Tag: Taxation

  • David Burk, Wichita developer, overreaches

    Today’s Wichita Eagle contains a story about a well-known Wichita real estate developer that, while shocking, shouldn’t really be all that unexpected.

    The opening sentence of the article (Developer won tax appeal on city site) tells us most of what we need to know: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

    Some might say it’s not surprising that Burk represented himself in the way the Eagle article reports. When a person’s been on the receiving end of so much city hall largess, it’s an occupational hazard.

    And when you’ve been the beneficiary of so much Wichita taxpayer money, you might even begin to think that you shouldn’t have to pay so much tax anymore.

    At the state level, you might seek over a million dollars of taxpayer money to help you renovate an apartment building.

    Burk has certainly laid the groundwork, at least locally. A registered Republican voter, Burk regularly stocks the campaign coffers of Wichita city council members with contributions. These contributions — at least for city council candidates — are apparently made without regard to the political leanings of the candidates. How else can we explain recent contributions made to two city council members who are decidedly left of center: Lavonta Williams and Janet Miller? Burk and his wife made contributions to their campaigns in the maximum amount allowed by law.

    This is especially puzzling in light of Burk’s contributions to campaigns at the federal level. There, a search at the Federal Election Commission shows a single contribution of $250 to Todd Tiahrt in 2005.

    It’s quite incongruous that someone would contribute to Tiahrt, Williams, and Miller. Except Williams and Miller can — and have — cast votes that directly enrich Burk. Politicians at the federal level don’t have the same ability to do that as do Wichita city council members. Well, at least not considering Wichita city business.

    So which is it: is Burk a believer in Republican principles, a believer in good government, or someone who knows where his next taxpayer handout will come from?

    Burk’s enablers — these include Wichita’s lobbyist Dale Goter, Wichita Downtown Development Corporation president Jeff Fluhr and chairman Larry Weber, Wichita City Manager Robert Layton, Wichita economic development chief Allen Bell, and most importantly Wichita Mayor Carl Brewer and various city council members — now have to decide if they want to continue in their efforts to enrich Burk. Continuing to do so will harm their reputations. The elected officials, should they run for office again, will have to explain their actions to voters.

    At the state level, the bill that will enrich Burk will likely be voted on in the Kansas Senate this week. Then, similar action may take place in the Kansas House of Representatives. Let’s hope they read the Wichita Eagle in Topeka.

  • Kansas can’t afford a cigarette tax hike

    This is a repost from 2008. The issues are the same, except this time it is Kansas Governor Mark Parkinson recommending an increase in cigarette taxes, and it is $.55 per pack instead of $.75.

    Research & Commentary: Kansas Can’t Afford A Cigarette Tax Hike
    By John Nothdurft, Legislative Specialist at The Heartland Institute

    The Kansas Health Policy Authority’s recommendation to use a 75-cent cigarette tax increase to pay for health costs should be worrisome — not only to smokers, but also to non-smokers and fiscally responsible legislators as well.

    The approach may seem appealing at first, but such tax increases are notoriously unpredictable and regressive. Funding a high-profile need such as health care with a cigarette tax increase is particularly hazardous because it ties an inherently unstable tax to an increase in government spending.

    A big question mark hovers over how much revenue the proposed cigarette tax hike would actually bring into the state’s coffers. According to the Center for Policy Research of New Jersey, since that state’s cigarette tax was raised 17.5 cents two years ago, the state has actually lost $46 million in tax revenue.

    Many other states have seen lower-than-projected revenue returns after cigarette tax hikes were put in place. This is a result of the general decline in tobacco use nationwide, cross-border shopping, Internet sales, smuggling, and other factors that are causing cigarette tax revenue streams to flatten.

    If Kansas legislators were to hike cigarette taxes to fund health care programs, they soon would be stuck having to choose between rolling back the funding for health care or raising other taxes. A recent National Taxpayers Union study found legislators usually do the latter. “Taxpayers face a seven out of 10 chance of seeing another net annual tax hike within two years of a tobacco tax hike,” the group reported.

