Category Archives: Taxation

Is There Anyone Left to Pay Taxes?

The Tax Foundation reports that soon nearly half of the tax returns filed will owe no federal income tax, according to the economic plans of John McCain and Barack Obama.

In its analysis Both Candidates’ Tax Plans Will Reduce Millions of Taxpayers’ Liability to Zero (or Less), the Tax Foundation reports that McCain’s announced tax reforms will result in 43 percent of tax returns owing no federal income tax. Obama’s would result in 44 percent.

Is this huge number of zero-income tax payers good public policy? Is it wise to have so few tax payers and so many tax consumers? I believe that taxation is wrong and needs to be drastically reduced, if not eliminated. But if we must have taxation, it needs to be fair, and to touch all people. Writing in a letter to the Wall Street Journal recently, M. Todd Henderson of the University of Chicago Law School wrote this:

The downside of a tax system of givers and takers is that people who don’t pay for things care less about them. When I was a management consultant working with a nonprofit client, I asked my boss why we made the client pay for a portion of our relatively expensive fees. He told me that having some “skin in the game” makes the client care more about the project, makes us care more about delivering value to them, and keeps the relationship one of mutual respect. The analogy to citizens and government is plain. Low-income taxpayers, like the nonprofit client, will simply care less about tax policy, wealth redistribution, and the growth of the welfare system if they aren’t paying for it. Making everyone pay, even if just a little bit, reinforces the Founders’ notion of “We the People” by making us all financially responsible for the government we have.

Tax Day is Here. Take No Cheer.

As the annual tax deadline is here, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don’t pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, or 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger’s TaxCut software for 2004 shows that a family with two children and $40,000 income (that’s approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we’re told, that’s not really a tax. Instead, it’s the government saving for our future retirement. At least it tells us so.

For those who do pay taxes, they often aren’t aware, on a continual basis, of just how much tax they pay. That’s because for wage earners, federal and state taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line — the amount they receive as a check or automatic bank deposit — and don’t really take notice of the taxes that were withheld. This makes paying taxes almost painless.

For local property taxes, anyone who has a mortgage probably has these taxes incorporated into their monthly mortgage payment. Renters pay them as part of their rent. Everyone who trades with a business pays them, as taxes are part of what goes into formulating prices.

An alternative would be to eliminate the withholding of taxes from paychecks and from monthly mortgage payments. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they’re delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it’s unlikely that governments will stop the withholding of taxes and submit a bill to taxpayers. Instead, it’s left to ourselves to remain aware of how much we are paying.

Wasteful tax cuts

In the February 21, 2008 debate between Sen. Clinton and Sen. Obama, Clinton mentioned the “wasteful tax cuts of the Bush administration.”

That’s a phrase that only a leftist politician such as Sen. Clinton could utter with a straight face, and it tells us a lot about the beliefs of Sen. Clinton and her supporters. (I don’t think Sen. Obama’s beliefs are very different on this matter.)

It tells us that they feel they have first claim on the money we earn, and if we are allowed to keep more of it, it is wasted. Wasted, according to Sen. Clinton, that is, because she didn’t get a chance to spend it.

That is perhaps the most important thing to remember about Sen. Clinton, and Sen. Obama, too. They believe that they know better than you how a large portion of your money should be spent, and if you don’t let them spend it that way, it is wasted.

Not that Sen. McCain is that much better. He didn’t support the Bush tax cuts, although he says he does now.

There are many problems with the Bush Administration’s spending, and it’s correct to claim that a large portion of that spending is wasted. There is certainly a problem with the deficits year after year, but that is a problem caused by too much spending, not too little taxation, as Clinton and Obama claim. Taxing less — meaning that people keep more of their own money and spend it the way they see fit — is wasteful only for those politicians and their supporters who believe they know best how to spend the money we earn.

It’s not yours to cut

An article in the April 22, 2007 Wichita Eagle by Dion Lefler states: “All together, those [tax] cuts will cost the state $570 million in lost revenue in the next five years, according to the consensus report estimates.”

A statement like this reveals a faulty line of thinking: that the government has a legitimate claim on a large part of our incomes and wealth. Then if, somehow, the government is persuaded to “give” any of that claim back to us, this gift has to be paid for.

It’s the people who “give” tax money to the government, not the government who “gives” it back to the people in the form of tax cuts. If the government cuts taxes, the government gives us nothing. It simply takes less of what is ours in the first place.

Liberal publications with a national audience like The New York Times use thinking like this all the time. It’s very disappointing to see it at home in Wichita and Kansas.

This backwards thinking about taxes was also revealed in reporting by David Klepper in the May 12, 2006 Wichita Eagle: “They [Kansas lawmakers who supported the cuts] consider the cuts a wise, $128 million investment to spur new investment by business, new jobs, more economic activity and, consequently, higher tax receipts.”

In the same article: “Gov. Kathleen Sebelius, a Democrat, who first proposed the business machinery tax cut, agreed. ‘We’re not giving away money for the sake of giving it away,’ she said. ‘I’m hoping that the economic growth will actually help fund the school plan that we just passed.'” (emphasis added)

It is depressing to realize that the Governor of Kansas equates letting people keep a little more of the money they earned with the state “giving it away.”

