Tuesday, August 17, 2010

Political Tuesdays - The Taxation Question

I have written on political topics in the past. And with the upcoming electons, I thought I would dedicate Tuesdays to some political ranting and Johndrow-esque, "think for myself" politics. Most will not be based on any specific Christian belief or doctrine unless it applies.

As an American I find myself stunned, over and over; like fish in the reach of the tenticles of a man-o-war, at political solutions to human and spiritual problems.

I live in Masschusetts, and we are the most liberal state in the US. We were first in gay marriage, we were first in mandatory healthcare, we have rejected mandatory sentencing for repeat and sex offenders, we are ahead of the Global Warming curve, we have high taxes (on average 10%), we are split on casino gambleing only because we've missed the boat (if doesn't create jobs, it's a political flop), and well John Kerry and Ted Kennedy were our sentaors for many years (Kerry still is). The last time we went red for president was in 1984!

I'm no republican, I am not a liberal, and I am not a conservative, and defiantly not a Democrat. For instance, I am big fan of green energy and getting off foreign oil yesterday, but I think Global Warming is a farce. I am anti-abortion and pro-death penalty.I am anti-war unless we've been attacked. I am against off-shore drilling - or any drilling for that matter. I don't like nukes, and I think the government is trying to regulate morality in business. I am pro-immigration and anti-illegal immigration. And I am a fiscal conservative.

This past weekend we had a tax-free holiday. The pols decided to give us a weekend in which we could buy pretty much anything under $2,500, and not pay the 6.25% sales tax. It was intended to stimulate the economy, and by the increase in shopping traffic, it did.

Increased sales are good for the local ecomony and the Chinese who probably produced most of the electronics, and furniture items that were sold.

If we take a closer look, here is what we really got for our tax free holiday:

- The Democrats and some of the Republicans got a political lift because it sounds good. They didn't have one last year, because; in their view, not collecting a few million in sales tax was bad for the government budget - and hey - the ecomony was already tanked and that was Bush's fault. But we're well beyond blaming Bush, aren't we?

- It stimulated sales and the economy; tax cuts will do that. Is anybody listening? Those that could afford to went out and spent money!

- It benefited the rich, because 9% of the state is unemployed and does not have money for taxable luxuries. Let's face it, there is a very select part of the population that will think that saving $62.25 on a $1000 item is a big deal. It doesn't matter to those who cant spend money on a taxbable item. Conversely, it is not a big savings when most retailers do 10 or 20% sales all the time - plus the sales tax savings.

- It benefitted to politicians because elections are coming. And this is a good thing if everyone remembers it. Everything they do works towards that end. Maybe if we had term limits, we'd get past this?

I would have done it differently. Suppose they gave a tax rebate for those on unemployment or making wages that are considered poor in this state? If they spent it on food clothing or shelter, it would have been tax exempt, and it they chose to spend it on luxuries, the state would have recouped 6.25% on their investment.

Me, I didn't spend a dime in MA. In fact, except for gas and guitar strings, I don't pay sales taxes. I sure do pay a lot in property taxes and income taxes though. I feel as if I am building the goevermnent payrolls, while I am not able to spend money in the private sector to stimulate the economy.

If I really want to avoid sales tax, I simply buy in New Hampshire; a mere 30 miles away,where there is no sales tax ever.

The economic climate is bad enough that no manufacturing even considers coming to the state. The average 3 bedroom home in greater Boston is still over $300K. With a 5.5% income tax, property and vehicle taxes, folks are leaving at a fairly steady rate. It will be interesting that to see how the census comes out.

How about you, can you make a case for increased sales taxes, or one for tax cuts?

12 comments:

Tracy said...

I actually adore your idea stated here:

"Suppose they gave a tax rebate for those on unemployment or making wages that are considered poor in this state? If they spent it on food clothing or shelter, it would have been tax exempt, and it they chose to spend it on luxuries, the state would have recouped 6.25% on their investment."

photogr said...

Sounds good on paper.

However, considering the current affairs ( calamity) that our leaders in power in Washington has created, we will need more taxes to balance the budget if these policies now in effect are allowed to continue.

Not since the Clinton administration have we ever been close to having a surplus in our fisical budget and I really don't believe that was a fact.

I would think if we had new leadership in Washington that had the fortitude to repeal many of those policies that the Obamacrats enacted with out regard of the wishes of the voting pulbic, we might well save trillions of dollars.

