But boutique credits are smart politics. First, they appeal to people’s sense that they deserve a break, validate their choices, and reaffirm their sense of self-worth. The Children’s Art Tax Credit goes to good parents, ones who enroll their children in Suzuki violin lessons, not bad parents who spend their money on beer and popcorn. Second, they give people a sense of control. Tax liabilities stop being something outside of an individual’s control. Instead, the plethora of credits available mean that taxes can be reduced through planning and wise choices.
Policies are smart politics for a reason: they appeal to voters. If economists want to have a positive influence on the policy debate, they have to understand voter psychology: why do voters like special tax credits so much? “Smart politics” isn’t a criticism. Sometimes it’s a way of saying “I don’t understand why people like this policy.” At other times, it’s a way of saying, “I understand why this policy appeals to people, but if they were well-informed, they would think otherwise.”
There’s no point in telling politicians that a particular policy is “smart politics, bad economics.” They’ll take it as a compliment, and keep on making the same kind of policy choices.
Frances Woolley, “Economy Lab: Why politicians love boutique tax credits”, Globe and Mail, 2011-04-03
April 3, 2011
QotD: The reason not to anticipate a simpler tax system
March 31, 2011
Corcoran: Harper’s family tax plan full of “shabby contradictions”
I think it’d be fair to say that Terence Corcoran is not a fan of Stephen Harper’s proposed “family tax plan”:
By calling this a “family tax cut,” and playing it as a matter of tax fairness, the Conservatives have managed to gloss over the shabby contradictions it introduces into Canadian tax policy. The Tory announcement said that the United States, France and other countries allow some form of income splitting. They do, but that’s not saying much about taxation or fairness.
France has a full-blown family tax regime, in which the incomes of both spouses are blended at a tax rate that is based on a formula that includes the number of children. But so what? France has one of the highest marginal tax rates in the world, and a notoriously dysfunctional tax burden that distorts behaviour and incentives. The U.S. income-splitting regime isn’t exactly revered for its soundness, in part because it clearly discriminates against single earners or anyone not part of a married couple. Nor are children a requirement to be part of the U.S. splitting regime.
[. . .]
The Harper family tax cut, based on the debatable tax policy ideal of taxing families instead of individuals, is a misguided income-splitting scheme that demonstrates once again that the Conservatives will never, ever get around to cutting personal income tax rates. The cost of the family tax cut will come at the expense of across-the-board income tax cuts for other Canadians. To pay for the family cut, other Canadians will have to continue to pay marginal tax rates that are too high.
The family tax cut, in some ways, is just another tax expenditure, a special tax treatment aimed at fulfilling some social-policy objective. The major beneficiaries are likely to be higher-income single-earner couples with children. Everybody else is out of luck.
To pull out the old saying, “that’s a feature, not a bug” to the Conservative party faithful.
Calculating “Tax Freedom Day” for each state
The least-taxed five states have already celebrated their Tax Freedom Days: Mississippi, Tennessee, South Carolina, Louisiana, and South Dakota. Other states may wait as long as May 2:
Americans will spend an average of 28% of their income to pay federal, state and local taxes this year, the Tax Foundation said Wednesday.
That means you will need to work 102 days — more than three months — just to earn enough to pay your tax bill. So on April 12 you will be free of your 2011 tax burden.
This year’s “Tax Freedom Day,” as the Tax Foundation calls it, comes three days later than last year. Rising incomes — resulting in more income tax owed — are largely to blame for its late arrival, the organization said.
For Canadians, you can calculate your own personal Tax Freedom Day using the Fraser Institute’s customized web tool. If I lived in Alberta, for example, my Tax Freedom day would be May 13, but as I live in Ontario it’s actually May 27.
March 25, 2011
CNN: US government finance requires both spending cuts and tax increases
Jeanne Sahadi at CNN Money insists that the government can’t control the ballooning debt situation by spending cuts alone:
If lawmakers wanted to permanently freeze the debt held by the public at the today’s level — 62% of GDP — they would need to immediately cut spending by 35% or about $1.2 trillion, according to the Government Accountability Office. And those cuts would need to be permanent from hereon out.
How hard would that be?
Consider that in 2010, all of discretionary spending — including defense — totaled $1.35 trillion. In other words, to do deficit reduction all on the spending side means “you have to cut into the real meat,” said Roberton Williams, senior fellow at the Tax Policy Center.
Consider, too, how much fun lawmakers are having right now trying to negotiate spending cuts for this year alone. Their working range: Between $10 billion and $61 billion.
And here’s the kicker: Even permanently cutting $1.2 trillion today wouldn’t be the end of the story. Deficit hawks note that public debt at 60% is still well above the country’s historical average — which is below 40%. So more cutting would need to occur in subsequent decades.
The joker in the pack is that interest rates at the moment are incredibly low by historical standards. This is an aberration, not the “new normal”, and won’t last. If the government fails to take serious steps to reduce the debt now, it’s vanishingly unlikely that they’ll be able to avoid a default. It’s like running up a huge debt on a credit card with a low introductory interest rate: once the low interest period is over, the debt becomes payable at the higher interest rate. Pretending that tomorrow will never come is never a good planning strategy.