Furthermore, the true motives of politicians are revealed: they say they are “investing” in tax cuts in the hope that the state will collect even more tax money in the future.

We should be asking this question of our elected representatives: If tax cuts stimulate investment, jobs, and economic growth, why didn’t you cut these burdensome taxes last year?

The Real Cost of Higher Taxes

Dan Mitchell of the Center for Freedom and Prosperity writes:

A column in the Wall Street Journal explains how certain tax cuts generate additional growth and thus lead to some degree of revenue feedback to the Treasury. The authors point out that higher taxes, by contrast, would impose harsh costs on the economy for every dollar collected by the IRS:

…a recent study by Gregory Mankiw, an economist at Harvard…concluded that a $1 tax cut on dividends would reduce government revenue collections by about 50 cents, after taking into account taxes on $2 of additional economic growth induced by the tax cut. A $1 tax cut from an across-the-board rate reduction would cost the IRS about 77 cents, after taking into account taxes on the 95 cents of additional economic growth induced by the tax cut. …If Congress is willing to forego 50 cents of revenue, the economy would grow and people would have $2 more income. If given the choice, most people would take the $2. Now apply the conclusions of the Mankiw study in reverse — to tax increases. The results illuminate the high costs of providing the government with an additional $1 to spend. A purported $1 tax increase on dividends only nets the Treasury 50 cents — but costs Americans $2 in lost income, plus 50 cents in tax. When a higher rate is levied on all forms of income, an attempted $1 tax increase yields only 77 cents — but costs Americans 95 cents in lost income plus 77 cents in tax. If the government were to kick up the tax increases enough to collect a full additional $1, the cost to the public would be between $2.25 and $5, counting both tax paid and income lost. A May 2006 study by Harvard’s Martin Feldstein, “The Effect of Taxes on Efficiency and Growth,” confirms the disproportionately large economic losses associated with tax increases. blockquote>

online.wsj.com/article/SB117668162125270737.html (subscription required).

Pay As You Go?

Pay As You Go?
By Karl Peterjohn, Kansas Taxpayers Network

On the rare occasions the mainstream national news media bothers to cover federal spending and taxes you are sure to hear the phrase, “pay as you go,” as the primary talking point of the new congressional Democratic majority. This phrase is supposed to reassure us now that the profligate “Bridge to Nowhere,” free spending Republicans have been relegated into the minority.

New York City Congressman Charlie Rangel, who now heads the powerful tax writing house ways and means committee, wants to dismantle the most successful legacy of George W. Bush’s administration, the 2001 and 2003 federal tax cuts. These tax cuts are scheduled to expire because of arcane congressional budgeting rules. However budgets must be enacted now and not put off until after the 2008 election.

Liberal North Dakota Senator Byron Dorgan, who heads up the budget committee in the senate, is joining Representative Rangel in this push. While the national “news” media is focused upon Al Sharpton’s take on the Don Imus firing or the latest DNA results from the Bahamas, there is a large federal tax hike in your future as well as increased IRS powers to enforce tax laws.

Congressional liberals want you to “Pay MORE as you go,” and the lower federal income tax rate of 10 percent, increased child credit, and pro growth capital gains and dividend tax rates from the 2003 Bush tax cuts are all likely to be allowed to expire. The left wing blogosphere is determined to eradicate every last accomplishment of the Bush presidency.

March 28 the Heritage Foundation’s 2008 budget report warned, “The budget blueprint reported out of the House Budget Committee last week and supported by Democratic leadership is a study in fiscal irresponsibility … the House budget resolution boosts discretionary spending, does nothing to tackle out-of-control entitlement spending, and, worst of all, would impose the largest tax increase ever on the American people.”

A few days later the Wall Street Journal warned their readers, “The Bush tax cuts don’t expire until 2010, and Democrats aren’t about to tip their tax hand before the 2008 election. But under cover of zero media attention, Democrats are constructing a budget process that will make a tax increase all but inevitable.”

“The ploy here is ‘pay-as-you-go’ budget rules that Democrats are implementing in the name of ‘restoring fiscal responsibility.’ A few journalists even quote that phrase with a straight face. But everyone in Washington knows that ‘paygo’ is all about making tax cuts more difficult and not about slowing the growth of spending,” the journal editorialized.

The Heritage Foundation report criticized the Democrat budget, “… the (2008 proposed) budget assumes tax increases of $900 billion over five years which would be accomplished in part by allowing the 2001 and 2003 tax cuts to expire.” The U.S. economy has enjoyed solid growth and lowering unemployment rates ever since the 2003 tax cut was enacted. Federal budget deficits have also fallen despite bipartisan fiscal spending growth since 2004 too. This reduction in federal deficits has occurred because tax revenue growth grew more rapidly than federal spending hikes.

