Tuesday, August 24, 2010
Taxation for the Red States - Tax Equity Act
"One irony of the tax increase that arrives on January 1 is that the it will hit residents of high-income, Democratic-leaning states like California, Connecticut, New Jersey and New York the hardest. This is a problem for pro-tax Democrats.
Enter New York Representative Jerrold Nadler, who wants to exempt his own six-figure constituents from the tax hike he supports. Mr. Nadler's bill would "require the IRS to adjust tax brackets proportionally in regions where the average cost of living is higher than the national average.""
I discussed taxes, with one of my anonymous friends in last Tuesday's comments. A couple of ways we could make taxation more fair include the Fair Tax and Flat Tax.
The idea of taxes based on the Cost of Living, is actually a great one if we could take advantage of the Flat Tax. Under the present tax code, it would put the burden on states where the cost of living in much lower then the coastal meccas described in the WSJ article.
Interestingly, many communities in Massachusetts have taken to charging residents for services used such as school busing and Kindergarten which is a another alternative. If we end up paying for our local services on an ala carte basis, the weight is distributed evenly amongst all users. It is a plausible concept for some services, but not all. I think that roads, fire protection, police protection would not benefit from this structure. Education certainly would!
Under the current tax laws, those of us that live in places with a high cost of living are being driven out by increased taxes. Each time the cost of living goes up and wages do not, a chunk of the middle class takes a big hit. The poor, were already poor, and the rich, though it affects them, can sustain some losses. Those on the border line have to make changes. Just as the time when gas went to $4.00+ a gallon, those living week-to-week were had to make changes. Many of the poor were already taking public transportation, and the rich we not really bothered by it.
Some experts say that the cost of living is high in states like MA, CA, NY and NJ because of fiscal and political mismanagement.
According to the Washington Examiner:
"A big reason the cost of living is so high in Boston, Manhattan and San Francisco is because of high state and local taxes, union work rules, and heavy business regulation that make it more expensive to produce, sell and buy things.
Why should someone in Spokane or Knoxville or Topeka be penalized because New York and California impose destructive policies?"
I suppose this is partly true. I tend to think that it is more about supply and demand. These states generally have the hottest real estate markets, the highest paying jobs, along with cultural and educational opportunities found in few other places. Let's face it, New York's Broadway is more popular than whatever the theater district is in Cedar Rapids, IA.
The Tax Equity Act is a deal breaker under the present tax code, though it would benefit me personally. If we could enact either the Flat or Fair Tax, I'd be all for it. Why? Because it wold benefit poor Americans too. An averaged cost of living allows poor folks in the Blue States to receive some of the cost of living savings in the Red States. A higher cost of living increases the burden on them.
Unless we pay for the government services we use, taxation is not an exact science. The theory is that we pay taxes for education purposes over a lifetime, not just when our kids are in school.
It does appear that there are some alternative tax structures that might make is seem more fair. As my anonymous commenter posted last week: The government is able to steer industry and certain elements of society with taxes, tax breaks, and tax incentives. This is the idea behind Cap & Trade, energy saving tax rebates, and the cigarette tax; for example. Personally, I wish they would get out of the business of telling us how to live our lives, and stick to infrastructure, national security and stay out of the rest. I know, it sounds so libertarian.
As the irony of the tax increase that arrives on January 1 settling in on Democratic-leaning states like California, Connecticut, Massachusetts, New Jersey and New York; hitting them the hardest, keep your eyes open for movement on this potential bill.
How about you, what do you think is fair taxation?