March 24, 2011
March 23, 2011
Middlesbrough hopes for low tax designation
My old home town has been struggling pretty much my entire life, as its original prosperity was built on industries which have been declining for decades. The Guardian says there’s a chance that Middlesbrough will be one of the new designated “low-tax enterprise zones”:
George Osborne does not know it, but Wednesday’s “budget for growth” could change much more than the lives of ponies now grazing quietly on a grassed-over industrial site in the heart of Middlesbrough. It seems all but certain that the chancellor will designate the Tees valley one of 10 new low-tax enterprise zones. If so, one of the local options will be to set up a precision-engineering cluster on the old ironmasters site — relic of the days when “Made in Middlesbrough” was stamped on countless bridges, including Sydney harbour’s.
In September 1987, Margaret Thatcher famously took her “walk in the wilderness” across a similar derelict site five miles upstream in Stockton, where as local MP in the 30s Harold Macmillan once preached the economic “middle way” she rejected. Stockton’s enterprise zone eventually became a business park, supporting 4,500 jobs at its peak. But this is a region that has long struggled to diversify its coal-and-ships, chemicals-and-steel economy, its hard-won gains always at risk — from global conditions as well as government policy and the region’s own mistakes.
[. . .]
So an enterprise zone will generate good headlines in the Middlesbrough Gazette and Northern Echo. But in deciding exactly how to proceed, disrupting ponies will be the least of it. The five unitary authorities that make up the sub-region of Tees Valley – Hartlepool, Redcar, Stockton, Darlington and Middlesbrough – must agree which of their local plans will make most long-term impact for all of them in terms of inward investment, skills upgrades and job creation along the supply chain. Spread the opportunity too thinly and it may be wasted. It has happened here before.
As Teesside University’s professor Tony Chapman puts it, the north-east has endured so many changes in Whitehall’s regional policies that someone could make a career in “the archaeology of regeneration”. Likewise, countless local government reorganisations have seen Anglo-Saxon “Mydilsburgh” change from a hamlet to an industrialised borough, become part of unloved Cleveland (1974-96), return as a borough, and now boast an elected mayor in ex-superintendent Ray “Robocop” Mallon.
Everyone agrees Middlesbrough has had its problems, some worse than its neighbours. Steel and chemicals have shrunk, as has the population of the town (bidding to become a Jubilee city) by 20,000 since the 60s to 140,000. “We have 200 teenage pregnancies a year,” says Mallon, who thinks a hardcore of families let the town down. But 16 wards out of 23 have high indices of deprivation, which cuts seem likely to intensify.
March 22, 2011
March 14, 2011
January 29, 2011
Bad news for US small businesses
A very small item in the recent US Obamacare legislation will mean a huge increase in tax compliance paperwork:
Section 9006 of the health care bill — just a few lines buried in the 2,409-page document — mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
[. . .]
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.
Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
“It’s a pretty heavy administrative burden,” particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
Eliminating the goods exemption could launch an avalanche of paperwork, he says: “If you cater a lunch for other businesses every Wednesday, say, that’s a lot of information to keep track of throughout the year.”
For a one-person business, this change could double or triple the tax-related paperwork right there. Given that a lot of people have started new businesses in the last couple of years — partly because big businesses downsized and haven’t been hiring again — this will be a significant discouragement to self-employment.
H/T to Virginia Postrel for the link.
Update: It may not stand: there’s a bi-partisan coalition in the Senate to repeal that provision.
January 19, 2011
Pack of feral states now circling fallen Illinois
The plight of Illinois just seems to get worse and worse:
As Illinois tax rates shoot up, nearby states are fluffing their feathers in an attempt to catch the eye of businesses looking to leave the Land of Lincoln.
Governor Pat Quinn (D) and the slim Democratic majority that passed the rate hike claim it was necessary to keep the state afloat: Considering Illinois’ comptroller already spends much of his time apologizing to creditors for missing payments, it’s more likely that businesses will start fleeing the flattened wreckage. Illinois now boasts the highest corporate income tax in the world when all charges are taken into account, and is heading into 2011 with a 40 percent budget shortfall. The tax hike drops the state 13 places in the Tax Foundation’s State Business Climate rankings.
[. . .]
Other state governors took their shots at Illinois’ duncery: Daniels compared the state to The Simpsons, saying “Oh you guys are nothing if not entertaining over there.…you know the dysfunctional family down the block?” Wisconsin Gov. Scott Walker (R) repeated his promise to lower his state’s tax rates and hinted business should heed the old tourism bumper sticker motto: “Escape to Wisconsin.” New Jersey’s Chris Christie (R) was making plans for an Illinois salesmanship trip before the legislation was even signed.
I remember hearing about the massive tax increase in Illinois, with reports about 50-60% hikes, and I thought it was pretty bad. However, even after this massive increase the Illinois state tax level would still be a rounding error compared to Ontario provincial taxes.