Fiscally responsible and informed citizens need to know, “… that the tax increase fuse has now been lit. Do nothing and taxes will rise as much as they have at any one time since World War II. Democrats have made the decision to obscure this burning fuse and the press corps is ignoring it. But that doesn’t mean the rest of the country has to play along … It’s a debate we should start having now, before the fuse burns down,” the Wall Street Journal warned April 5.

Kansans reading these words have now been warned. Tax and spend has returned with the Democratic majority that is now controlling congress.

Painlessly paying our taxes, almost

As the annual tax deadline is upon us, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don’t pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, or 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger’s TaxCut software for 2004 shows that a family with two children and $40,000 income (that’s approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we’re told, that’s not really a tax. Instead, it’s the government saving for our future retirement. (I can’t write that and keep a straight face.)

For those who do pay taxes, they often aren’t aware, on a continual basis, of just how much tax they pay. That’s because for wage earners, federal and state taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line — the amount they receive as a check or automatic bank deposit — and don’t really take notice of the taxes that were withheld. This makes paying taxes almost painless.

For local property taxes, anyone who has a mortgage probably has these taxes incorporated into their monthly mortgage payment.

An alternative would be to eliminate the withholding of taxes from paychecks and from monthly mortgage payments. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they’re delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it’s unlikely that governments will stop the withholding of taxes and submit a bill to taxpayers. Instead, it’s left to ourselves to remain aware of how much we are paying.

The advantage of being Warren Buffet

The recent news that Warren Buffet is giving away the bulk of his fortune to charity is good news to me, as I greatly prefer private charity to government spending of taxes. That’s true for me even if Mr. Buffet were to use his philanthropy to support causes that I might not agree with.

But there is an irony here. Mr. Buffet is a vocal supporter of the inheritance tax (or estate tax or death tax). By giving away much of his wealth, he escapes paying the tax he wants others to pay. Mr. Buffet is wealthy enough that he can give away a lot, but he stills retain great wealth for supporting himself in his declining years and providing very well for his children.

Most people who have enough wealth to be subject to inheritance taxes don’t have enough wealth to do what Mr. Buffet has done. Instead, they must be content with the government spending much of their estate after they die.

If Mr. Buffet really thinks inheritance taxes are good, he should keep his wealth and let the government tax it when he dies, just like most others have to do. Alternatively, if he wishes to enjoy seeing how his wealth is spent while he is still living, he could pre-pay his inheritance tax and watch our government at work.

Paying for tax cuts

Commentary surrounding two recent tax cuts reveals the backwards thinking about taxes that is common.

A New York Times editorial from May 11, 2006 asks this question: “Whose taxes will be raised in the future to pay for today’s tax giveaways?”

A question like this reveals several prevalent lines of thinking: First, that the government has a legitimate claim on a large part of our incomes, and that if the government “gives” any of that claim back to us, it somehow has to be paid for. Second, it’s the people who “give” tax money to the government, not the government who “gives” it back to the people in the form of tax cuts. If the government reduces taxes, the government “gives” us nothing. It simply takes less of what is ours in the first place.

This backwards thinking about taxes happens even close to home in Kansas. As reported by David Klepper in the May 12, 2006 Wichita Eagle: “They [Kansas lawmakers who supported the cuts] consider the cuts a wise, $128 million investment to spur new investment by business, new jobs, more economic activity and, consequently, higher tax receipts.”

Further in the same article: “Gov. Kathleen Sebelius, a Democrat, who first proposed the business machinery tax cut, agreed. ‘We’re not giving away money for the sake of giving it away,’ she said. ‘I’m hoping that the economic growth will actually help fund the school plan that we just passed.'” (emphasis added)

It is quite revealing to hear the Governor of Kansas equate letting people keep more of the money they earned with the state “giving it away.” Furthermore, the motives of the politicians are revealed: they are “investing” in tax cuts in the hope that the state will collect even more tax money in the future. What their remarks really reveal is that high taxes are a drag on our economy.

There is one thing the New York Times editorial got right: “Neither Congress nor the public has the stomach to slash government programs anywhere near enough to bring spending in line with revenues.” That is the heart of the problem. Government at all levels spends too much, crowding out private initiative. Government at all levels should cut both taxes and spending.

Increase our awareness of taxes

Writing from Miami, Florida

As the annual tax deadline is upon us, we should take a moment to examine our level of awareness of the taxes we pay.

Many families don’t pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people, of 44 percent of the U.S. population, pay no federal income tax. I made a few calculations, and Kiplinger’s TaxCut software for 2004 shows that a family with two children and $40,000 income (that’s approximately the median household income in Wichita), taking the standard deductions, pays $0 federal income tax.

These families probably do pay quite a bit in the form of Social Security tax, but as we’re told, that’s not really a tax. Instead, it’s the government saving for our future retirement. (I can’t write that and keep a straight face.)

For those who do pay taxes, they often aren’t aware, on a continual basis, of just how much tax they pay. That’s because our taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line — the amount they receive as a check or automatic bank deposit — and don’t really take notice of the taxes that were withheld. This makes paying taxes almost painless.

An alternative would be to eliminate the withholding of taxes from paychecks, and from monthly mortgage payments, too. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay.