    Cigarette tax increases also unduly burden low-income taxpayers and punish local businesses.

    The following articles offer additional information on cigarette tax hikes.

    Cigarette Tax Hikes Burn Hole in State Coffers
    Gregg M. Edwards, president of the Center for Policy Research of New Jersey, an independent nonprofit organization that addresses public policy issues facing New Jersey, reports how his organization found that New Jersey brought in less revenue after its cigarette tax hike than was coming in before it was implemented.

    Debunking the “Tax Thee, But Not Me” Myth: Five Reasons Why Non-Smokers Should Oppose High Tobacco Taxes
    According to the National Taxpayers Union, “the per-capita state and local tax burden in high-tobacco tax states is 8 percent above the national average, while the general tax bill for residents of low-tobacco tax states is 15 percent below the national average.”

    Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity
    Dr. Dahlia Remler, with the Department of Health Policy and Management at Columbia University, rebuts the argument that cigarette taxes are not regressive.

    Tax Hikes Often Fail to Generate Expected Revenues
    Economists warn tobacco taxes are an unpredictable source of revenue.

    Six Reasons Not to Raise Tobacco Taxes
    Economist Dr. William Anderson of the Oklahoma Council of Public Affairs outlines six pitfalls of higher cigarette taxes.

    Tobacco: Regulation and Taxation through Litigation
    Professor Kip Viscusi breaks down the social costs of smoking, taking into consideration a wide array of factors including health costs, sick leave, and the lower pension and nursing home care costs incurred by smokers.

    Cigarette Tax Burns the Poor
    David Tuerck, professor of economics and executive director of the Beacon Hill Institute at Suffolk University, outlines how cigarette taxes unfairly burden low-income earners.

    Cigarette Taxes Are Fueling Organized Crime
    Patrick Fleenor, chief economist for the Tax Foundation, shows high cigarette taxes have fueled organized crime and a profitable black market in New York.

    Cigarette Tax Burnout
    Last year Maryland increased its cigarette tax to $2 a pack in order to fund health care … but now the state’s budget is facing a billion-dollar shortfall. This article outlines the budget mess that always results when states rely on cigarette tax revenues even as smoking rates decline.

  • Kansas historic preservation building tax credits discussed

    Sometimes on blogs people don’t take the time to read comments left to posts. Sometimes those comments provide valuable discussion and illumination of public policy issues. So here I take a moment to elevate a few comments left to a recent blog post.

    On Wednesday afternoon, a reader — we’ll call him “Larry” — left this comment to my post Kansas historic preservation tax credits should be eliminated. In that post, I argue that tax credits for the preservation of historic buildings are economically the same as a direct payment by the state to the developer, and that this practice is bad public policy that should be ceased. Here’s what Larry wrote:

    Bob, I want to understand your point of view. I do not claim to be an expert in this area so these are observations / questions.

    1. Wasn’t Wichita High School owned by the WATC and therefore tax exempt?

    2. If a developer puts, say $6M into the building to get it open the property with 68 units renting for $1000 to $2000 a month then I would assume it would have a value that in turn would generate higher taxes than the building now pays, correct?

    3. As I understand the Historic Tax Credit the person that put up the $6M and now has to pay the new property tax can take a credit of about 25% of the eligible construction cost (not all of the construction cost is eligible) against the new taxes he/she would pay to the state, correct?

    So if I have this right a building that is paying no taxes to the state has $6M spent on it and now is paying taxes into the state coffer but will pay 25% less in taxes than it would have if the building were not historic. Do I have it right? If so where is the payment you allude to being made by the state to the developer? Also don’t forget that when renovating a historical building you can not renovate it using the most economical methods but have to keep it “historically” correct and that in itself is more expensive.

