Voice For Liberty

Tag: Taxation

  • President Bush’s tax hike

    At the end of March 2007, President Bush raised taxes on Americans. How so? He did it by applying tariffs to imports of paper from China.

    The measure is supposed to help Americans, but all it does is hurt us. Donald J. Boudreaux’s column Paper Chase from the Pittsburgh Tribune-Review explains how this happens. A portion follows:

    The Bush administration recently raised Americans’ taxes.

    If you missed this item in the news, it’s because this tax hike isn’t described forthrightly by government nor is it reported forthrightly by the media. The tax hike I’m talking about is the higher tariff on paper products imported from China.

    “Tariff” is simply another word for “excise tax” — here, a levy imposed by government on each unit of some class of products bought domestically.

    Descriptions of higher tariffs, though, almost always focus on foreigners — such as a headline in this very paper on March 31: “U.S. to slap trade tariff on China.” But a more accurate headline would have read “U.S. to slap higher taxes on Americans buying paper from China.”

    The first, actual headline gives the impression of Uncle Sam imposing some burden on foreigners. And while a tariff does harm foreign sellers, its chief victims are domestic consumers. This fact is hidden by talk of tariffs as being something done to foreigners.

  • 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.

  • Are you a second class Kansan?

    Are You a Second Class Kansan?
    By Karl Peterjohn, Kansas Taxpayers Network

    The Kansas legislature is in the process of deciding how wide the separation will be between various classes of Kansans. State Senator Peggy Palmer, R-Augusta, and State Representative Judy Morrison, R-Shawnee, introduced bills in their separate legislative houses that would have exempted social security payments from the Kansas personal income tax this year.

    Both bills attracted numerous co-sponsors for this tax cut proposal with a $19 million price tag. The intent was to eliminate the disparate treatment that exists in Kansas income tax law that exempts government pensions while taxing social security. Private pensions in Kansas are also taxable, but this bill does not address the entire disparity, just the social security portion.

    So government employees are granted a large tax break while citizens working in the private sector are expected to pay more. What is particularly outrageous about this disparity is the fact that folks with modest social security and private pensions are already paying substantially more in Kansas income taxes than, say a retired Kansas Supreme Court justice or a retired university professor.

    Now, everyone who pays into social security will be charged at both ends. They are taxed on their income when paying into social security while they are also taxed when receiving a social security check. Public employees are only taxed when they pay into their KPERS state/local pension contributions, but their government pension checks come back tax free.

    The private sector pensions and social security payments are taxed. In addition, additional state tax funds are needed by the state to make up for the unfounded liabilities within KPERS. Another pension cost is for the occasional “bonus” checks the legislature provides to government retirees that are most frequent in the fall of even numbered years when elections are pending. That price tag is another burden for the second class private sector citizen to pay in Kansas. The private sector also lacks civil service job protections too.

    Opposition to the Palmer-Morrison bills is coming from self-described “moderates” in both parties who are worried about excessive tax cuts as they get ready to debate whether state spending should grow as much as 9 percent and top $6 billion in the General Fund for the first time, or some smaller amount that might increase state spending by “only” 4.5 percent. Should state spending grow $250 million (4.5 percent) or over $500 million?

    Liberal Senator Janis Lee, D-Kensington, opposes exempting social security in the senate tax committee. Senator Lee believes that many low income folks are already exempt and this proposal would benefit, “the rich.” Apparently, the middle income folks with private pensions and social security should continue to pay more than retired bureaucrats and university professors from the Regents Institutions.

    In Kansas, the citizens who have worked in the private sector are second class citizens expected to pay more than their more affluent neighbors with government pensions. This is unfair. This is another reason that private sector Kansans have a tendency to retire to states with more equitable fiscal climates.

  • The decline of local chambers of commerce

    The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.

    …

    In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”

    …

    “I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”

    From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007

  • Tax Growth Exceeds Income Growth

    Tax Growth Exceeds Income Growth
    By Karl Peterjohn, Kansas Taxpayers Network

    Kansas Legislative Research is reporting that state and local taxes grew 9.83 percent last year. That is a major reason the state has $300 million in revenue growth to either spend or return to the folks who earned it: taxpayers. It is clear that Kansas has some sizable economic problems facing this state.