A curiosity is that many people are happy during tax season because they get a refund. And they’re delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgage payments reduces our awareness of just how much tax we pay, it’s unlikely that governments will stop withholding and submit a bill to taxpayers. It’s left to ourselves to remain aware of how much we are paying.

Tax increment financing in Iowa

Writing from Cedar Rapids, Iowa

Readers of The Voice For Liberty in Wichita are well aware that I believe that when the government provides subsidies to businesses — either in the form of cash payments or preferential tax treatment — we create a corrosive business environment. Government picks winners and losers for political reasons, rather than letting the market decide which companies are doing a good job. Government also spends money inefficiently. Instead of letting the market decide where to best allocate capital, government chooses who receives capital taken from the people through taxation according to the whims of politicians spending other peoples’ money.

It is no wonder that government-favored enterprises rarely do well. Capital markets are quite efficient, and if there is an unmet need, capital usually flows to fill the need. The fact that capital is not flowing to fill a need strongly suggests that the need is not real. Yet, governments may feel that a need is not being met, and they will allocate taxpayers’ capital to fill it, even though taxpayers on their own do not select to invest in the subject project.

This practice is not limited to the State of Kansas. There is a paper titled “Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth?” written by two economics professors at Iowa State University. (The paper may be read at http://www.econ.iastate.edu/research/webpapers/paper_4094_N0138.pdf.) This paper shows that despite the claims of politicians and the very obvious benefit to the companies that receive the TIF financing, there is no benefit to the state as a whole.

Following are some quotes from the paper’s conclusion:

“There are several issues to consider about TIF ordinances and TIF outcomes in Iowa. From our research here and from our larger study of the topic, it seems apparent that the ease with which TIF district designation can be done in Iowa, along with the multiplicity of uses that TIF districts can be put, that the law now has become a de facto entitlement for new industry and housing development in much of the state with little to no evidence of overall public benefit or meaningful discussion of the mean costs of the practice. It also seems apparent that given the ease with which these districts can be developed that many cities may be preemptively capturing new valuation and tax revenues in the name of economic development, but that in the main, this preemption is likely yielding much more collective fiscal harm across taxing districts in the long run than good.”

“City officials believe that the TIF action was instrumental in job growth in their town and in their region. How could it not be? We have an investment, and we have a firm with jobs. On net, however, except for the increment to manufacturing jobs, there is no evidence of economy wide benefits (trade, all nonfarm jobs), fiscal benefits, or population gains. There is indirect statistical evidence that this profligate practice is resulting in a direct transfer of resources from existing tax payers to new firms without yielding region-wide economic and social gains to justify the public’s investment.”

“This analysis suggests that the enabling legislation for tax based incentives deserves revisiting. Though the TIF programs is highly popular among city government officials, and why wouldn’t it be given the growth in property tax yield over the years, there is virtually no evidence of broad economic or social benefits in light of the costs.”

Tax reform and simplification

Writing from Orlando, Florida

Two recent Wall Street Journal articles (“A Golden Opportunity” in the November 1, 2005 issue, and “Triple Jeopardy” in the November 2, 2005 issue) make the case for simplification and reform of our current income tax system. In these articles we learn these things:

“… true reform — changing to a broad-based income or consumption levy that taxes income only once — could yield once-and-for-all annual household income gains of 9%.”

Our tax system has a bias against saving and investment. That slows capital formation and wage growth.

“It is the marginal tax rate — the rate on the additional dollar earned from work, saving or entrepreneurship — that sets incentives and governs the pro-growth gains from tax reform.”

“Eliminating the tax bias altogether in favor of employer-provided insurance is sound tax policy and would increase efficiency in health-care spending.” I have written in the past about how employer-provided health insurance is not good for our economy, or for consumers of insurance.

“A tax system should generate the government’s required revenue with as little economic distortion as possible, while distributing tax burdens fairly. It should not discourage work, saving or entrepreneurship more than is necessary, and it should not discourage individuals from acquiring the skills and education that will increase their productivity. It should not discourage investment, or favor investments in one asset over those in another. In short, an efficient tax system alters economic decision-making as little as possible.

“Although many see simplification as the primary goal of tax reform, promoting economic growth is a more important objective. Even in the relatively short run, the economic costs of a tax system that slows growth are likely to exceed compliance costs. U.S. households spend roughly 1% of GDP in complying with the income tax system. Halving the costs of compliance would be equivalent to raising GDP by one half of one percent — no minor accomplishment. The increase in GDP that might result from a tax reform that reduces tax burdens on investment and shifts the tax system toward a consumption tax are much larger.”

“Tax reform, as distinct from tax reduction, inevitably involves curtailing some entrenched tax benefits. If reform proposals are dissected by politicians in an attempt to promote provisions that reduce their constituents’ tax liabilities while excising those that increase constituents’ tax liabilities, reform will inevitably fail. But if reform proposals are viewed instead as a collection of provisions that leave most families in a position not very different from their current one, while also shifting the tax system toward a structure that will promote long-term economic growth and reduce the burden of tax compliance, then these proposals can command broad popular support and even enthusiasm. Genuine tax reform is a difficult process that requires commitment to the goal of creating a more efficient, simpler and fairer tax system.”