    Then the reader “Pat” wrote this comment:

    Larry, you are correct in that there is no money given to the developer by the state. No payments. Typically, the tax credits are used as barter for a developer to sell the credits at a significant discount on the open market to those that need are in need of a “credit”. On historic projects, the money raised by the sale of the tax credits has to be used on certain eligible costs. The building will not pay property taxes on a reduced valuation but will pay taxes on its fair market value.

    Wednesday evening I left this comment:

    For Larry’s points 1 and 2, I’ll take his word that these are correct. I don’t think I’ve ever made a claim to the contrary.

    For point 3, the issue of the historic preservation tax credits and property taxes are entirely separate matters. The savings of 25% of building costs arising from the historic preservation tax credit is a one-time event, while property taxes are an ongoing event year after year.

    The payment made by the state to the developer is the tax credit itself, which might take the form of a document from the state containing language like “This certificate may be sent to the state of Kansas instead of a check for $1,000,000 in payment of taxes.”

    As Pat correctly notes, the recipient of such a certificate might keep it and use it to pay all or part of their taxes, or might sell it to someone at any price they mutually agree on. This ability to sell the tax credit document has been cited by WDDC president Jeff Fluhr as important.

    So how is issuing a tax credit not the same as making a payment to the developer?

    (By the way, Pat, if I knew I was getting a tax credit, I would immediately adjust my periodic tax payments to the state. It’s not necessary to wait until annual tax time to benefit from the credit.)

    Furthermore, the fact that the tax credit may be used for only certain purposes is a total red herring. If I gave you $100 on the condition that you could spend it only on a Monday, would you deny that I had enriched you by $100? Or would you contend that I had enriched you by something less than $100? I would think that you would simply shift your spending around and benefit fully from the $100 that I gave you.

    Finally, the fact that historic renovation is expensive is just like having granite countertops. It’s a premium amenity that is freely chosen by those who value it, it benefits those who choose it, and should be fully paid for by them.

    Interesting? Or not?

  • Kansas historic preservation tax credits should be eliminated

    It’s time to recognize historic buildings for what they are: a premium feature or amenity whose extra cost should be born solely by those who chose to own them or rent them.

    Supporters of historic buildings tell us that renovating them is more expensive than building new. Likewise, building a home with granite kitchen counter tops and marble floors in the bathrooms is more expensive than a plainer home. These premium features are chosen voluntarily by the homeowner, and it is right and just that they alone should pay for them.

    There’s no difference between these premium features and choosing to live in a historic building. Those who desire them choose them voluntarily, and should pay their full cost. Forcing everyone to subsidize this choice is wrong. It’s an example of a special interest gone wild.

    Supporters of historic building preservation subsidy tell us that these historic buildings define the character of a city. They have succumbed to the design fallacy, “the notion that architectural design is a major determinant in shaping human behavior.” It may be so for some people. Let each person decide for themselves, and then pay — or not pay — for its perceived benefit.

    It’s often true that historic preservation tax credits go to subsidize the choices of well-off people. For example, at a meeting of government officials with Wichita-area legislators in January, Wichita Downtown Development Corporation president Jeff Fluhr presented examples of several buildings in Wichita that have been rehabilitated, including the Wichita High Apartments, which he said will rent for $1,000 to $2,000. He mentioned condos in the Grant Telegraph building, which he said range in price from $300,000 to $950,000. Do the taxpayers of the state of Kansas need to subsidize people who can afford rents and prices like these?

    Wichita High ApartmentsWichita developer Dave Burk stood to pocket over $1 million in taxpayer money on this project.

    The use of tax credits, however, leads many to believe that what the state is doing is not a direct subsidy or payment. In order to clear things up, maybe we should require that the state write checks instead of issuing credits.

    Indeed, if the state issued checks to real estate developers, citizens would look at things differently. They’d wonder why they’re subsidizing the construction of apartments that rent for up to $2,000 monthly, or condos worth nearly a million dollars. They’d be angry. Using a semi-mysterious mechanism like tax credits shrouds the true economic transaction taking place.