    Governor Sebelius’ State of the State speech did recommend some business tax breaks but there does not seem to be any breaks for the average taxpayer. In fact, the opposite is true as spending proposals for “universal health care,” a $700 million regents building request, and the rest of the K-12 spending on public schools in the wake of the Kansas Supreme Court’s spending edicts each have the potential to easily exceed the $300 million growth.

    Do any of these folks remember the children’s tale about the goose that laid the golden eggs?

    The Kansas economy is growing, although nowhere near the almost 10 percent growth enjoyed by 2006 revenues. The fastest growing tax is the state’s corporate income tax that grew over 54 percent in 2006. The tax on financial institutions saw revenue growth in excess of 40 percent. Both of these rates are highly dependent upon the underlying economy and these increases are based on relatively weak state tax revenues in the previous few years.

    Another fast growing tax was the severance tax on oil and gas. That rose over 29 percent last year. High energy prices are good for the high state energy taxes. These are all reasons explaining the growth in tax revenues.

    State Senator Jim Barnett was unsuccessful in convincing voters that high Kansas taxes place this state’s economic future in jeopardy. While Barnett may have failed at convincing a majority of voters, he apparently succeeded in convincing his opponent, Governor Sebelius, that there is a real problem here. She has now proposed reductions in the state’s business franchise, corporate income, and unemployment tax placed on business in her 2007 State of the State speech.

    Several recent national fiscal surveys have pointed out that Kansas’ fiscal climate is not conducive to economic growth and we rank poorly with most of our neighboring states. There is tremendous tax uncertainty that is reflected in both the high level of property taxes in Kansas but the sizable property tax increases that occur through the appraisal process as well as higher mill levies.

    All Kansas property taxes grew 7.45 percent according to these state figures. That’s bad news for property owning taxpayers whose incomes were not able to grow that fast. Sadly, that covers a large number of Kansans. If the bulk of the state’s $300 million windfall gets spent on growing Kansas government, the fundamental economic problems will remain.

  • Wichita City Council and Cessna Aircraft Company Industrial Revenue Bonds

    I received this letter written to Wichita Mayor Carlos Mayans and members of the Wichita City Council. The author makes excellent points about the harmful effects of special tax treatment for special interests. A better goal would be to work to reduce taxes for all companies and all people. This way, each company and individual can decide how to make best use of their own funds, instead of the Wichita City Council deciding for us. That is, in effect, what tax breaks like this do. It is the government deciding that resources should be allocated in a way different than how the market has decided. Our experience tells us that governments aren’t as smart as markets, and that governments almost always allocate resources inefficiently.

    Mayor Carlos Mayans
    Wichita City Hall
    455 N. Main St.
    Wichita, KS 67202

    Dear Mayor Mayans:

    Item 27 on the Wichita City Council’s December 12, 2006 agenda would have the city council approve a $99 million bond issuance for Cessna Aircraft Co. This is based upon the total $800 million Industrial Revenue Bonds (IRB) for Cessna Aircraft Company authorization approved earlier this year by this council.

    If that is the case, the $99 million issuance (100% abatement) being sought will reduce city property tax revenues by my calculations almost $800,000 a year, or roughly $4 million to the city over five years. The total value of the tax break when all units of government are included is much larger.

    That is a large tax break for Cessna Aircraft Company. This is a sizable reduction when city property tax revenues were projected at $89.5 million for 2006. According to the largest taxpayer list from the Wichita Business Journal, Cessna Aircraft Company paid $2,484,343 in property taxes in 2005. The abatement being sought is the equivalent of almost 32% of the property taxes paid by this company in 2005.

    Earlier this year Mr. Jack Pelton, the President and CEO of Cessna Aircraft Company, provided public testimony in support of raising property taxes in Sedgwick County almost 10 percent. That is certainly a position that both Mr. Pelton and his company may take. According to Textron’s 2005 annual report (www.textron.com/resources/textron_annual_report_2005.pdg), the Cessna Aircraft earnings for this publicly traded company were $457 million so they could certainly afford to pay their share of this increase. In fact, they can afford to pay this tax with greater ease than almost every other Wichitan or Wichita based company.