With so much to be gained, why isn’t there a rush to implement tax reform and simplification? The primary reason is that there are many special interest groups with a lot of political power that favor the present system. These interests include those industries and companies powerful enough to manipulate the tax system to their benefit. Politicians, of course, enjoy the present system, as it offers many ways to reward those who help them stay in office and increase their power. It also lets them influence the behavior of nearly everyone through manipulation of the activities that the tax code favors with deductions and breaks.

Sadly, neither promotes economic growth and prosperity, which is what would really benefit the average person. Instead, people cringe at the idea that they might not be able to deduct their home mortgage interest. In reality, the mortgage interest deduction is worth very little to most middle-income families. (I get the feeling sometimes that people think they get to deduct the interest from their tax liability rather than from their taxable income.) Considering today’s low mortgage interest rates, the relatively low marginal income tax rate many people pay, and the fact that the benefit of the deduction is only valuable to the extent it exceeds the standard deduction, many families may not see any benefit from the mortgage interest deduction. But they would probably revolt against any politician who supported its elimination.

TABOR Criticism Analysis

From the introduction to an analysis by the Tax Foundation:

The state of Colorado is under assault. Opponents of Colorado’s Taxpayer Bill of Rights (TABOR) are waging a well coordinated but misleading attack on Colorado’s reputation. This attack takes the form of a number of rankings and statistics that purport to show that the Taxpayer Bill of Rights has decimated Colorado. These rankings and statistics are based on the assumption that if Colorado ranks poorly on things like the adequacy of prenatal care and education spending, then Colorado is failing to adequately care for and educate its citizens, and that the Taxpayer Bill of Rights must be to blame. A closer look at the attacks shows that they fail to prove that the amount a state spends on health care and education determines quality, and they also fail to tell the whole truth about the rankings and statistics of the state of Colorado.

The full article is here: An Analysis of Misleading Attacks on Colorado’s Taxpayer Bill of Rights

Affording Tax Cuts, or Whose Money Is It, Anyway?

The logic of paygo for taxes is backward, in that it starts from the assumption that all tax revenue is Washington’s in the first place and thus any tax cuts must be “offset” so Congress can be made whole. But of course the money belongs to the taxpayers who earned it, and the burden ought to be on the politicians to spend less so Americans can keep more. Republicans claim to believe this. (“Budget Irresolution,” The Wall Street Journal, March 14, 2005)

“Paygo” refers to the “pay-as-you-go” budget rules, which require that any tax cuts be offset by other tax increases. Alternatively, we often hear politicians at all levels claim that we can’t afford tax cuts.

If we stop and think for a moment, we should easily be able to recognize the absurdity of politicians claiming we can’t afford tax cuts. The mindset behind this is that the tax money belongs to the government in the first place, and if we are lucky enough, the politicians might cut our taxes a little, if they decide they can afford it.

As the Wall Street Journal editorial rightly says, the money is ours to begin with! How have we descended to the level where politicians don’t understand this, that is the taxpayer that can’t afford to pay taxes, that taxes are a drain on the growth of our economy?

Part of the answer may be found in the small book “The Law” by Frederic Bastiat. A link to an online version of it may be found on the “Other websites, resources” section of this website.

Testimony in Opposition to Senate Bill 58

From John Todd.


Members
House Taxation Committee
State Capitol
Topeka, Kansas 66612

Subject:
Testimony in OPPOSITION TO SENATE BILL #58 (Sales Tax Increase For The Proposed Downtown Wichita Arena).

My name is John Todd. I am a self-employed real estate broker from Wichita, and I come before you in opposition to the enabling legislation that would allow Sedgwick County to raise the local sales tax 1% to fund a new Downtown Arena in violation of current state law.

Under current state law, Counties in Kansas are not authorized to raise county sales taxes for projects like the proposed Downtown Wichita Arena without first obtaining the required legislative approval prior to any vote of the public. A public vote advertised as non-binding was held in Sedgwick County on November 2, 2004 without the legislative approval as required by law, and now Sedgwick County officials are asking you to approve this illegal vote retroactively to the November General Election.

Before you consider the favorable passage of Senate Bill #58 into law that would make an illegal vote legal, ex post facto, after the fact, and retroactively, you really ought to consider what was the original legislative intent of the current state law in the first place, and whether it is good precedence to allow counties to decide which laws to obey and which to ignore. Does anyone suppose that the intent of the current law was a desire on the part of prior legislators to exercise some modest control over a counties ability to “approve” massive sales tax hikes on it’s citizens, particularly for non-essential entertainment venues like arenas? Do you, as legislators not have a fiduciary responsibility to your constituents and the people of Kansas by demanding that local governmental units follow the rule of law in the same manner as you expect citizens to follow the law? If the current statute is flawed, perhaps you should be working to correct those flaws before you allow Sedgwick County to break the law?