    These expenditures of tax money — being issued as credits rather than appropriations — go through a different process than most expenditures of state money. Recently some have started to use the word “tax appropriations” to describe tax credits. These expenditures don’t go through the normal legislative process as do most appropriations.

    It’s time to recognize these historic preservation tax credits as payments to a special interest group. Unfortunately, as with most special interest groups, the group receiving the payment — tax credits in this case — has an extreme interest in the matter. They benefit greatly. But to the rest of the populace — well, does it really matter to them? John Stossel explains the problem like this:

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

    That’s the situation we face with the historic preservation tax credits. A few real estate developers will enrich themselves at state expense. Well-to-do renters and condo buyers will get a better deal. To everyone else, it’s just another way that government nickels and dimes us to death.

    It should be noted that one of the most vocal proponents of the tax credits is Christy Davis, a historical preservation consultant who operates a company that assists property owners and governments in obtaining funding for historic preservation projects. She’s the very definition of a special interest group.

  • Goal of Kansas tax reform is economic growth

    Dr. Art Hall, who is Director of the Center for Applied Economics at the University of Kansas has proposed a radical change and simplification to the Kansas tax system. Besides simplification of the way the state collects taxes, the major goal of the proposal is to encourage economic growth in Kansas.

    The goal of tax policy should be to raise the funds necessary to run government, and to do so in a way that provides the most incentive for economic growth. The accumulation of capital, which comes from savings, is the best way to promote future economic growth. Capital allows companies to expand productive capacity through making investments in machinery and technology. This leads to more jobs and higher-paying jobs. As the economist Walter E. Williams has discussed: “Ask yourself this question: who earns the higher wage: a man digging a ditch with a shovel, or a man digging a ditch using a power backhoe? The difference between the two is that the man with the backhoe is more productive. That productivity is provided by capital — the savings that someone accumulated (instead of spending on immediate consumption) and invested in a piece of equipment that helped workers to increase their output.”

    It’s important, then, that tax policy in Kansas generates revenue for the state in a way that doesn’t harm the accumulation of capital. As Hall writes: “Taxation of the resources used for future production may well lead to less future production.”

    The solution Hall proposes is a consumption tax — a comprehensive statewide sales tax — that would replace all state-level taxes in Kansas, including the personal and corporate income tax: “Because saving and investment are key elements of the growth process, consumption taxes can better promote economic growth, all else equal.”

    He explains in more depth:

    A well-crafted retail sales tax has positive attributes from the perspective of economic growth. It represents one form of a consumption tax, a form familiar to most people. Generally, consumption taxes represent a class of taxes that do not tax money used for saving and investment, regardless of the source of that money. This feature of consumption taxation differs from traditional types of income taxation. Income taxes effectively double tax the money used for saving and investment (but tax only once the money used for consumption), thereby producing a tax bias against saving and investment, which generates a disincentive to dedicate money toward future production.

    Hall writes that “A well-crafted retail sales tax would also tax all goods and services uniformly.” His proposal even includes taxing the consumption of rented and owner-occupied housing. While true to the goal of uniformity, Hall recognizes the “novelty (and probable unpopularity) of applying the retails sales tax to rented and owner-occupied housing.”

    Hall’s paper is comprehensive and includes discussion of technical issues such as “tax cascading,” where taxes on the inputs used by businesses are taxed again as intermediate goods and services make their way through production processes. There is also discussion of what Kansas could do to make the consumption tax progressive, if that is desired. Border considerations are discussed, too.

    Currently the statewide sales tax in Kansas is 5.3%. (Counties and cities may impose additional sales tax on top of that. In Wichita the combined rate is 6.3%, for example.) Depending on the details of the consumption tax that Kansas might implement, the rate could range from 6.77% to 9.99% (those figures calibrated to produce the same revenue that the state collected in 2008).

    What would be the impact on economic growth in Kansas? Simulations conducted by Hall indicate that growth in private-sector employment could be in the neighborhood of seven to eight percent per year, depending on the type of plan and phase-in period. This is tremendous growth, especially in light of the fact that private-sector job growth in Kansas has been stagnant or declining for many years. Private-sector investment and take-home pay would rise less rapidly, but at a strong rate.

