Category - Taxes

I’ll be writing more later, but for now, just a couple of things I thought make up a good contrast. Not many people would be surprised by the assertion that economic classes receive different treatment before the law in the U.S., but the following two items are certainly remarkable. First, take a look at this story, about a group arrested for feeding the homeless in Orlando. Yes, apparently charity begins and ends at home: “mass feeding in one area” is banned by a city ordinance. Don’t worry though, not everybody suffers from such casual and needless oppression. Gazillionaire hedge fund managers will get to keep their huge tax break: their income is considered capital gains and so is subject to the 15% capital gains tax, not to the regular income tax or to the payroll tax that funds social security benefits. Mark Shields explains why. Thanks to MoJoBlog for the tip on the lack of legislation.

Oh and by the way, Keith Knight tells it like it is.

FedSpending.org is a new website sponsored by effective OMB watchdog organization and Right-to-Know enforcer OMBWatch.org, which keeps an eye on the deregulatory manias of recent administrations. The new FedSpending.org website allows visitors to track Federal grants and contracts using various search criteria, e.g., location of the recipient (how about “Halliburton”), place of performance (try “Iraq”), sponsoring agency (”Defense”), and whether or not the contract was open to competitive bidding.

The Federal government was supposed to produce such a website itself, but Senator T. Stevens (Alaska) put a secret hold on the legislation. Although the hold was eventually withdrawn, the government still has not come up with the promisted user-friendly database.

Here’s the Halliburton search. Notice that you can refine the search by asking for more years and more detail.

Leave comments that describe your searches.  Ethanol?  Pharmaceuticals?

The main finding of Peter Lindert’s intriguing 2003 paper, “Why the welfare state looks like a free lunch” (a warm-up for his 2004 book Growing Public: Social Spending and Economic Growth since the Eighteenth Century is that generous social democratic welfare states, with a variety of universalist and means-tested safety net and family support programs, grow just as robustly as stingy laissez-faire states. Here’s the key summary from the abstract:

There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large.

The finding should obviously be plastered on bumper stickers, refrigerator magnets, and dorm-room walls and played continuously on a loudspeaker outside the Chamber of Commerce, Club for Growth, Council on Competitiveness, etc. The welfare state doesn’t just look like a free lunch, it is a free lunch, at least from the standpoint of national aggregates.

Class conflict may mean that it’s hard for us to order that free lunch in the U.S. anytime soon, but the barrier between us and the free lunch doesn’t come in the obvious way.

This just came out a couple days ago. It even crossed the desk of Rush Limbaugh, who used it as an opportunity to recommend increasing taxes on those below the poverty line. Rush, egalitarian that he is, feels it is unfair for people with low-incomes to avoid sharing equally in the funding of the state. Har!

THE IMPACT OF STATE INCOME TAXES ON LOW-INCOME FAMILIES IN 2006
By Jason Levitis

Summary

Poor families in many states face substantial state income tax liability for the 2006 tax year. In 19 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax. In 15 of the 42 states, poor single-parent families of three pay income tax. And 29 of these states collect taxes from families of four with incomes just above the poverty line.

Some states levy income tax on working families in severe poverty. Six states — Alabama, Hawaii, Indiana, Michigan, Montana, and West Virginia — tax the income of two-parent families of four earning less than three-quarters of the poverty line such families. All of these states except Indiana also tax the income of one-parent families of three earning less than three-quarters of the poverty line.

In some states, families living in poverty face income tax bills of several hundred dollars. A two-parent family of four in Alabama with income at the poverty line owes $573 in income tax, while such a family in Hawaii owes $546, in Arkansas $427, and in West Virginia $406. Such amounts can make a big difference to a family struggling to escape poverty. Other states levying tax of more than $200 on families with poverty-level incomes include Indiana, Iowa, Michigan, Montana, New Jersey, and Oregon. In 2006, the federal poverty line for a family of four was $20,615, and the line for a family of three was $16,079.

