It's Only A Tax Increase If the Republicans Recommend It.

This WSJ editorial discusses the post-November change the Obama administration has made concerning the taxation of health insurance benefits.

I can hardly wait for the pearls of wisdom coming from Joe Biden's mouth about this.

Gwinnett County Commission Backs Down

Jim Galloway reports that Gwinnett County Commission Chairman Charles Bannister is going to table the proposed 25% increase in property taxes. Bannister said 'We have heard the message sent to us by the citizens.' However, if the June 1st Tax Protest has not been tabled he may not have heard anything yet.

Fun With Deficits

The Center on Budget and Policy Priorities has some tables showing the current and projected budget gaps for states that face budget deficits.

Interesting to me is the 9 states with no income tax have a combined projected budget gap of $15.2 billion. The three states (New Jersey, New York and California) with the highest tax burden as determined by the Tax Foundation also have the three highest projected budget gaps for 2010. California's projected deficit of $33.9 billion is more than double the combined gap of the states with no income tax. New Jersey and New York face more modest deficits of $7.0 billion and $17.9 billion, respectively, though that still places them 2nd and 3rd in size.

At what point do states stop to think if high taxes are really the solution to overspending?

If You Don't Like Rich People Just Tax Them Out Of Your State II

Maryland has lost one-third of its millionaires from a year ago. In 2008, Marland had 3,000 million dollar income tax returns filed by the end of April. In 2009, that number dropped to 2,000 according to a WSJ editorial. For sure, many of these taxpayers are still Maryland residents whose incomes dropped below one million dollars because of the recession, but it is bad policy to depend more and more on the wealthy to fund bloated governments.

It's interesting to note that three of the most heavily taxed states (California, New York and New Jersey) are experiencing huge budget deficits while the 9 states with NO income taxes are largely faring well.

State governments need to consider three things when they adopt a 'soak the rich' tax policy:

1. Do you want to create an environment where the wealthy are inclined to move out?
2. Do you want to create an environment where wealthy out-of-state residents are discouraged from moving in?
3. Do you want to create an additional incentive for residents to legally shelter or deferr income recognition?

Each of these three scenarios would also adversely impact a local government's ability to collect tax revenues related to property and sales taxes.

If You Don't Like Rich People, Just Tax Them Out Of Your State

There may be a battle forming in the New Jersey GOP primary for Governor. According to this WSJ editorial, Steve Lonegan is proposing a flat tax in lieu of the existing graduated income tax. New Jersey has one of the highest tax burdens in the country. Lonegan's plan would at the least make it one of the least burdened states in the northeast which is important to note considering the ease with which residents can move. The editorial says that New Jersey has suffered the nations 4th highest rate of out-migration of all the states. Lonegan doesn't want residents who are expected to fund many of the tax revenues to move out of the state's tax reach which is the main idea behind a low (2.98%) rate on each taxpayer's first dollar of income.

It will be interesting to watch how the current frontrunner Chris Christie will continue to attack the flat tax as a tax on the poor without being perceived as Republican engaged in the typical Democratic strategy of class warfare.

I Thought You Were Republicans...Whatever Those Are.

The AJC reports on another county that is proposing a tax rate increase. This time it's Gwinnett County resident's turn to complain about a possible 25% increase to property tax rates. The county is claiming it has lost revenues of $839 million dollars over more than a decade by not raisng the millage rate. The county doesn't mention that new construction and increased assessments have occured during the same time.

The best quote comes from Peter Henrickson of Duluth, 'I thought you were Republicans.' The fact that any members of the commission are Republicans means they will spend other people's money like a drunken sailor while they hold office and then bemoan any spending or tax increases when they are voted out.

Oddly, neither this article nor last week's article mentions anything about a county financed baseball stadium. You can read how the stadium (and a 25% increase in property taxes) will pay for itself from day one here.

Tax Increases to Lobby for More Tax Increases?

The Atlanta Journal-Constitution reports that taxes are paying $25 million in lobbyists salaries. Almost one-fourth of the more than 1600 peopled registered to lobby during the 2009 session represented either state funded agencies or local governments. As Rep. John Lunsford of McDonough says, 'The only person without a damn lobbyist is the taxpayer.'