The solution to this problem is for you to reject Senate Bill #58 or at a bare minimum, I would suggest that you amend the Bill by approving the 1% sales tax subject to new vote of the people, as current state law requires. Local governmental units should not be allowed to selectively ignore the state law(s) they chooses not to follow by essentially placing themselves above the law. This sets bad legislative precedence, and you should not allow it to happen.

Sincerely,

John R. Todd

Testimony regarding House Bill No. 2132

Written testimony of Bob Weeks regarding House Bill No. 2132. A pdf version is available here: https://wichitaliberty.org/files/House_Bill_2132_Testimony_by_Bob_Weeks_2005-03-10.pdf

March 10, 2005

Thank you for allowing me to present this written testimony. I realize that the voters in Sedgwick County voted for the arena sales tax increase. I believe, however, there is ample reason why you should vote against the tax. The idea of the taxpayer-funded arena came about so fast in the summer of 2004 that there was little thought given to the underlying issues. I wish to present what my research has uncovered.

WSU Study Not Complete

On of the main arguments advanced for having all the residents of Sedgwick County pay to build the arena was a study prepared by the Center for Economic Development and Business Research at Wichita State University. The study claimed a large economic benefit from the arena. It is because of this economic benefit that arena supporters say the entire community should pay to build the arena. This study, however, is incomplete in two important areas: its lack of depreciation accounting, and it ignores the substitution effect.

No Depreciation Accounting

Government Accounting Standards Board Statement 34 requires governments to account for the cost of their assets, usually by stating depreciation expense each year. Through a series of email exchanges with Mr. Ed Wolverton, President of the Wichita Downtown Development Corporation, I have learned that the WSU Center for Economic Development and Business Research was not aware of this requirement when they prepared their study. Mr. Wolverton admitted this after checking with the study authors. Furthermore, Mr. Chris Chronis, Chief Financial Officer of Sedgwick County, in an email conversation told me that the county will take depreciation expense for the downtown arena. I do not know what a figure for depreciation expense would be, but it would likely be several million dollars per year, and it would materially and substantially change the arena’s financial footing.

No Substitution Effect Allowed For

In a television new story reported by Mr. Erik Runge of KWCH Television on October 25, 2004, I was interviewed, and I mentioned the substitution effect. This is the term used to describe what research has found: that much of the new economic activity such as bars and restaurants that might appear around a downtown arena would be bars and restaurants that have moved from other parts of the city. There is little or no new economic activity, just movement of existing activity. Mr. Runge interviewed Mr. Ed Wolverton, President of the Wichita Downtown Development Corporation, who said “In WSU’s report they felt like there definitely could be some substitution effect.” The reporter explained “But how much was never studied. Downtown development backer Ed Wolverton says mostly due to time restraints.”

These two glaring omissions of materially important facts by the WSU study should lead us to question its other findings. Other than the report on KWCH, I saw no reporting of these two matters.

Claimed Economic Benefit is Not Realized

Arena supporters say that everyone should pay to build and operate the arena because it will generate economic impact that everyone will benefit from. The economic benefit claimed by arena supporters, however, has not been found to materialize in other cities. In the March 2001 issue of “FedGazette,” published by the Federal Reserve Bank of Minneapolis, an article titled “Stadiums and convention centers as community loss leaders” contains this quote:

“Current research indicates that stadiums and arenas have a particularly bad track record when it comes to delivering on promises of community economic windfalls. University researchers Mark Rosentraub and Mark Swindell found that three decades worth of studies ‘lead to the inescapable conclusion that the direct and indirect economic impacts of sports teams and the facilities are quite small’ and do not create much in the way of new jobs or economic development.”

In a paper titled “Professional Sports Facilities, Franchises and Urban Economic Development” (UMBC Economics Department Working Paper 03-103) by Dennis Coates and Brad R. Humphreys of the University of Maryland, Baltimore County we find this quote:

“Siegfried and Zimbalist (2000) recently surveyed the growing literature on retrospective studies of the economic impact of sports facilities and franchises on local economies. The literature published in peer-reviewed academic journals differs strikingly from the predictions in ‘economic impact studies.’ No retrospective econometric study found any evidence of positive economic impact from professional sports facilities or franchises on urban economies.”

Arena Tax Requires Everyone to Subsidize the Interests of a Few

Since, as current research has found, arenas do not generate the positive economic impact that their supporters claim, the arena tax instead becomes the public as a whole subsidizing the leisure activities of a relatively small number of people. The people who do use the arena, moreover, are quite easy to identify: they purchase tickets to events, or they pay to rent the arena. It is these people who should pay the full cost of the arena construction and operation.

Local Officials Not Truthful

Sedgwick County Commissioners stated that if the downtown arena sales tax did not pass, they would borrow money to renovate the Kansas Coliseum. If we do the math on the figures they quoted, that is to borrow $55 million and pay it back at $6.1 million a year for 20 years, we find that the interest rate is 9.17%, which is a terribly high interest rate for a government to pay. The county commissioners told us they were ready to pay this much if the arena tax didn’t pass.