If we had new leadership in Washington that would have the fortitude to go to the companies that got billions in stimulus money and demanded the money back with interest, me might have a few less companies that are poorly run or closed down. Then you have the CEOs of these companies raking in millions in new bonuses.

As far as health care reform, Yes we need health care reform but not what we were forced into that cuts benefits and puts many illegals on free health care.

Sadly, I am afraid we are going to see higher taxes beyond what we have ever experienced in the past to pay for all the policies that this administration has enacted foolishly and with out a rational plan to pay for it except through higher taxes from us.

With unemployment at an all time high and many jobs sent off shore over the years through NAFTA and the Free Trade Agreement, you start to wonder where the priorities are in Washington. It doesn't seem to be focused on getting our working Americans back into a job here in the states.

It is time for a new direction.

Anonymous said...

People tend to both overestimate the amount that they are taxed. For example, you say that Mass has high taxes,

but a quick peak at The Tax Foundation's chart shows you're in the middle.

http://www.taxfoundation.org/taxdata/show/335.html

I'm not familiar with your "Sales tax" holiday, but it sounds like a good idea. Summer tends to be slow for

consumer purchases. No major holidays, and unless your local weather totally blows, why waste a nice day to walk

the malls? With "Back to School" coming, the ST hol is a good excuse to corral the kidz and hit the mall for

those "sensible" clothes, laptops and so on. You mention that the holiday benefits the wealthy, but ya know? only

about 3% of the Massachusetts population is wealthy. With 9% unemployment, there's still 91% employed, many of

whom are looking for ways to save.

[Caveat emptor, we can quibble as to what wealthy is, and what percent is there. And that 91% employed is simply

the fully employed population - retirees, those who have stopped looking for work, homebodies, and trustfund

babies aren't part of that.]

Anonymous said...

FUNDING THE BEAST
I think that we can agree that governments are a Good - at least, the modern, representational types of

government. We might not agree on various policies and interests of Western Europe, but the current set of

liberal statist regimes are preferrable to those of 1910.

This being a post on taxes, we'll leave the duties of the government aside for now. Amusing questions like

whether the government owns the ultraviolent frequency and can sell same are always fun - for another day. Let's

just say for know that we agree there are responsibilities of the state, and some projects are best done by the

state.

So how should the modern state be funded? Taxes are very traditional, and come in a variety of flavours. The very

oldest method was, "Seizing assets from the weak / rivals". This still happens (ex, drug seizure of your fishing

boat because some tourist left a joint in the head), but it's really fallen into disuse for the modern

representational government. In order of ancient to modern, here they are:

Services and access, like toll roads, and gas taxes (for highway maintenance). These are nice because they are

obvious - you want access, you have to pay. And you get something back - that access!

Tarrifs have fallen out of favor, but these were critical to the development of the American economy in the first

hundred years. The Tarrifs imposed by President Washington and Secretary Hamilton are why Massachusetts developed

a major manufacturing industry. Without the tarrifs, superior European products would have flooded the market.

Now that the tarrifs are gone - so's Lawrence, Mass.

Income taxes. I like to make a joke that Republican tax policy is "Biblical". When Adam and Eve committed the

first sin, the Lord commanded that Adam earn his bread "by the sweat of your brow" - so taxes on labor is fair

game (your paycheck, tips, gambling). But when Moses took the Chosen people out of Egypt, and they were wandering

in the Sinai desert, the Lord helped them out by giving them manna, gratis. So income that you did not work for

should be exempt from taxes - interest, dividends, Capital Gains, and inheritances. (Of course, it's simply a

coincidence that the sweatless taxes rain more on the rich than the poor.)

Consumption taxes - VAT and sales tax. Everyone spends, even the poor. In fact, the poorer you are, the greater

percentage of your income you tend to spend on consumption. Everyone needs to eat, but at poverty level, you're

putting out 25% or so of income to food. At "wealthy" level, even if you're washing down your lobster with Dom

Perignon, you'd have to be Mister Creosote to spend even 10% on food.

Anonymous said...

SOLVING THE EQUATION: WHAT IS THE BEST TAX RATE?
"It stimulated sales and the economy; tax cuts will do that. Is anybody listening? Those that could afford to

went out and spent money!"

Yes, but you also want to generate revenue. So tax rates go both up and down.

'Taxes never go down!'
Yes they do. Look at property taxes in California (Prop 13, 1977 or so). Federal income tax rates get tinkered with a lot (Obama and Bush II lowered them; Clinton and Bush I raised them; Reagan both lowered and raised them).

