Taxed in the USA: Cost of Government Rising Across the Country
It’s that time of the year again. Tax time. What better time to be reminded that taxes are still going up in America? Sad to say, there is a trend of state and local tax hikes, from Rhode Island to California, from Kentucky to Washington state. The trend is so strong, in fact, that we might almost call it a silent epidemic.
Let’s take a tour around the country and see for ourselves. We begin in California where the Sacramento Bee recently relayed the following lament about tax evasion:
As Californians put the finishing touches on their income tax returns, tax collectors say the state’s $9.2 billion deficit would drop to zero if all taxpayers submitted what they owe. … In a new estimate, the Franchise Tax Board says that $10 billion in state income taxes go unpaid each year, often when workers receive payments under the table, businesses skirt reporting requirements or people take deductions for which they do not qualify. The state Board of Equalization says an additional $2.3 billion in sales and use taxes go unpaid.
We should always pay the taxes we owe, and I acknowledge that tax evasion distorts competition between compliant and non-compliant businesses. However, at some point our politicians might want to stop vilifying those who pay less than they owe and consider the rational reasons behind a lot of the tax evasion.
But high taxes don’t just inspire tax evasion – they also lead to tax competition. High-tax jurisdictions lose jobs and investments to low-tax jurisdictions. Oregon has already felt the squeeze from tax competition,as it is losing residents and jobs to Washington state. However, as reported by the Portland-based Oregonian, this has not deterred big-government advocates in the Beaver State from campaigning for higher taxes:
A union-backed group is deciding whether to move forward on proposed ballot measures that would raise taxes on corporations and the wealthy — and that would certainly re-ignite the bitter tax wars that split the state two years ago. The group, Our Oregon, this week received ballot titles on five tax measures that in many respects resemble the controversial tax package that Oregonians approved in January 2010 after an expensive campaign that gained national attention. Like the latest proposals, the earlier measures also raised taxes on wealthier individuals and on corporations.
Oregon already has some of the most punitive taxes in the country. The Tax Foundation reports that the marginal income tax rate for a couple in Oregon is 9 percent from $15,500 in annual income. At $250,000 it rises to 10.8 percent and at $500,000 to 11 percent flat.
Not one of Oregon’s neighbors punishes its most productive citizens to that level. Predictably, the CNBC State Business Climate Study for 2011 reports that in overall state economic performance Oregon places 48th of all states.
According to the Bureau of Labor Statistics, Oregon lost 1.5 times as many private sector jobs as Washington state, its neighbor to the north. Washington has no state income tax.
Next stop on our Taxed-in-the-USA tour is New England. From NBC Connecticut:
Downloading music, movies, e-books and Apps could soon cost Connecticut residents more as lawmakers consider a tax on digital downloads. The bill, proposed by the General Assembly’s Finance, Review and Bonding Committee, would have consumers pay the 6.35% sales tax on any electronic transfer. Supporters say the bill would level the playing field for brick-and-mortar retailers in the state who are already required to charge Connecticut sales tax to consumers who purchase these products in their stores.
The Tax Foundation’s latest business tax climate study places Connecticut 40th among the 50 states, with property taxes ranking worst in the country. Tax Freedom Day is May 2, latest in the nation. In the 2009 American Community Survey Connecticut ranked in the top third for population loss.
Some of the U-Hauls leaving Connecticut are headed for Rhode Island. This is a bit surprising, given the fact that The Ocean State’s tax burden ranks just a couple of spots below The Constitution State. However, while the business tax climate is even worse in Rhode Island than in Connecticut, property taxes are marginally less oppressive.
If you have spent the winter in Fairbanks, Alaska, spending the next winter in Anchorage may not be much better, but it is better…
It remains to be seen, though, how long Rhode Island can keep its edge over Connecticut. That edge is as tiny as the state, and Governor Chafee is pursuing his own package of higher taxes.
In Wyoming there is a campaign under way to raise both the state and county sales taxes. In 2010 yours truly was instrumental in successfully educating the public on the detriments of a proposed ten-cent gasoline tax increase. As a direct consequence of the death of that proposal, state and local legislators are now hard at work to jack up the sales tax. According to economic model simulations by the Wyoming Liberty Group, the tax hikes would cost 6,000 private sector jobs per year.
