Voice For Liberty

Category: Taxation

  • Sebelius Taxes

    Kansas Governor Kathleen Sebelius, now nominated to be Secretary of Health and Human Services, released a statement yesterday, which reads in part:

    “As a result of these amendments to our 2005, 2006 and 2007 returns, we paid a total of $7,040 in additional tax and $878 in interest.”

    A few thoughts, resisting the obvious cheap shots:

    1. The federal tax code is way too complex. Politicians simply can’t resist using tax law for social engineering and to reward and punish. Simplification is essential.

    2. I think the governor gave in too easily. But that’s understandable in today’s political climate where tax problems have derailed other nominations and careers. For example, she couldn’t locate the acknowledgement letter for some charitable donations she made. So she eliminated these deductions. Me, I would have asked the charity to reissue the letter. But, there’s probably a rule against that.

    3. Hiring a CPA as Sebelius did to review three years of tax returns is probably expensive. That’s on top of what they may have spent to have the returns prepared in the first place.

    4. The cost of complying with the federal tax system is huge. In 2005, the Tax Foundation estimated that individuals, businesses, and nonprofits spent $265.1 billion complying with the tax code. That cost represented 22% of the amount of tax collected.

    5. In Kansas for 2005, compliance costs for the state income tax were estimated at 27.1% of the tax collected. That’s $877 per person. Compared to other states, Kansas ranks about in the middle on these measures.

    6. The cost of complying with the federal tax code is highly regressive. Those earning less than $20,000 spent nearly 6% of their income on compliance. Those earning $200,000 and over — that’s the Sebelius family neighborhood — spent about 0.5%.

  • Tax Collections Rise Without Taxes Rising

    A letter printed in the January 1, 2009 Wichita Eagle, written by a Christopher Brooks of Wichita, argues that political advocacy groups that ask legislators to sign a pledge to not raise taxes are engaging in “economic blackmail.” This process, Mr. Brooks writes, is “unfair to those who have a different viewpoint on spending but also tantamount to having a legislator on a string.”

    Mentioned by this author as groups that ask legislators to sign these purportedly harmful pledges are Kansas Taxpayers Network and Americans for Prosperity — Kansas. These two groups are merging.

    I think this author may not realize that by simply doing nothing, tax revenues rise. Naturally, government spending rises in response.

    Government doesn’t have to “raise taxes” in order to generate more revenue. Many taxes are based on a tax rate multiplied by some level of economic activity. That’s the case with the sales tax. As people spend more — either because their wealth is increasing and they desire to consume more, or maybe simply because inflation has caused prices to rise — sales tax receipts rise. The same goes for income taxes, although with this tax there’s the additional danger that as your income rises, you may move into a higher tax bracket, where the additional money you earn beyond some level is taxed at a higher rate.

    Property taxes are different, as the simple act of owning property is sufficient to attract the attention of the tax collector. These taxes rise pretty much automatically too, when the appraiser decides that your property is worth more.

    This is important to understand: tax revenues rise without the government raising taxes. When running for Sedgwick County Commissioner last year, Karl Peterjohn campaigned on a platform that included the requirement of voter approval for tax increases. His opponent asked if we wanted to hold expensive special elections whenever the county government needed more revenue, implying that these elections would need to be held frequently. But as I’ve shown, revenue rises without tax increases.

    Mr. Brooks also writes that some people may “have a different viewpoint on spending.” That’s one of the biggest problems with government: Many people and legislators are full of ideas of how to spend someone else’s money.

  • Is Taxation Voluntary?

    In this video, Senate Majority Leader Harry Reid shows just how ignorant he is. The November elections have given this man even more power, as his party’s majority in the senate will soon be larger. See Senator Harry Reid — Is Taxation Voluntary?

  • 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.