Voice For Liberty

Tag: Taxation

  • Government Charity in Sedgwick County

    At the July 25, 2006 Sedgwick County Commission meeting, during the public hearing on the proposed 2007 Sedgwick County budget, a speaker said this in support of funding for mental health services: “I agree with the previous presenter and I’d be willing to forego a few cheeseburgers this year so that if I need to pay more taxes to help provide services, I’m willing to do that.”

    It hardly seems necessary to remind this speaker that she may give whatever she wants of her time and money to any organization she wants. She doesn’t need the Sedgwick County Commission to do it for her.

    This speaker may be thinking that if she agrees to pay a little more in taxes to support her cause, then everyone else will have to pay more, too. In this way, her small additional sacrifice is leveraged by the additional taxes everyone else must pay.

    In fact, many people think this way. Everyone has their own ideas of what the government should do, and if by paying just a little more in taxes myself I can get the government to tax everyone else, why, that’s quite a good deal for me and my pet project!

    The problem is that this government activity is wrong. The economist Walter E. Williams makes the case succinctly:

    Can a moral case be made for taking the rightful property of one American and giving it to another to whom it does not belong? I think not. That’s why socialism is evil. It uses evil means (coercion) to achieve what are seen as good ends (helping people). We might also note that an act that is inherently evil does not become moral simply because there’s a majority consensus.

    It doesn’t matter how noble the cause. To take from one and give to another is wrong, even if it is to provide food or medical services to truly needy people.

    Furthermore, this government “charity” deprives us of our ability to give true charity ourselves, and in the process, makes us less happy than we could be. Arthur C. Brooks, associate professor at Syracuse University’s Maxwell School of Public Affairs, in a commentary in the December 8, 2005 Wall Street Journal titled “Money Buys Happiness” tells us this:

    In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are “not too happy.” At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

    Mr. Brooks also tells us that donating money and time — that is, the giving of charity — illustrates the link between money and happiness: “Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity — empirical evidence that it is indeed more blessed to give than to receive.”

    The operative idea is “to give.” When government takes by taxation, it is not giving.

  • 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.

  • Kansas Spends While Neighboring States Invest

    Writing from Gainesville, Florida

    Thank you to Karl Peterjohn of the Kansas Taxpayers Network for this fine editorial. I have learned that the education lobby in Kansas is very effective in pursuing their agenda in Topeka. I have also learned that the goals of the education lobby, and the teachers union in particular, are not often in the best interests of Kansas schoolchildren.

    The worst thing that happened in Topeka this legislative session was that, as far as I can tell, no progress was made in allowing parents greater choice in where to send their children to school. In fact, I believe we have gone backwards, as advocates for the existing education system and bureaucracy will point to the increased spending on schools as the solution to schools’ problems. It is unlikely that Kansas schools will improve. I hope they do, however, for the sake of the children.

    Kansas Spends While Neighboring States Invest
    Karl Peterjohn, Kansas Taxpayers Network

    Kansas will spend $984.2 million in state funds over the next three years and a record-setting state budget as a result of the 2006 legislature. Alan Rupe, the attorney for the litigious school districts, told the Wichita Eagle that this spending hike is inadequate and demanded more on May 12. The ethically challenged Kansas Supreme Court, three of its seven members having had ethics complaints filed against them in this matter during the last year, will soon render their latest verdict in the long-running school finance litigation that began in the 1980’s. Three members of this court have endorsed the legal theory that would have the court exercising almost perpetual financial oversight on state public school spending and eviscerating the power of elected officials.

    Suing for dollars has been profitable but it is not a universally successful way of setting state budgets. Texas has been undergoing a similar school finance lawsuit and has had a number of special legislative sessions trying to solve their school spending problem. Today, there is now an important difference between Texas and Kansas.

    In Kansas’s case spending is soaring. In Texas, property taxes are being cut over $15 billion and the average homeowner is looking at a $2,000 reduction in their property taxes over the next two years as extra state revenues are being returned to taxpayers. This cut is partially offset with $4 billion in higher cigarette taxes, sales tax on used cars, and restructuring the business franchise tax. Texas state school spending will also grow by $300 million and teachers are getting a $2,000 raise, but the focus is placed on trying to correct property tax problems while improving their public schools. The fiscal focus is upon property tax cuts and rejects raising overall taxes.