I have no problem with lobbying in general. I do not believe that spending money to petition the government is tantamount to 'buying' politicians. There is something, however, that rankles me about taxpayers' money being used to lobby positions that are often against the taxpayers best interest. As Jared Thomas of the Georgia chapter of Americans for Prosperity says, 'Essentially what you've got is tax dollars being used to send people to the state Capital to lobby lawmakers to raise their taxes again.'

There were many valid reasons to oppose Glenn Richardson's plan to eliminate local property taxes in the state of Georgia. Local governments using taxpayer money to ensure property taxes were not cut shouldn't be one of them.

More Property Tax News

Pickens County Chief Tax Appraiser Roy Dobbs says the property tax value freeze is confusing and will be a long term disappointment to property owners. According to Dobbs there are a few 'nothing is set' and 'wait and see' items creating confusion for tax offices across the state. I think this can be interpreted as we know how much money we have to collected, now we have to do the 5th grade math to calculate our millage rate. The lawsuit filed against DeKalb county may give other counties an indication of how much leeway they have.

He freely admits that "Property taxes are not frozen....it's only the assessments." It probably is reasonable to believe that most Georgians will not see a decrease in their property taxes and many in fact may pay more than prior years.

The most frustrating thing about the tax appraiser's comments is this: 'Tax bills are dictated by budgets.' This isn't really news, but it still is frustrating. Every business and household starts with projected available resources and budgets how to spend, but local governements create a spending plan and then work backwords to shake the revenue out of the taxpayers' pockets.

Is it any wonder that surveys typically reveal property taxes are the most hated of all other types of taxes?

Collapse of Real Estate Values Equals 4% Decline in DeKalb County

According to the AJC, the DeKalb County Tax Assessor is being sued for failure to follow to new laws relating to property tax values. The Georgia Legislature recently enacted a law mandating that the effect ofproperty foreclosures are to be considered when valuing a property's appraisal and instituted a freeze on increased property values on unimproved homes.

When the original report was released in April the tax assessor had values rising apparently in violation of the mandated value freeze. The newer report released had a decline of 4%. I have no strong opinion on whether this is accurate or not but if the world is ending and real estate has 'collapsed' it seems it would warrant a larger than 4% decline. Also, I'm not sure if a lawsuit is the appropriate means to solve a disagreement over property values although the tax assessor should be in compliance with the law.

This illustrates one of the pitfalls of property taxes in general. Historically, property taxes have been universally hated even more so than income taxes. This is partially explained by a lack of transparency. Tax jurisdictions pat themselves on the back for maintaining low rates. However, those jurisdictions often institute 'backdoor taxes' by arbitrarily raising the base value to which those millage rates are applied.

The DeKalb County School System's tax base is almost entirely dependent upon the property taxes collected. The 2010 school budget assumes a 1.7% deline, but it is probably very likely there will be deeper cuts.

Property owners have until June 19 to file an appeal based on their property's assessment. Expect a bottleneck of appeals this summer. In the end, it may not matter since the millage rate doesn't have to be set until June 23.

Maybe Glen Richardson was onto something.

The Tax Men Cometh

The May issue of CFO has an interesting article about the aggressiveness of some states to make up budget shortfalls by going after out-of-states businesses. Of particular interest (to me at least) is Georgia's revenue policies and systems are influencing companies to locate or expand operations here (#5 nationally). I also notice that many of the northeast states, Michigan, Illinois and California are viewed very negatively and causing concern for future operations by survey participants. It will be interesting to see how future legislation and tax enforcement affects economic performance in many of these states with negative reputations.

I hope to have more information on this subject in future posts.

Pimpin' Ain't Easy

In edition to Big Daddy Kane's list of the perils of pimpin' you can add paperwork and payroll compliance.

This should serve as a reminder to all associated with the world's oldest profession that the IRS wants its payroll and income taxes to be paid. In fact, the Internal Revenue Code explicitly states all income from illegal activity is taxable. In the case of prostitution it most probably belongs on Schedule C although it is less clear what the line for 'Principal business or profession' should contain.