    This week Mr. Pelton and Cessna Aircraft’s ordinance for this large property tax reduction/IRB for this firm will be in you and your city council colleagues’ hands. You and your council colleagues need to know that this tax break demonstrates rank hypocrisy from both Cessna Aircraft and Mr. Pelton. This council item conflicts with Cessna’s support for higher property taxes countywide this summer. Mr. Pelton and Cessna Aircraft Company want special property tax breaks that the rest of the citizens in Wichita do not receive.

    Two recent national surveys indicate that Kansas has high property taxes. The Tax Foundation (see Special Report 146, Nov. 2006) and the Small Business & Entrepreneurship Council (Small Business Survival Index 2006) have both issued reports showing that Kansas has the overall highest property taxes on a statewide basis of the five states (KS and surrounding states) in our region. Nationally, Kansas was among the top 25 percent of property taxes measured both as a percentage of income or on a per capita basis. Neighboring Oklahoma, in contrast, scored as the 4th lowest among all 50 states.

    Kansas has high taxes in general and high property taxes in particular. However, the tax abatement for Cessna Aircraft does not eliminate the tax burden. This tax is shifted onto the backs of homeowners, farmers, and small and medium sized businesses in this community who lack the political clout to receive a property tax abatement. The total tax break for Cessna from all levels of Kansas government is almost $3 million a year or just under $15 million over the next five years (assuming current mill levies). Ironically, all national surveys indicate that small business is more successful in creating jobs than large firms.

    So Cessna Aircraft will soon receive another special tax break. This is on top of earlier IRBs issued on their behalf by the city. Other employers will have to pay their property tax plus the share shunned by Cessna Aircraft. Cessna Aircraft’s overhead costs are reduced with the property tax abatement. As a result Cessna Aircraft is able to pay employees more and be more selective in hiring. After all, these overhead costs have been shifted onto the rest of the taxpaying community. Businesses without the property tax abatements have to pay higher overhead costs (in the form of higher property taxes) and are at a competitive disadvantage for hiring workers from within this community if they compete with Cessna (or other firms with these tax breaks) in hiring workers.

    Special tax breaks for special firms hurt the smaller businesses that compete for labor against these firms. This provides a major warning sign to outside firms that might consider relocating into Wichita. These special tax breaks raise the risk and uncertainty for firms without these breaks in this community. This is a major reason why it is hard to attract firms into the Wichita market.

    It is clear that Cessna Aircraft Company’s concern about high property taxes does not extend beyond the company’s property line. In addition, the cyclical nature of Cessna Aircraft’s business has meant sizable and substantial changes in the company’s employment. Despite these sizable tax breaks, Cessna’s Wichita employment is much lower in 2005 with 8,500 employees than it was five years earlier when Cessna had 12,509 employees. Cessna Aircraft’s employment figures have changed dramatically according to the Wichita Business Journal’s employment figures. The numbers change substantially annually.

    That is another reason why Cessna Aircraft Company needs to shift their overhead costs onto the rest of the community. Companies that engage in widespread “hiring/firing” binges have a harder time attracting and keeping workers. This is especially true for skilled and highly educated workers. If they pay the same overhead costs as the other firms seeking Wichita area workers, they have a problem finding workers. Cessna needs to be able to offer extra wages and/or benefits to attract workers into this type of cyclical company.

    There is no reason that Cessna Aircraft Company’s self imposed problems should be shifted onto Wichita area taxpayers at large. Cessna Aircraft Company has testified in support of raising property taxes in this community. The Wichita city council should reject their request for an additional property tax abatement, and welcome them into the high property tax environment that they supported in front of the Sedgwick County commission this summer. Help Cessna Aircraft Company end their policy of tax hypocrisy and their plan to shift higher taxes onto the non-abated firms and the rest of the citizens in this community.

  • Tax funded lobbyists spending revealed

    Tax Funded Lobbyists Spending Revealed
    By Karl Peterjohn, Kansas Taxpayers Network

    There are lobbyists and there are taxpayer funded lobbyists roaming the halls of the statehouse during the legislative sessions. A small window on the taxpayer funded lobbying opened up following the two separate legal actions of Attorney General Phill Kline and the Topeka Capital-Journal in seeking spending data from the Schools for Fair Funding organization. The attorney general and the newspaper deserve a pat-on-the-back for fighting for the disclosure of this information.