David said...

@Anon -Well I am not into falsifying taxes. Taxes here are high compared to many other places. Because the cost of living here is high, we pay a higher percentage of taxes. $100,000 year salary and we pay $5,500 in taxes. That is much more than some who lives a similar lifestyle in another state IE: NH which has no income tax.

in MA, the average family making $100K is paying about $35,000 in taxes to the state and Fed.

This idea that wealthy folks don't live in MA is some stupid guideline written by people that have no idea what it's like to live in the lower middle class.

If the average family making about $100K didn't spend any money on the tax free holiday, then who did? We apparently lost $14.9M in revenue.

The best tax is a flat tax. Everyone pays a percentage after the poverty line on what the spend (Fed Sales Tax). No IRS, it encourages savings - simple. And no Charlie Rangel!

Anonymous said...

@David - I, for one, never said that you WERE falsifying anything, only that "people tend to overestimate their taxes". And note that I did back up that Massachusett's tax burden is middle of the road for the US states.

Now, you note that in MA, the average family making $100k is paying about $35k to the state and Fed. "That is much more than some who lives a similar lifestyle in another state IE: NH which has no income tax."

So what's stopping you? I'd guess that it's because your chosen profession thrives in high value/high cost of living places. You could move to NH if you ran your business or could telecommute. But technology and intellectual capital investment industries create their own ecosystem that's pretty expensive. Alabama may attract car factories, but where are the engineering design centres?

BTW, my family income was about $120 over the last three years. I paid about $20k in Fed taxes/FICA, $5k in property taxes and I'll guess $5k for sales taxes. That's about $30k a year. I live in a high technology corrider that's quite expensive (especially housing), but our job situtation is quite good, given the current economy.

Anonymous said...

@David - "The best tax is a flat tax."

OK, that's a good topic. Sales taxes are in fact flat taxes. You pay one single percentage no matter how much or little you spend, no matter how rich or poor you are. And families have options - if you want to drive to NH and buy stuff, go ahead! (Good luck if you live in Springfield).

Your case for a flat Federal Income tax is worth discussing.

Do you plan to eliminate deductions? Like mortgage interest, charitable gifts, medical expences, depreciation (business), etc? Suppose you DO eliminate all deductions. That includes taking Congress out of the business of micromanaging commercial behavoir through tax policy. If there's no deduction for, say, green energy, then a business is perfectly free to install air conditioners, rather than solar panels. And if electricity costs rise, then the solar panel biz could become profitable enough to be a sideline.

Now, suppose we also count ALL income as income. I mentioned before that there's an artificial distinction between income earned by actually working (wages, tips, commissions) and income that is not worked for (interest, dividends, capital gains, inheritances). Suppose we remove this distinction and count ALL income unitarily.

I have read some opinion pieces that estimate such a flat tax (with a floor at poverty level) could be as low as 25% of the current taxes, and generate the same federal revenue.

(And as far as that floor, the tax would work the same as current taxes do: only income ABOVE the floor is taxed. So if your sister earns $20,000, she pays nothing. If YOU earn $21,000, you pay $250 (you're only taxed on the $1k above the floor, and 25% of that is $250).

David said...

@Anon - Well, I used to live on Cape Cod, so the lifestyle was worth living in MA. Living in greater Boston has no appeal whatsoever. NH is just a colder MA, so I'd need a reason to go there.

I am working on the telecommute issue and then probably keep the condo on Cape Cod and find a nice place to live without John Kerry and Barney Frank.

Anonymous said...

@ David - So was Cape Cod a affordable place?

Barney's in the 4th district, and you're probably in Markey's turf. If you're looking for high tech plus livability plus more conservative values, then have you considered the technology triangle in North Carolina, or Dallas/Austin Texas?

David said...

@Anon - I probably used the wrong term. The flat tax would eliminate everything - deduction, the IRS etc. Income is income and you pay flat tax rate for individuals. Seem like 20% or so would do it. Corporation would pay the same on their profits. What cold be written of - the cost of doing business -would be tough, but doable.

The fair tax is sales tax, and it would only be charged on what was purchased. That is another way to encourage savings, and give tax breaks to savers.

I think a blend of the 2 s probably better than one or the other.

I have thought about the Carolinas - Texas doesn't work for me.

Anonymous said...

@ David - and here we agree, after all that chatter. Adios, amigo!

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