Over now to Austin, Texas and a recent report from the KXAN news station:
One of the issues City Council could decide Thursday is whether or not to ban plastic bags in the city. … If this ordinance passes it would mean starting in January 2013, shoppers will be charged 10 cents per bag or $1 per transaction if they need a bag from the store. That would last a year to allow for a smooth transition to a complete ban, one that activists say needs to happen.
More than likely, the city is going to get so addicted to the revenue from this tax that they will extend the “smooth transition” phase indefinitely.
Now on to Washington, DC where, according to the Washington Examiner, the city wants more money from the city’s food trucks:
The D.C. Council’s Committee on Finance and Revenue unanimously passed a bill Thursday that will force food trucks to charge the same 10 percent sales taxes paid by brick-and-mortar restaurants. The measure is expected to pass the full council and will take effect Oct. 1. … Food truck vendors currently pay a flat $1,500 annual fee ($375 per quarter) — the same fee that street vendors near tourist spots have been paying for more than a decade. But many restaurants owners argue this is no longer a fair deal, due to the surge in street food popularity. … As the bill stands, each licensed food truck operator who collects more than $375 in sales taxes on a quarterly basis will continue paying that sales tax to the city.
If the District of Columbia were just out to level the playing field they would adjust the taxes downward for brick-and-mortar food vendors. This is a new revenue source to them.
Across the border from DC is Maryland, where Governor O’Malley is trying to draw even more blood from his state’s taxpayers. It does not seem to be working very well, though:
One of every five Marylanders would pay an average $274 in extra taxes each year under Gov. Martin O’Malley’s income tax plan, higher than the governor had estimated, according to a new report from state budget analysts. In Montgomery County, where roughly 32 percent of taxpayers would be hit by higher levies, the average annual tax increase would reach $334 for 123,537 taxpayers, the state’s independent Department of Legislative Services reported.
The tax hikes won’t generate as much revenue for the state as he was trying to claim: only $130 million, not $182 million as the governor suggested.
Maryland is an excellent example of what drives government’s insatiable thirst for more tax revenues. In September 2007 the state government had 106,800 employees; in September 2011 its payroll had expanded to 112,500, with the bulk of the increase taking place since 2008 – i.e., during the recession. In the meantime, Maryland has lost 102,400 tax-paying private-sector jobs.
The state government in Maryland has increased its spending by 6.2 percent per year since 2005. In the past three years alone, when both the economy of Maryland and of the country as a whole has been in a recession, the state government in Annapolis has grown its spending by a total of 14.4 percent.
Of course, U.S. Congress does not want to be left behind when their statist buddies around the country throw tax-hike parties. They have managed to come up with a way to tax businesses for not doing the impossible:
When the companies that supply motor fuel close the books on 2011, they will pay about $6.8 million in penalties to the Treasury because they failed to mix a special type of biofuel into their gasoline and diesel as required by law. But there was none to be had. Outside a handful of laboratories and workshops, the ingredient, cellulosic biofuel, does not exist. … Refiners were required to blend 6.6 million gallons into gasoline and diesel in 2011 and face a quota of 8.65 million gallons this year. “It belies logic,” Charles T. Drevna, the president of the National Petrochemicals and Refiners Association, said of the 2011 quota. And raising the quota for 2012 when there is no production makes even less sense, he said.
This brilliant move by Congress has opened a whole new can of tax worms. We can now look forward to endless tax policy innovations. Some ideas for Congress to consider:
- A tax on pedestrians who fail to use all three legs while walking;
- A fine for the blind who fail to pass the test for a driver’s license;
- A tax on McDonald’s for serving food in their restaurants;
This could of course also work the other way, in the form of impossible-to-do tax credits:
- A $10,000 tax credit to each Member of Congress who can prove an IQ above 85.
We better stop our Taxed-in-the-USA tour here. But taxes won’t stop going up, at least not yet. To put an end to higher taxes we need to fundamentally change the role government plays in our lives. We need to refocus it on its essential functions: protection of life, liberty and property. Then, and only then, will there be no more tax hikes.