as people's paychecks."

Bravo!

Supporters of a water tax on Maine's largest bottlers fell roughly 1,400 signatures short of the number needed to place the proposal on the November 2006 ballot. Supporters were seeking a 20-cent tax on every gallon of water. Poland Spring, the world's third largest bottlers, was facing upwards of $100 million in new taxes.

Dick Dyer, a spokesman for the tax hike group suggested that it has "never been our intention to drive any of the water companies out of the state."

Too bad that's what would have happened. Maine already has a very fragile economy that suffers from the nations highest state and local tax burden. In addition, Poland Springs officials already plan on discussing the business climate with state officials before moving forward with plans to open a third bottling facility. They also noted that had the tax passed, they likely would have left the state.

Last night Colorado citizens passed Referendum C - 52.3/47.7 - "suspending" (code word for killing)the nations toughest restriction on government spending. Colorado will now be allowed to keep/and spend an additional $3.7 billion over the next five years, money that would have been returned to taxpayers under the model.

Between 1995 and 2000 over 111,000 Californians moved to Colorado. I wonder if they took tax and spending ways with them?

Gov. Bill Owens used some pretty big scare tactics to fight for Ref C - read about that here. Shameful.

In unrelated news the citizens of Wyoming, Kansas, Arizona, Nevada, Utah, and Oklahoma sent a big thank you card to Colorado - seems they're more competitive now. Their tax structures don't look so bad when you consider a $3.7 billion tax increase was just passed.

Despite a serious blow the TABOR fight will move on.

We've reported here, here and here about the fight in Colorado over the Taxpayer Bill of Rights. News today, suggests that we're winning:

They won’t say so publicly, but Colorado Gov. Bill Owens and other backers of Referenda C and D on this fall’s election ballot must feel, deep in their heart of hearts, that the chances of successful passage of the two questions are about as likely as the Colorado Rockies winning the World Series in 2006. Both are theoretically possible, at least in the context of a redefinition of the conventional understanding of “long shot.”

The New York Times ran a piece on Sunday on the growing battle among conservatives over the future of Colorado's Taxpayer Bill of Rights (TABOR). If you're not familiar with TABOR, here it is in a nutshell:

[Colorado's TABOR] does three things: it imposes firm spending caps (which grow only to reflect population and inflation), returns any excess revenues to taxpayers and allows only voters, not legislators, to override the caps.

Both sides agree that the measure reined in the budget. The growth in per capita spending fell to 31 percent in the decade after the cap from 72 percent in the decade before, according to the Independence Institute, a Colorado group that favors it.

Supporters say the cap ignited the subsequent economic boom, with low taxes luring businesses. They also say it kept the state from overspending when flush only to face painful cuts later. "Tabor saved Colorado's fiscal fanny," said Jon Caldara, the institute's president.

Back to the battle...on one side, you have Republican Governor Bill Owens proposing a ballot measure to suspend TABOR spending limits for five years to address the state's "fiscal crisis." On the other side are influential, national conservatives like Dick Armey (former House Majority Leader and current FreedomWorks chair) and Grover Norquist (Americans for Tax Reform president).

That constitutional cap on state and local spending, imposed in 1992, has been so effective in curbing government growth that tax opponents are making it the centerpiece of a national campaign. Similar measures are headed for the ballot this fall in California and perhaps Ohio, and parallel efforts are under way in more than a dozen other states.

For some, the long-term targets include Washington, where many on the right are troubled by the rivers of red ink that have continued to flow despite Republican rule. "It's the ultimate goal of what we're trying to do," said Grover Norquist, president of Americans for Tax Reform. "We want constitutional limits on the size of government."

But even as the Colorado measure galvanizes antispending groups elsewhere, it is dividing them at home, prompting a right-on-right fight that is luring outside combatants and drawing blood.

On one side is Gov. Bill Owens, the two-term Republican once promoted by National Review as a conservative of presidential timber. Arguing that the strict provision has forced a fiscal crisis, Mr. Owens is championing a ballot measure that would suspend the limit for five years, allowing the state to spend an additional $3.7 billion. Otherwise, he warns, the cap may be repealed.

On the other side are former allies who call the governor a tax-raising apostate discrediting the law he claims to protect. In addition to Mr. Norquist, they include the editorial page of The Wall Street Journal and the former House majority leader, Dick Armey, a leader of an antitax group called FreedomWorks.

Why is this important? Because advocates are pushing for TABOR-esque measures in several states -- Ohio, California, Maine, Arizona, Kansas, Florida, Maryland, Missouri, Oklahoma, North Carolina, South Carolina, Texas and Virginia, according to the Times. Despite the surging momentum nationally, a major setback in Colorado would likely dampen voter support for tax and spending limits in other states.

According to the Heritage Foundation:

The negative effects of Owens’s tax increase—for that’s exactly what it is—are manifold: it will take money out of taxpayers’ pockets ($600 from every man, woman, and child in Colorado), set a bad precedent (if the cap can be suspended once, politicians will inevitably try again later), and countermand the point of TABOR (forcing politicians to prioritize government spending within a defined budget). Moreover, successful passage of Referendum C would undoubtedly dampen nationwide enthusiasm for constitutional spending limits, preventing citizens of other states from enjoying the benefits that have accrued to Colorado taxpayers since 1992.

For more on TABOR and Colorado's budget deficit, see this February 2005 Reason study, which outlined a way for Colorado to balance its budget without raising taxes or gutting TABOR.

Our friends at Heritage Foundation released a new paper yesterday, Colorado’s Taxpayer’s Bill of Rights Should Not Be Breached.

"Colorado’s Taxpayer’s Bill of Rights imposes sensible tax and spending limits on the state government, reducing the burden on taxpayers and creating a better climate for economic growth; but rather than make politically difficult belt-tightening decisions, lawmakers have proposed Referendum C, a $3 billion tax increase that will permanently change TABOR, increase the size of government, and pose long-term fiscal risk."