I wrote to Sedgwick County Commissioner Tom Winters, asking him for an explanation. He replied that the interest rate is really 7.5% for this reason: To the $55.3 million cost of the renovations, we must add $6.5 million for capitalized interest during the construction period, and $.9 million for debt issuance costs. So yes, Commissioner Winters is correct about the 7.5% rate, but this also means that the cost of the Coliseum renovations should be stated as $62.7 million instead of $55 million. But even 7.5% interest is too high to pay.

What is troubling is that local government officials are not being truthful with the public.

GOP and ex-GOP Legislators Promoting Higher Kansas Taxes

From Karl Peterjohn, Executive Director Kansas Taxpayers Network


In a March 4 report on Democrat Washington Day events in Topeka, Hawver News Editor Martin Hawver told about two well known Republicans involved in this statewide Democratic Party event. First is former state representative and former house majority leader Joe Hoagland, ex-Rino Johnson County, who told Democrats that, “I’m never going back,” to the KS GOP. Hoagland also claimed that there were a number of fellow GOP “moderates” aka as liberals who would be joining him on becoming Democrats. None were named in this article. Hoagland briefly flirted last year with challenging Sam Brownback in the 2004 GOP primary but decided not to do so.

Also attending this event was, as Hawver described him, “trial lawyer,” state Senator John Vratil, R-Johnson County. Vratil could have also been described as a school district attorney as well as Vice President of the Kansas senate or vice chairman of the senate’s education committee or chairman of the judiciary committee.

Hawver reported that Vratil wanted to see fellow trial attorney John Edwards speak to the Democrat gathering and was attending as a guest of the senate minority leader Tony Hensley. Hawver explicitly said that Vratil was definitely not following Joe Hoagland’s departure from the ranks of the northeast Kansas Rino’s for the Kansas Democratic Party. Regardless of how liberal Vratil can be (he has one of the lowest fiscal scores on KTN’s vote rating) I cannot see Sen. Vratil leaving the GOP while there are 30 Republicans out of 40 Kansas senate seats.

This is information that Kansas conservatives and folks interested in the Repubican Party in Kansas should know about concerning these efforts at “bipartisanship,” as well as a better understanding of the domination by tax ‘n spend, socially liberal Republicans in the Kansas senate’s current leadership. Soon, that leadership is expected to provide a “revenue enhancement” to help fund the second and third year school spending hike proposals coming out of the senate education committee and its liberal Republican leadership.

Last week the senate GOP majority passed a school spending bill that would increase state spending by almost $150 million a year above the current $2.7 billion for less than 445,000 FTE students in the FY 2006 budget. This bill would also require additional increases in local property taxes above this amount because of the state’s spending growth can automatically trigger higher school district spending within the state’s quite complicated school finance formula. Currently, if all state, local, and federal funds in the current budget year are spent, the average per pupil expenditures are budgeted at $10,162 in the 2004-05 school year.

Governor Sebelius, legislative Democrats, school district lobbyists and adminstrators as well as their attornies who are promoting the school finance litigation are all claiming that higher taxes must occur to meet the Kansas Supreme Court’s January 3, 2005 school finance edict. The court’s decision, that cited several areas where public school funding should be increased, is not final but is subject to court revision on or after April 12, 2005.

The legislature is scheduled for an April 1, 2005 first adjournment but will return to Topeka for a three day “veto” or wrap up session on April 27. In 2002, then Governor Graves was successful in getting over $350 million in higher sales, gasoline, cigarette, business franchise, and other taxes enacted during this “veto” session. Since there is not a daily newspaper in this state with a daily circulation exceeding 5,000 a day that has opposed any of the numerous tax, fee, or other “revenue enhancements” that have become annual events in this state since 1999, the final outcome from this year’s legislature is quite uncertain.

Last week the Kansas senate rejected two separate proposals to raise state taxes. A proposal to add a 7.5% surcharge and give Kansas the highest personal income tax rate in our five state region was defeated with only nine votes cast in favor (6 Democrats and 3 Rino’s) proposed by Sen. Pete Brungardt, Rino-Salina. Manhattan Rino Senator Roger Reitz’s proposal to raise the state’s sales tax by 1/2 cent or almost 10 percent (current rate is 5.3%) received only five votes from tax ‘n spend liberal Republicans, but most of the senate Democrats passed on this vote.

The trial attorney heading up the plaintiffs in the Kansas Supreme Court lawsuit, Alan Rupe, is quote in today’s newspapers that both the senate and house passed school finance spending increase proposals are not adequate and in violation of the Kansas Supreme Court’s decision. KTN has not been successful in convincing the legislature to add a provision to the school finance formula that would do three things critical for improving the deeply flawed and expensive school finance system in Kansas. The three changes are: 1) Require that all federal school funds be included in local school district budgets–currently, most Kansas school districts exclude federal title funds from their official budgets; 2) require voter approval for any local or state tax hikes for; and 3) cut state funding for any local school district that either challenges the constitutionality of school finance in Kansas or the adequacy of state funding. If the school district’s lost $5 in state funding for every $1 spent the previous year for school lawsuits, I think this litigation’s funding would dry up quickly. However, if I’m wrong, let’s cut the funding by $10.