    Currently there is no bill in the Kansas Legislature that would implement a plan like this. It’s thought that an amendment to the Kansas Constitution would be necessary to soundly implement this policy. The amendment, ideally, would prohibit any income tax. Without this constitutional protection, lawmakers could reimpose either personal or corporate income taxes at any time.

    Dr. Hall’s paper may be read at A Comprehensive Retail Sales Tax as a Single Tax for the State of Kansas.

  • Kansas model budget released

    The Kansas Chapter of Americans for Prosperity has released its model Kansas budget for fiscal year 2011. Titled Commonsense Budget Proposal, it contains “a roadmap for legislators seeking to make Kansas government more efficient — and less costly — without turning to Kansas taxpayers,” according to AFP Kansas state director Derrick Sontag.

  • Kansas bill would forbid taxpayer-funded pleas for tax increases

    A bill just introduced in the Kansas Legislature by Representative Joe Patton, a Topeka Republican, would bar taxpayer-funded lobbying for tax increases. The bill is House Bill 2622, captioned “an act concerning the use of public funds for lobbying.”

    The bill is very short, the important part being: “No taxpayer funds shall be used for the purpose of employing or contracting for the services of any person whose duty and responsibility includes lobbying for a tax increase.”

    Taxpayer-funded lobbying is a problem. In 2008 Alan Cobb — at that time Americans For Prosperity Kansas State Director — wrote an op-ed explaining the harm of taxpayer-funded lobbying. In it he wrote: “It’s proper for private citizens and groups to petition their government, but should one government be ‘petitioning’ another? Do you agree with the things they are lobbying for? Do you even know?”

    I’d guess that most citizens don’t know about this, and that many would not agree with what their tax dollars are being used to push on the legislature.

    While the bill uses the word “person,” many organizations that are funded by taxpayers lobby for tax increases. An example would be the Kansas Association of School Boards (KASB), which is funded primarily by dues paid by member school boards. Those payments come from tax dollars. This bill would block those lobbying activities by those organizations, because it is people that do the actual lobbying, and the bill forbids that.

    Other articles about this topic include Testimony against taxpayer-funded lobbying, Wichita school bond issue not the only proposed tax increase, and Tax funded lobbyists spending revealed.

  • Kansas sales tax increase would cost jobs

    The Goldwater Institute has issued a report on the lost jobs that an increase in the Arizona sales tax would cause. According to projections by the Beacon Hill group, the one cent increase in the sales tax would bring in $1 billion annually to Arizona state government. But the cost of this sales tax would be 14,400 private sector jobs.

    Arizona has about 2.3 times the population of Kansas, so a similar analysis would probably show fewer jobs lost in Kansas. But the number would still be high, we can be sure.

    Taxes on transactions — that’s what a sales tax is — drive a wedge between buyer and seller. The result is that fewer transactions occur. That leads to a loss of jobs.

    Additionally, more money in the hands of government means less in the hands of the private sector. Wealth is lost as inefficient and ineffective government spending replaces private spending and investment.

    We should also be accurate in reporting the magnitude of the proposed sales tax increase in Kansas. Proponents often say it’s just one percent. In reality, it’s an increase of one cent on every dollar spent. As the current Kansas statewide sales tax is 5.3 cents on each dollar spent, increasing that by one cent to 6.3 cents is a tax increase of 18.9%.

  • Kansas taxes have impact

    Do Kansas taxes have an impact on business location decisions? Are Kansas taxes lower than surrounding states, as claimed by supporters of raising Kansas taxes?

    Here’s an answer: “A QuickTrip store near the Kansas-Missouri line was rebuilt so the store and gasoline storage tanks were in Missouri to avoid higher taxes and more regulations in Kansas. One estimate is the store will save about $1.4 million a year from this short move.”

    From Kansas Watchdog TV.