TABOR is critical to limiting government growth...that's why 25 states are now considering some form of it! See Reason's previous work for some background.

According to Americans for Tax Reform the average working person had to work 185 days -- July 4th -- just to meet all the costs imposed by government! In other words, the cost of government consumes more than half of national income!

Essentially, we're working for ourselves now...after we exerted our independence from our own government this time!

Russiaeconomy.org reports:

In April Russia's President Vladimir Putin called for an end to inheritance tax. On June 15, 2005, Russia eliminated this source of double taxation. The State Duma, the lower house of the Russian parliament, by an overwhelming vote of 414 to 2 passed the draft law abolishing inheritance tax in the third reading required for passage. It eliminated current taxation of estates at rates ranging from 5–40%.

The law, which takes effect January 1, 2006, also abolishes gift tax to close relatives, including spouses, parents, children, grandparents, grandchildren, siblings, and step-siblings. It eliminates current taxation of gifts to close family members at rates of 3–15%, and for non-family members at 10–40%, replacing the latter with the flat rate of 13%.

Can the US learn from Russia (which has also instituted a flat tax)? The American Family Business Institute is a great resource for more information.

The often interesting column by Otis White in Governing recently had this nice bit on the soon to explode costs of government retiree health care costs.

It’s a problem so great that Fortune magazine recently described it as “a time bomb quietly ticking away in the netherlands of state and local government, and it is set to blow up in the next few years. When it detonates, the damage will easily run into the hundreds of billions of dollars — forcing tax hikes and public service cuts that will affect the lives of millions of Americans unless dramatic action is taken soon.”

. . .

Some governments are preparing for the accounting change by hiring actuaries to estimate the size of their benefits liabilities. One expert who has been running the numbers told Fortune that, when he shares the results with clients, they are “shocked, simply shocked.”

CO, ID, and NV governors can't stand up to the pressure to increase spending, so they are looking to cave in on tax increases. What a crock. No serious effort to find ways to live within their means

Or 107 days.

That’s how long we have to work to pay our taxes.

Tax Freedom Day is April 17:

“Despite all the tax cuts that the federal government has passed recently, Americans will still spend more on taxes than they spend on food, clothing and medical care combined,” said Hodge.

In 2005, Americans will work 70 days to afford their federal taxes and 37 more days to afford state and local taxes. Other categories of spending measured in the report include housing and household operation (65 days), health and medical care (52 days), food (31 days), transportation (31 days), recreation (22 days), clothing and accessories (13 days), saving (2 days) and all other (42 days).

Taxes got you down? Not sure what to do? Need a drink?

Visit The Winecommonsewer.

According to this recent Tax Foundation survey, Americans don’t like doing their income taxes. In fact, 70 percent either dislike or hate it.

Interestingly, some people (11 percent) like it and a tiny sliver of taxpayers (1 percent) actually love doing taxes.

Some other interesting tidbits: 77 percent think the tax system needs major changes, 55 percent think taxes are too high, and only 25 percent rate the value received from the taxes paid to the feds as excellent or pretty good.

And it's a far cry from dumping tea into the ocean, but a good portion of us change our behavior to avoid high taxes:

The survey asked respondents what choices they’d made in the last year that were made in order to pay less tax. 28 percent said they had bought something over the Internet rather than from a local store, 25 percent said they gave more to charity, and 14 percent said they crossed a border to shop in a neighboring area with lower taxes—a vivid illustration of what economists call “tax competition.” Another 8 percent said they had worked fewer hours or overtime to avoid higher tax bills. Younger respondents and those with higher incomes and educational attainment were more likely to cross borders or shop over the Internet to avoid taxes.

This list breaks down which states stick it to you most (and which stick it to you least), when it comes to various kinds of taxes.

Just don’t go buying gas in Rhode Island (31 cents per gallon tax), cigarettes in New Jersey ($2.05 tax per pack), or anything categorized as retail in Alabama where state and local sales tax can reach 11 percent.

President Bush's Advisory Panel on Federal Tax Reform is hearing testimony from economists and tax experts. The president is hoping to live up to his State of the Union promise to overhaul what he called the "archaic, incoherent" federal tax code -- while at the same time grappling with a deep budget deficit. This summer, the nine panelists are expected to offer several options, including one that largely keeps the current structure.

Economist bloggers Tyler Cowen and Max Sawicky agreed to vent their own frustrations -- and make their own arguments for change.

Read the exchange here.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the mix of tax reform options along with the flat tax, the national retail sales tax, and other competing ideas:

"The president’s advisory panel will likely consider plans for consumption-based taxes, as well as more limited income tax reforms. A “dual-rate income tax” is a model for reform that would reduce tax rates and simplify the code, while taking steps toward a flat and neutral consumption-based system.

Under the plan, most deductions and credits would be eliminated, but nearly all families would pay tax at a low
15 percent rate. A 27 percent rate would kick in for earnings above the threshold that the Social Security
payroll tax cuts out. The effect would be to cut tax rates on middle-income families and create a consistent marginal rate of about 29 percent on wages.

To promote savings and economic growth, the maximum individual rate on dividends, interest, and capital gains would be set at 15 percent. The corporate tax rate would be dropped to 15 percent and interest made nondeductible. These changes would equalize and cut the combined top federal tax rates on dividends, interest,
wages, and small business profits to less than 30 percent, compared to 35 to 45 percent under current law."

Here's the link.

Not being a federal tax policy expert (outside of my in-depth knowledge of TurboTax), I don't know if Cato's "dual-rate income tax" proposal is "The Solution" or not, but it seems compelling and should at least be thrown into the m