    Schools for Fair Funding is the tax funded group of 19 medium and large public school districts that do not have enough tax funds for their classrooms but have plenty of cash for lawsuits. They even have a euphemism for this spending. At an August news conference Winston Brooks, the superintendent of the Wichita public schools that is one of the 19 school districts, called this spending an “investment.” Wichita public schools spent $175,000 for this lawsuit and lobbying effort.

    The school districts could afford this since many of them are carrying large cash balances and dumping funds into savings accounts and certificates of deposit. This is a statewide issue and not just an issue in some Johnson County public school districts. Wichita public schools’ unencumbered cash balance at the end of their 2005-06 school year was a record setting $82,456,158 or 15.2% increase over the previous year. Some investment.

    The school districts succumbed to this legal pressure generated by these two lawsuits and issued their expenditures August 24. Over $2.9 million in tax funds was spent by the school districts with over $2.2 million for lawyers but also included in this spending over six years was $474,000 for two statehouse lobbyists for this group. This reported expenditure is the tip of a spending iceberg that covers the over 100 lobbyists registered to lobby on behalf of tax funded cities, counties, schools, special taxing districts, elected official organizations, and colleges in this state.

    Your tax funds are used to lobby for more sales tax authority this year for cities and counties — which the legislature and Governor Sebelius granted. The schools lobbied for millions and millions of additional state tax funds and got even more. In the past the city and county lobbies successfully killed the property tax lid in 1999. Is it any wonder that your property taxes are rising?

    There is a crying need for additional disclosure about tax funded lobbying in Kansas. This lobbying is the tip of the iceberg since the politically active local officials at city hall and the courthouse are the first ones to receive statehouse information from their lobbyists. Naturally, elected officials are quite politically well connected even without having their tax funded lobbyists.

    These facts are well known among statehouse lobbyists. Sadly, these facts are not well known by average Kansans. The revelation of almost $1/2 million in tax funds being spent by Schools For Fair Funding for just two lobbyists is the tip of a much larger government lobbying iceberg and abuse of taxpayers in this state.

    —–

    Karl Peterjohn is the executive director of the Kansas Taxpayers Network and is a former California Department of Finance budget analyst and newspaper reporter.

  • Sedgwick County surrenders key tax advantage

    Sedgwick County Surrenders Key Tax Advantage
    By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

    Spirit Aerosystems CEO Jeff Turner defended the massive spending hike that was used as the primary justification for the county’s 8.8 percent property tax hike in his editorial August 9, 2006. Turner’s support for this increased government spending ignored some important ramifications behind this economically destructive vote.

    Sedgwick County has an important fiscal advantage over 19 other Kansas counties. Sedgwick County has no community college and hence no community college property tax. That property tax is a major reason why this levy makes the total tax burden higher in Butler, Cowley, and Reno counties. The Wichita Area Technical College is becoming this community’s community college. This will mean increasing pressure to raise property taxes. This would be in addition to the current 1.5 mills left over from the old Wichita University days that the county charges.

    Sadly, the Sedgwick County commission seems intent on creating another tax dependent entity here in this community. If Jeff Turner, Spirit Aerosystems and Turner’s former company Boeing want to promote property tax hikes, that is certainly their prerogative.

    It is a public record that Boeing tied as the largest donor for the 2000 Wichita school bond issue with a five figure donation and Raytheon was the largest corporate donor in support of the Local Option Budget property tax hike for Wichita during that 1997 property tax referendum. Cessna’s CEO Jack Pelton spoke out in support of the county’s spending plans that required this property tax hike August 9.

    On the other hand, when the news cameras are generally gone, these aircraft companies return to the city or the county and seek sizable, often 100 percent property tax abatements. So a small or medium sized business gets to pay a much higher proportion of say $100,000 worth of their commercial property than the largest public businesses in this community. This is not fair.

    This distorts the overhead costs shifting the fiscal burden from the taxpayer subsidized onto the businesses without the tax breaks. It also shifts this burden onto homeowners and other taxpayers. Special tax breaks provides the subsidized firms with lower overhead costs so they can afford pay more for employees too. That places small and medium sized firms that lack the political clout and leverage, at a hiring disadvantage as well. If the non tax abated firms have out-of-state competitors their extra overhead costs hurts their ability to compete. However, tax abatements are a big help in cyclical industries that are in perpetual “hiring and firing” cycles and need to pay more because of this employment instability.