December 17, 2010
QotD: “all players in the game have revealed themselves to be interventionists”
. . . all players in the game have revealed themselves to be interventionists. (Okay, we knew this already but confirmation is nice.) Regardless of party, they see the economy as something to fix by turning a knob here, pulling a lever there, and stepping on a pedal over yonder in order to get the desired performance: higher consumer spending, lower unemployment, increased investment, and so on. It’s as though the economy were a machine in need of adjustments and a few quarts of oil. But an economy is not a machine. It’s a network of people engaged in myriad exchanges of goods and services — pursuing end-oriented activities informed by subjective values and expectations. Such information is largely unavailable to politicians, bureaucrats, and their economic advisers.
With unemployment officially at 9.8 percent, the economy indeed remains in the doldrums. None of the palliatives that George W. Bush or Obama tried has worked, but instead of realizing that government and its corporate-state policies are the obstacles to a flourishing economy, the ruling elite remains committed to the managed economy. So it’s decided not to raise taxes — for two years — and to reduce the employee payroll tax — for one year. These expiration dates are signs of political management. Understanding the necessity of a freed market would lead one to call for permanent — not temporary — government retrenchment.
Some questions were apparently overlooked. If tax rates may go up in two years, why make tax-sensitive long-term plans? If the payroll tax is to be two points lower in 2011, that implies it will most likely be two points higher in 2012. Will people spend the extra money next year or save it in anticipation of the tax increase to come? At any rate, they will need to make an unpleasant adjustment in their household economies on January 1, 2012. People do think long term, even if politicians don’t.
Something worth noting about the debate is that there was scarcely an acknowledgment that money subject to taxation belongs to someone and not the State. You’d think it magically appears in a common pot and the government’s job is to ladle it out effectively and fairly. I can recall hearing only one member of Congress say, “It’s their money,” during a television interview about why tax rates shouldn’t go up on high-income people.
Sheldon Richman, “A Boost for the Managed Economy: What did you expect?”, The Freeman, 2010-12-17
November 26, 2010
British Columbia: Canada’s Banana Republic
A story in the Globe and Mail on how Elections BC rigged the rules after the fact to reject a petition:
Elections BC rejected a Fight HST recall application as too lengthy — but did so using rules that were drafted after it received the application.
The rejection has led recall organizers to suggest the province’s chief electoral officer deliberately thwarted their attempt to get approval to launch a petition to oust a Liberal MLA who supported the harmonized sales tax, and should step down.
While Elections BC has defended its new rules — which pushed the Fight HST application over a 200-word limit by counting the acronyms MLA and HST as eight words instead of two — recall organizers expressed concern that they were not included in the application form when they downloaded it from Elections BC’s website.
“It’s a total joke. This is the kind of thing they do in banana republics … when they don’t want to have elections or they don’t want people to win. And we’re doing it right here in Canada,” said Chris Delaney, an organizer of the Fight HST campaign.
H/T to Steve Muhlberger for the link.
Marni Soupcoff says get the government out of the marriage business
Although the column was prompted by the attention-whoring actions of a British couple, the basic principle still applies in Canada:
It really doesn’t make sense for the government to be divvying up rights and benefits based on the sexual orientation of its citizens. Yes, marriage has an undeniably rich history in our cultural and serves very useful societal purposes — I don’t buy into the arguments that marriage is dead. But it’s ultimately a moral and, in some cases, religious matter that should be sanctioned (or not) by a couple’s peer group, religious group and family. It’s not rightfully a spot for government to be sticking its nose, and the fact that it does so puts it in charge of decisions it has no business making — like who is fit to be called a married couple and who should get special tax treatment based on the status relationship.
The preferable scenario, and the one which would forestall lawsuits like the Goggin/Skarsholt one, would be for the government to remove itself from the marriage business altogether.
That would mean no more government-sanctioned civil unions or marriages or references thereto in the law. Yes, that would also mean massive revisions to the tax code, family law, criminal law — really reams and reams of laws from which the government would have to extricate its judgments about couples’ legal standing.
It would also nicely short-circuit the ongoing debate on polygamy (currently active in BC, but due in your local courtroom very soon too).
Canadian retailers are “furious” at customers for looking to the US for cheaper prices
A brief filler piece on the Canadian Press newswire explains only part of the reason so many Canadian shoppers are headed south to do their Christmas shopping this year:
This is Black Friday in the U.S., but many Canadian retailers are a furious red at the thought of consumers heading south for bargains.
The Retail Council of Canada says there is a long list of reasons to shop north of the border.
It says retailers are a vital part of any community’s economy and it employs 10 per cent of the workforce.
It also reminds consumers that Canadian taxes — which cause much of the traffic south — help pay for health care and education.
The higher taxes are certainly a big part of the explanation, but even if you control for tax, Canadian prices are generally higher than their US counterparts. For example, a paperback I picked up at random from our coffee table (published quite recently) has a price of $7.99 on it. If you’re an American, that is. Canadians pay $10.99. The Canadian dollar is around US$0.98.
Nice little markup, eh? Add the 13% Hack-and-Slash Tax on top of that, and you know exactly why thousands of Canadians are willing to put up with long lines at the border to do their shopping in the States.