    In Oklahoma the legislature still has a number of days left in their 2006 session. It now appears likely that Oklahomans will be enjoying another tax cut as state revenues have rapidly grown and a portion is going to be returned to taxpayers. A bipartisan group of state leaders is looking at cutting the state’s maximum personal income tax rate by 12 percent to 5.5 percent and begin phasing out the state level death tax. However, Oklahoma legislature’s final outcome is still pending.

    Kansas is following the liberal policy prescriptions of left-wing groups like Kansas Families United for Public Education (KFUPE). This government school spending lobby believes that high school spending will lead to economic growth. “Quality public schools are essential to economic growth. Businesses must have a well educated work force to draw from to remain profitable,” KFUPE’s web site claims. KFUPE’s web site inaccurately claims that Kansas spending on public schools has not kept up with inflation. (See Kansas Families United for Public Education (KFUPE) on State Aid to Schools)

    KFUPE also ignores the fact that a number of studies, including the 2006 Kansas Standard and Poors report, that quality education and high levels of spending are not necessarily the same thing. Efficient operating procedures and quality curriculum can mean more to providing quality education than just throwing unlimited tax funds at the schools. Many of the states with the highest level of spending per pupil often lag in educational performance.

    However, high levels of government spending can only occur with high levels of taxes and this has a negative economic impact. Oklahoma and Texas are investing by allowing their citizens to keep a portion of the revenue growth created by the 2003 and 2004 federal tax cuts and income repatriation bills nationally. In Kansas, the state will spend it all to meet the school districts’ legal demands and try to implement the KFUPE economic growth theory.

    The fascinating point is that this is the same fiscal policy that Governor Sebelius’s father tried when he was Ohio’s governor in the 1970’s and raised taxes to fund state spending back then. Bigger government only led to bigger levels of economic stagnation. Government spending growth is a barrier to real economic growth that will be shown once again as Kansas spends its windfall while our neighbors invest in their people.

  • 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.”

  • The decline In Kansas continues

    The Decline In Kansas Continues
    By Karl Peterjohn, Executive Director Kansas Taxpayers Network
    January 17, 2006

    The relative decline of Kansas continues. This decline is vividly demonstrated when state and federal revenue growth is examined.

    Total federal revenues grew 13.9 percent last year to total $2.142 trillion dollars. This was an increase in federal revenues of $262 billion. This increase was almost twice the percentage rate of growth of Kansas state revenues that grew only 7.1 percent or $322 million in fiscal year 2005 that ended June 30, 2005. The federal revenue figures are for the fiscal year that ended September 30, 2005.

    The variance in this growth between Kansas and the other 49 states is important. This data is another confirmation of two recent reports that compared Kansas economic trends and reported distressing results. K.U. economics professor Art Hall and Wichita State University’s Center for Economic Development and Business Research’s (CEDBR) Janet Harrah have issued separate reports indicating that Kansas is lagging in a number of key economic indicators.

    Harrah’s 2005 report showed that income, population, and job growth were lagging in Kansas. This CEDBR study looked at all 50 states using six measurements for population growth, income, and jobs (see: www.wichita.edu/cedbr/). Kansas lags nationally and, even more distressing, was at or near the bottom in almost every category used in this 10 year survey from 1994-2003. Harrah’s study used the most recent 10 year period of federal data that was available.

    Professor Hall’s “Local Government and the Kansas Productivity Puzzle,” focused upon weak productivity in Kansas as well as the sizable growth in government that appears to be a factor in the poor level of productivity growth. Hall’s work was particularly distressing due to the fact that Kansas scored poorly among all plains regional states in most of the measurements he examined. So not only was Kansas lagging nationally, it was also lagging regionally (see: www.cae.business.ku.edu).

    Kansas is a laggard being pulled by the faster growing parts of the United States. This state has an economic growth problem that must be addressed due to the high taxes and resulting high level of government spending in this state. This is a reality that can certainly be ignored by state policy makers in Topeka. However, this is a reality that cannot be denied. Kansas is in economic trouble.

  • Hypocrisy over oil profits abounds

    Writing from Orlando, Florida

    The recent swell of criticism over oil company “windfall” profits, some even coming from people who should know better, is truly remarkable in its hypocrisy.

    It seems that the critics feel that oil companies did nothing extraordinary to earn these profits. Therefore, they don’t deserve them.

    What’s wrong with this criticism? First, I don’t think we want to let the government get in the position of deciding who deserves to keep the profits they earn. It does enough of this already.