    There is certainly a need for qualified workers for many Wichita area businesses. This $40 million county spending hike, that is well above per foot construction costs, ignores a bigger question. How much spending in the government school establishment is enough? Property tax hike advocates are ignoring the fact that well over $3/4 billion in taxes are going to be spent on the 10 public school districts in this county in 2006-07. This figure is growing rapidly in the age of judicial edicts and Montoy.

    2004 Census data indicates that Kansas has the 14th highest property taxes in all 50 states as well as the highest property taxes per capita in our five state region. Soaring appraisals have been the primary cause of this situation but the county’s rising mill levy without getting voter approval is an insult to every county voter. In 1997 almost 90 percent of county voters wanted to retain the property tax lid on local government. County officials helped kill the property tax lid in 1999 and now will not let voters decide this property tax hike at the ballot box. Creating a new level of local government in Sedgwick County with higher property taxes will hurt and hinder overall economic growth here.

  • High tax Kansas exposed again

    High Tax Kansas Exposed Again
    By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

    Businesses and homeowners know that Kansas has high taxes. The appointed and occasionally elected officials setting this state’s fiscal policy are often contemptuous of the fiscal burden being imposed upon Kansans but this is a reality that should not continue to be ignored.

    USA Today reported July 28 that Kansans pay the 14th highest level of per capita property taxes among all 50 states. This was 2004 Census Department data. The high property tax in Kansas means that Kansans pay well above the U.S. average property tax too. This is a bigger problem for Kansans because income in Kansas is only 93 percent of the U.S. average. The number one and two states having the highest property taxes in this survey, New Jersey and Connecticut, both have higher than average income levels.

    The high Kansas property tax creates several surprises that are being ignored by public officials. This includes residential and farm property tax hike advocates like Governor Sebelius. Since there are high taxes on property in Kansas there is a relative decline in housing prices. When relatively hidden property taxes, like special assessments, are included on newer housing, the property tax burden is actually higher since most other states do not impose this extra property tax burden.

    So national surveys look at affordability in housing and Kansas scores well. There is a lot of reasonably priced housing that has large property tax bills on it in this state.

    Since capital goes where it is appreciated, there is a relative decline in business here so commuting times are low. When business leaves, so go the jobs. Kansas employment growth lags behind the U.S. average. According to the governor’s most recent Economic and Demographic Report for the 2007 state budget, show Kansas job growth and income levels both lagging behind national and regional growth. So, it should not be a surprise that public school enrollment continues to decline too. Job seekers take their children with them.

    When Kansas students graduate and enter the job market they often discover that economic opportunity is not in Kansas and they move to more economically vibrant and competitive areas. Even former Governor Graves joined this exodus and left Kansas. Often these folk become “Kansas tourists” who return to see family at Christmas, Thanksgiving, or maybe for a week in summer.

    Affluent Kansans have a tendency to move to states without income taxes as well as states where there are limits on government growth like Colorado with their Taxpayers Bill Of Rights. Colorado scored 23rd on per capita property taxes but far exceeded national income averages.

    Oklahoma, which requires super-majorities for some tax hikes and voter approval before state taxes are raised, had the lowest property taxes in this region scoring 47th nationally. Arkansas scored 49th while Alabama was 50th. Missouri was 37th. It is interesting to note that only Nebraska has a lower percentage growth in population than Kansas according to Census figures. Nebraska’s average property taxes were only a couple of notches lower than Kansas at 16th.

    This per capita rating does not adjust for the wide variance in property taxes within or between states. Utility property is the highest taxed in Kansas with a 33 percent assessment that is almost three times higher than the 11.5 percent assessed on residential property. Small businesses in Wichita pay a much higher proportion of property tax on $100,000 of commercial property than Boeing or Cessna who enjoy their 100 percent property tax abatements. The details in taxation matter a lot.

    The average Kansan may not know the tax details but they do know that when all else fails, they can still vote with their feet. The fact that neighboring Arkansas has now passed Kansas in population is a wake up call that is being ignored by Kansas public officials. High Kansas property taxes in particular and high Kansas taxes in general are both reasons for Kansas’ decline.