States’ tax treatment of low-income families for 2006 has improved in some states since 2005 but gotten worse in others. Between 2005 and 2006, Oklahoma and Oregon reduced the income tax liability of poor families, Delaware entirely stopped taxing the incomes of poor families of three, and Virginia entirely stopped taxing the income of poor families of four. But four other states increased their taxes on poor families by 25 percent or more, and New Jersey began taxing poor families of four for the first time since 1998. The reason for these tax increases is that provisions designed to protect low-income families from taxation — including standard deductions, personal exemptions and low-income credits — were not increased to keep up with inflation. Overall, there was virtually no change this year in the number of states levying income taxes on families with incomes below the poverty line.

The outlook for the future is somewhat better. A number of states have recently enacted significant reforms that will reduce taxes on low-income families. Between 2007 and 2010, Alabama, Arkansas, Hawaii, Michigan, Oklahoma, Oregon, and West Virginia each will improve their income tax treatment of the poor. In Arkansas, Michigan, Oklahoma, and West Virginia, the changes will wipe out or dramatically reduce tax liability that now costs poor families hundreds of dollars. Overall, the number of states taxing poor families of four could decline from 19 to 16. And quite a few other states are currently considering similar measures.

Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient. In other words, relieving state income taxes on poor families can make a meaningful contribution toward “making work pay.”

States seeking to reduce or eliminate income taxes on low-income families can choose from an array of mechanisms to do so. These mechanisms include state Earned Income Tax Credits (EITCs) and other low-income tax credits, no-tax floors, and personal exemptions and standard deductions that are adequate to shield poverty-level income from taxation. Some states go beyond exempting poor families from income tax by making their EITCs or other low-income credits refundable. These policies provide a substantial income supplement to families struggling to escape poverty, but they are relatively inexpensive to states, since these families have little income to tax.

Despite some progress, there remains much to do before state income taxes adequately protect and assist families working to escape poverty.

A sweet week for family policy in the print media. Don’t miss Ruth Rosen’s cover article on “The Care Crisis” in The Nation of March 12, 2007 OR the special report entitled “The Mother Load” in The American Prospect of March 2007, with contributions by Heather Boushey and Janet Gornick, among others. Both magazines insist that creative feminist family policy ideas should move to front and center-left of the Democratic party agenda.

First, a confession. I am a virgin blogger so I may not get the links–or the lingo–quite right. But here goes:

By Jonathan Teller-Elsberg, CPE Staff Economist

In the U.S., talk of tax reform usually means debates about taxes on income and wealth. A little less common are discussions of flat taxes and a shift from payroll, income, investment, or property taxes to consumption taxes—that is, a federal sales tax.

We’ve seen the miserable results of lowering taxes on the rich, and we’ll be dealing with the massive government debts for decades to come. Flat taxes are simply another way to lower taxes on the rich, under the guise of simplifying the tax system. (To be sure, simplifying taxes is not exactly something to dismiss out of hand—the system is far more intimidating than it should be.) The supposed advantage of a shift to consumption taxes is that the shift away from payroll and/or other taxes should lead to more jobs. This is because a payroll tax makes it “expensive” for a business to have an employee. If the payroll tax is reduced or eliminated, the business will have more money available to hire additional workers. The problem with consumption taxes is that they tend to be regressive—meaning that they fall hardest on lower-income members of society.

Another type of tax reform that deserves more attention is the environmental tax shift (ETS), also known as the green or ecological tax shift. The idea here is to increase taxes on activities that result in environmental damage and use the money generated to reduce other taxes by the same amount. As with the consumption tax idea, most proposals center around reducing payroll taxes.

(4/21/04)
By Alanna Hartzok, Co-Director, Earth Rights Institute

One day, while riding horseback in the Oakland hills, merchant seaman and journalist Henry George had a startling epiphany. He realized that speculation and private profiteering in the gifts of nature were the root causes of the unjust distribution of wealth. The insights presented in Progress and Poverty, George’s masterwork, launched him to fame. His policy approach was known at that time as the “single tax” - meaning that taxation should be shifted off of labor and onto the socially created surplus value of land and other natural resources. His message reached as far as the great Russian Leo Tolstoy, who was so taken with the idea that he frequently referred to George and “Georgism” in his novel Resurrection.

During the last 20 years of the 19th century George built an impressive populist movement bent on solving the problem of the wealth gap, and he died in 1897 while campaigning to be New York’s mayor. The “Georgists” were determined to free labor and all productive effort from the burden of taxation. Land and natural resources were gifts of nature to be fairly shared by all. The role of government would be to secure democratic rights to the earth for all people via the collection of resource rents, the surplus value accruing to natural wealth, which would be distributed in social goods, services or by direct citizen dividends.