    Second, most people would be delighted to find themselves in the position of the oil companies: owning something that is scarce and in high demand. And, a lot of people are in that position, made huge profits, and did little to “deserve” the profits other than being in the right place at the right time. Who are these windfall profiteers that I speak of? They’re homeowners in hot real estate markets, who, by chance, happen to own property that other people are willing to pay high prices for, thereby generating huge windfall profits for those lucky homeowners. Has anyone proposed a windfall tax on these profits?

    (A further irony concerning profits from the sale of one’s own home is that the profit, which is a capital gain, is taxed at rates lower than most people pay on income. Homeowners don’t pay any tax on the first $250,000 (or $500,000 for married taxpayers) of profit, and the rest is taxed at the capital gains tax rate of 15%, and only 5% for those with low incomes. These rates were reduced in 2003. A cut in the capital gains tax rate is usually criticized as a tax cut only for the “wealthy,” but it turns out that many regular people will benefit. I suppose, though, that if your residence that you bought 25 years ago for maybe $50,000 is now worth over a million dollars, you have become “wealthy.”)

    Third, prices are the best way we have to allocate scarce resources. Every other way doesn’t work. But many people forget the lessons of history and think that somehow government can suspend the law of supply and demand.

    Finally, consider who owns these oil companies. If you own any mutual funds, especially index funds, you probably own a piece of these companies.

  • Kansas Income Growth Lags

    By Karl Peterjohn

    You will earn more if you do not work in Kansas. That is nothing new but the size and scope of the economic problem facing Kansans has become more vivid. National data has regularly shown that Kansans’ incomes are lower than the national average and this is impacting the economic climate in this state.

    In September, Wichita State University’s Center for Economic Development and Business Research issued a report showing how badly Kansas lagged with the fastest and slowest growing parts of the United States. In this report Kansas vividly contrasted with fast growing Colorado in all of the measurements being used.

    Colorado, which has been benefiting from their Taxpayers Bill Of Rights limits on state and local government spending increases, had the best economy in our region. Colorado was in the ten fastest growing states when total personal income, earnings per job, per capita income, full, and part-time job growth were measured. Naturally, jobs and income then have an impact reflected in Colorado’s fast growing population too.

    What the Wichita State University study did not report was how Kansas measured when compared with all four of our immediate neighbors. This is bad news for Kansas.

    Personal income growth is weak in Kansas. It is one of the lowest in the entire country at 43rd out of the 50 states plus the District of Columbia for a ten year time period ending in 2003. This federal data ranked Colorado as 3rd highest while our other three neighboring states ranked between 28th and 33rd.

    Kansas was a dismal 41st and once again in the bottom 10 when it came to per person or per capita personal income. Colorado was once again in the top ten at number 9 while Nebraska was 12th, Oklahoma 19th, and Missouri 30th. Earnings by place of work was another measurement W.S.U.’s study examined and Kansas again scored badly. Kansas was worst in this region at 37th while Colorado was once again 3rd.

    There was a bit of good news in job growth percentages since Kansas did not score at the bottom in our region. Missouri was at the regional bottom at 37th and Oklahoma was slightly worse than Kansas at 32nd. The growth in jobs could be attributed to other factors like Missouri and until recently Oklahoma both being states without Right To Work laws that have a positive impact upon job availability.

    Jobs, wages, and income are all factors in a society where people can, and do, vote with their feet. Americans have always been a restless lot and the level of jobs, wages, and income are all important factors on where people decide to live. The W.S.U. study looked at population trends. In 1970, there were more Kansans than Coloradans. Today, there are 1.5 million more residents of Colorado than Kansas. During the 1990s in the hey-day of TABOR, Coloradans’ incomes soared and their population grew over 30 percent.

    Government spending advocates like Governor Sebelius have cited the recent growth in state tax revenues as a sign that the Kansas economy is growing. Sadly, the 7.1 percent growth in state revenues in the fiscal year ending June 30 was less than half the national percentage growth in revenues. Tax revenues show a continuing relative decline for Kansas.

    WSU’s survey indicated that Kansas had the lowest population growth in our five state region. This is not a surprise since there is a costly and highly uncertain fiscal climate to own or operate a business in this state. The judicial activism coming from the Kansas courts with a billion dollar price tag raises this uncertainty even higher and that is too recent for this data. Many liberals in Kansas claim that additional spending on government, particularly public schools, is the solution to economic growth. Higher government spending is much more connected with economic stagnation and decline. Kansas, with high property, income, and sales taxes, provides a regional model on why this state is lagging in wages, incomes and job growth and this is hurting population growth here.