The Adulation Is So Loud - It's Like Three Cheerleading Squads

There was a three-for-one special at the Associated Press this week. The following headlines were used to describe the same news story (in order as they appeared):

Obama To Target Tax Evaders

Obama To Close Tax Loopholes

Obama To Raise Taxes On Multinational Companies

The first headline which was changed by mid-morning on Monday is terribly inaccurate. Sure, Obama is going to increase the number of IRS agents by 800 according to the story, but this is nothing more than editorializing in a poorly written manner. Imagine you argue there should be no federal deduction for state income taxes paid, as the Heritage Foundation has. You could base your arguments on the fairness between taxpayers in states with income taxes and those without. (Note: As a result of this argument, Congress began allowing a deduction for either state income tax or state sales tax several years ago.) You could also argue that the federal government should not subsidize state budgets and in this manner force states to be judicious with their residents' money. (Note: Many states actually argue along the lines of 'Well, sure we are taxing you at 10% but for those in the 25% federal bracket it is effectively only 7.5%) What cannot be claimed, however, is that all taxpayers who deduct state income taxes on their federal return are tax evaders. A tax evader is someone who illegally minimizes his income either by unreported income or falsely reporting expenses. See Tim Geithner, Tom Daschle or Charles Rangel for examples.

The second headline isn't quite as bad as the first, but is still misleading. It calls the current tax policy a loophole. Tax loopholes generally discribe ambiguities in the tax code which have unintended consequences. These ambiguities generally occur to the chagrin and embarrassment of lawmakers. An example was found in Arizona around 2000. Due to pressure from environmentalists, the state gave a tax credit for vehicles that ran on alternative type fuels. What the state didn't initially expect was for every golfer in the state (and some non-residents) to purchase golf carts for their hobby and receive the credit. I beleive that loophole has been closed through more specific language. What this AP article describes isn't a 'loophole' because a lawmaker or committee used some vague terminology but a law in which the AP disagrees.

The final headline calls Obama's plan for what it is - an increase of taxes. Did a capitalist infiltrate the AP? By the way, no industrialized nation has a tax on income similar to what Obama is proposing. The article notes that most corporations pay an effective rate of about 25% on domestic activities but only a 4% rate on foreign activities. You have to love the disclaimer that notes this doesn't take into account foreign taxes paid. I suppose the AP is arguing that companies should pay 25% overseas and another 25% to Washington and if the company operates in many nations there could potentially be a greater than 100% tax rate. That would turn the 'loophole' into a noose for most companies.

Tax Increases Aren't the Only Way to Eliminate a Deficit

Kelly McCutchen at the Georgia Public Policy Foundation reminds Georgians that it could be worse; we could be residents of New York or California. McCutchen writes that the state's spending for 2008, 2009 and 2010 is projected to be $38.5 billion, $37.7 billion and $38.8 billion, respectively. At a time when so many are calling for increased government spending, Georgia has been able to avoid uncomfortable tax increases due largely to restricted spending.

Readers are given charts detailing state spending by revenue source, state spending against population and inflation and state education spending per student. A study by the American Legislative Exchange Council is referrenced in which the following conclusion is reached: 'The historical evidence is clear. States that keep spending and taxes low exhibit the best economic results, while states that follow the tax-and-spend path lag far behind.'

Keep that in mind the next time a politician advocates a tax increase as the only solution during a down economy.

You Mean All the Raindrops Aren't Lemondrops and Gumdrops?

The last sentence in this AP dispatch reads as if it's newsworthy if Obama fails to garner 100% support for his agenda. The first seven paragraphs lead one to believe that Obama is some sort of superhero for raising taxes. The final sentence admits that 'Congress is expected to resist significant portions of Obama's plan.'

One probably shouldn't be surprised that acknowledging there may be resistance to a proposal is what passes as 'hard-hitting journalism' with displays such as this. Unfortunately, you can't see Helen Thomas waiving her pom-pons because everyone is standing. But just think what a happy place it will be when Obama makes all the raindrops lemondrops and gumdrops!

Ve Have Vays Ov Making You Talk.

Imagine if George W. Bush during the past eight years had said the following: 'If countries and institutions won't cooperate with us, we will assume that they are harboring terrorists and act accordingly.' If that had been said you would imagine a Keith Olbermann-type to say something like:

We have handed a blank check drawn against our freedom to a man who may now, if he so decides, declare not merely any non-American citizens "Unlawful Enemy Combatants" and ship them somewhere -- anywhere -- but may now, if he so decides, declare you an "Unlawful Enemy Combatant" and ship you somewhere - anywhere.

How long will it be until Olbermann goes on a similar rant now that Barack Obama has said, "If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly."

Just remember the burden of proof now falls on you to prove your innocence.