KNEA Tax Plan Would Hurt Kansas

From our friends at the Kansas Taxpayers Network.

KANSAS TAXPAYERS NETWORK
P.O. Box 20050
Wichita, KS 67208
316-684-0082
FAX 316-684-7527
www.kansastaxpayers.com

March 1, 2005
Editorial For Immediate Release

KNEA TAX PLAN WOULD HURT KANSAS

By Karl Peterjohn

The powerful and left-wing National Education Association’s Kansas affiliate is working hard to raise your taxes. In a February Olathe News article Terry Forsyth, one of the Kansas National Education Association’s (KNEA) lobbyists, is quoted claiming that there is no correlation between taxes and job growth.

Obviously Mr. Forsyth seems unfamiliar with high tax and high spending states like New York that have lost jobs and population as people have repeatedly voted with their feet and moved to states with lower taxes and limits on tax growth. Colorado has enjoyed massive economic and population growth since their lid on higher state and local taxes was enacted roughly 15 years ago. The Colorado Taxpayer Bill Of Rights (TABOR) has been a critical factor in helping that state succeed economically and allowed income to grow faster than taxes there.

This KNEA lobbyist claims that job losses in the private sector would be more than offset by roughly doubling the number of jobs working for government. That’s a paradigm for inefficiency and another excuse for government “make work” programs. That didn’t work in the 1930’s during the Great Depression in this country and it didn’t work as an engine for economic growth in the old Soviet Union either.

The Wichita based Flint Hills Center for Public Policy’s econometric model estimated that income and sales tax hikes proposed in 2004 by Governor Sebelius would cost this state at least 4,500 private sector jobs. Sadly, this model could not factor in the additional job losses proposed by the governor’s plan to raise the state’s property tax by 10 percent. Governor Sebelius continues to push for higher Kansas taxes at the statehouse.

Governor Sebelius’ proposed hike in state property taxes is occurring at a time of soaring appraisals as well as millage increases. Property tax hike proponents are hurting this state’s economy daily, and this problem is getting worse with the automatic property tax hikes caused every spring. In addition, Kansans’ average income already lags well below the national average but our per pupil school spending is well above both the national and the amounts spent in neighboring states. In the 2004-05 school year, the average public school student will cost taxpayers $10,162 according to the most recent Kansas Department of Education budget figures. This is a large increase over the 2003-04 spending of $9,235 and the first time the statewide average went into five figures.

The KNEA lobbyist took the position that all taxes should be raised to meet the Kansas Supreme Court’s mandate on school finance. This is a blatant attempt to mislead Kansans since the court did not issue any such requirement to raise taxes. It’s not there. The court’s decision is less than five pages long and can be found at: www.kscourts.org/ kscases/supct/2005/20050103/92032.htm. You should go on line and make up your own mind by reading this court’s edict.

Governor Sebelius wants to raise Kansas taxes to help the various spending lobbies in Kansas. Kansas government is too large today. Any tax increase to expand Kansas government is like taking your 400 pound friend out to your local donut shop. Kansas cannot tax itself wealthy or spend ourselves rich.

######

Karl Peterjohn is a former journalist, California state budget analyst, and executive director of the Kansas Taxpayers Network.

Increase our awareness of taxes

As the annual tax season is upon us, we should take a moment to examine our level of awareness of the taxes we pay.

First, very many families don’t pay any federal income tax. According to a study by the Tax Foundation (link: http://www.taxfoundation.org/ff/zerotaxfilers.html) 58 million households, representing some 122 million people or 44 percent of the U.S. population, pay no federal income tax.

For those who do pay taxes, they often aren’t aware, on a continual basis, of just how much tax they pay. That’s because our taxes are conveniently withheld for us on our paychecks. Many people, I suspect, look at the bottom line — the amount they receive as a check or automatic bank deposit — and don’t really take notice of the taxes that were withheld. This makes paying taxes almost painless.

An alternative would be to eliminate the withholding of taxes from paychecks, and from monthly mortgage payments, too. Instead, each month or year the various taxing governments would send a bill to each taxpayer, and they would pay it just like the rest of their periodic bills. In this way, we would all be acutely aware of just how much tax we pay. I’m aware there is an obvious collection problem.

A further perversion is that many people are happy during tax season, because they get a refund. And they’re delighted to get that refund, so much so that many will pay high interest rates on a refund anticipation loan just to get the money a little earlier. The irony is that by adjusting their withholding, they could take possession of much of that money during the year as they earn it.

The other people happy during tax season are tax preparers. As a country we spend an enormous effort on tax recordkeeping and compliance. Another study by the Tax Foundation estimates that in 2002 we spent, as a nation, 5.8 billion hours and $194 billion complying with the federal tax code. (5.8 billion hours is equivalent to about 2,800,000 people working 40 hours per week, 52 weeks per year.) By simplifying our tax code, we could eliminate much of this effort, and return that effort to productive use.

Since tax withholding from paychecks and mortgages reduces our awareness of just how much tax we pay, it’s unlikely that governments will stop withholding and submit a bill to taxpayers. It’s left to ourselves to remain aware of how much we are paying.