But just as this solution to the rich/poor gap was gaining momentum, the Georgist movement was stopped in its tracks. Wealthy individuals poured their money into leading schools of economics to encourage the writing of treatises against George and the movements he had spawned. The ethical perspective that land is a common heritage and the policy approach of land value taxation were subsequently eliminated from the field of economics. The newly dominant theory focused on only two primary factors - labor and capital - with capital having the upper hand as “employing labor.” “Labor,” of course, is quite capable of self-employment given access to land. This is what the elites and the plutocrats feared most - that labor would gain full power to directly produce capital given conditions of equal rights to the resources of the earth.

Despite the elites’ success in mangling the science of political economy, the Georgist paradigm has had some influence over the years. The 1887 Wright Act in California enabled bonds raised by local irrigation districts to be paid from the increase in land values, resulting in a powerful and beneficial land reform, though this equitable and successful public finance approach was eventually undermined by private banking institutions. Now taxpayers nationwide subsidize the irrigation needs of agribusiness. Alaska’s state constitution vests the ownership of oil and other natural resources in the people as a whole and the state’s Permanent Fund distributes substantial oil revenue as citizen dividends to state residents. With no state income or sales taxes, Alaska has been the only state where the wealth gap has decreased during the past decade. This is essentially a Georgist paradigm approach, and surface land values and electromagnetic spectrum rent could be similar sources for citizen dividends.

Meanwhile, Georgist economics is again making steady progress. In Pennsylvania, eighteen municipalities, including Harrisburg and Allentown, have been revitalizing their local economies via property tax reform which shifts taxes off of homes and the built environment and onto the value of land sites. Movements for land value taxation are growing now in Scotland, UK, Ireland, South Korea and elsewhere, while Venezuela, Russia and other countries are pushing for greater resource rents from oil and mineral resources. Georgist economics is increasingly recognized as a key to economic democracy based on equal rights to the earth for all.

Recommended:

Mason Gaffney, Fred Harrison and Kris Feder, The Corruption of Economics. Shepheard-Walwyn Ltd., 1994.

Henry George’s books can now be read online. Hardcopies of his books, and those of other Georgist authors, can be ordered from The Robert
Schalkenbach Foundation (212-683-6424).

J.W. Smith, Economic Democracy: The Political Struggle of the Twenty-First Century. This excellent Georgist paradigm book can be ordered from The Institute for Economic Democracy (866-588-7445).

Kenneth C. Wenzer, ed. Land Value Taxation. M.E. Sharpe, 1999.

Georgist paradigm articles and links to other sites: Earth Rights Institute.

The Council of Georgist Organizations 2004 conference will be held in Albuquerque, New Mexico, July 21 - 25. For details: www.progress.org/cgo.

The International Union for Land Value Taxation conference is scheduled for May 27 - 30 in Madrid, Spain. For details: www.interunion.org.uk/.

Leo Tolstoy’s novel Resurrection can be read online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

The House of Representatives decided to follow George W. Bush’s advice and vote to abolish the estate tax, thus making life easier and more fun for the wealthiest 2% of the population–the only segment of the population to which this tax applies.

The cost to the rest of us: about $30 billion a year. That’s far more than the federal government spends on cash welfare programs (Temporary Assistance to Needy Families) every year.

Even Jane Bryant Quinn, the Newsweek columnist who is best known for her investment advice, editorialized against the cut. She systematically rebuts claims that estate taxes are breaking up family farms or destroying small business. As she puts it: “If the estate tax isn’t fair, I don’t know what is.” (Newsweek, July 31, 2000).

For more technical details, and some good arguments in FAVOR of the estate tax, check out what Citizens for Tax Justice have to say, at http://ctj.org/html/estbob.htm

Here’s an excerpt:

“The parent who leaves his son enormous wealth,” wrote steel magnate Andrew Carnegie a century ago, “generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would.” You’d think that Republicans, if anyone, would sympathize with Carnegie’s point. After all, if giving a single mother $10,000 a year in welfare stifles her incentive to work, just think how much worse it must be for someone who gets a windfall of 100 or 1,000 times that much.

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.