Category Archives: Taxation

Tax Code Simplification, Virginia-Style

In an effort to shorten its lengthy and complicated tax code, the Commonwealth of Virginia is considering adding an $8,000 tax deduction for people who have their cremated remains shot into space.

Well Played

An (inentionally?) humorous lede in the Seattle Post-Intelligencer:

The Internal Revenue Service office in Seattle is investigating an infestation of possible blood-sucking parasites — bedbugs — in its downtown office, after an employee complained of insect bites at work, federal officials said Monday.

Note the need to clarify that the parasites in questions don’t work for the IRS. I don’t think OSHA is in on the joke, though:
“It is alleged (that) management has known of the presence of these parasites for several weeks and has taken no action to remedy the situation,” OSHA said in a letter to the IRS dated Nov. 18.
My suggestion for getting rid of the parasites: simplify the 70,000-page tax code.

Debating Return-Free Taxes: Rep. Jim Cooper Responds

Last week, I made the case against return-free taxes in an op-ed in The Hill. Under such a system, the IRS would prepare your taxes for you.

Rep. Jim Cooper, a Democrat from Tennessee, is the sponsor of a bill that would institute a return-free program. He responded to my criticisms in a letter to the editor that ran yesterday. He explains his position, and for some reason also throws an ad hominem my way. I’ve met Rep. Cooper and have worked with him and his staff on several occasions. We disagree on this issue, but overall I have a positive opinion of him. He is more philosophical and better-read than the average Congressman, but he doesn’t seem to quite understand my position. Rep. Cooper argues:

Arguments that a Simple Return is a regressive tax on the poor assume the government will take advantage of those who file basic returns by consistently erring in its own interest and hoping filers don’t notice. There are no facts to support this claim.

Actually, there are. I share one of them in my article:

That is exactly the case in the U.K., which uses a return-free system. The government has a 15 percent error rate, overwhelmingly in the government’s favor. In 2009, British taxpayers were overcharged the equivalent of $370 million. Those lucky enough to underpay still didn’t get a good deal. They are held liable for the government’s mistakes. Today, 1.4 million people are on the hook for an average of $2,200 each — a month’s pay for many people.

Here is Rep. Cooper’s closing flourish:

A powerful lobbying interest made up of accounting, advisory, and software firms wants to defeat this bill. Those companies are cashing in on taxpayers’ $2 billion annual misery. No wonder they don’t want a simpler system.

I can’t speak for powerful lobbying interests since I’m neither powerful nor a lobbyist. Nor do I have a personal stake in the bill. But even if I did, that would have nothing to do with whether the arguments I make are right or wrong. That depends on their actual merits. That Rep. Cooper dodges those merits means that he must believe his own arguments are weak. Why else the need to go personal?

There is also the fact that I do, in fact, favor a simpler tax system. Here’s the closing line from my article:

There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.

It’s possible to have even a progressive, multi-tiered income tax that takes up only a few pages. Real tax reform would eliminate almost all deductions, tax breaks, and other special favors. They encourage endless rent-seeking, and waste millions of man-hours that could be spent doing something productive instead.

A return-free system would do precisely nothing to simplify the tax code. It would merely keep that complexity out of sight, and out of mind. That makes reform harder, not easier. Rep. Cooper is proposing to treat a symptom. I encourage him to go after the root problem instead.

A Backdoor Tax on the Poor

For some time now, the IRS has been flirting with what’s called a return-free system. Instead of you having to sit down and fill out your 1040, the IRS would fill it out for you and tell you how much you owe.

It’s being touted as a time-saver. But it would also raise taxes on the poor. No matter how much personal information the IRS collects on someone, it is almost certain to miss deductions that person qualifies for.

There is also the tiny little conflict of interest that occurs when one’s tax collector is also one’s tax preparer. In an op-ed in The Hill, I explain why people of all political stripes should oppose a return-free program:

A return-free tax system has something for everyone to hate. Progressives should be up in arms over its disproportionately hurting the poor. So should privacy advocates; the IRS does quite enough snooping as it is. And conservatives should oppose return-free because, even though tax rates would remain unchanged, it is still a tax increase.

There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.

Read the whole thing here.

 

Bizarre Taxes

The TurboTax blog has a fun infographic of weird taxes. From soda fountains to household pets, there’s a tax for almost any occasion.

Regulation of the Day 188: Cat Licenses

San Diego, California’s city government is going through tough financial times. But legislators have found a lucrative possible revenue source: the city’s 373,000 cats. The city government could raise a lot of money by requiring cat owners to purchase a license for their little friends at $25 each.

Compliance rates for pet licenses tend to be low. Two thirds of Los Angeles’ dog owners don’t bother licensing their dogs, even though they’re required to by law. With cats, compliance would probably be even lower. Many cats are indoor-only, and are thus easy to hide from regulators. They don’t need to be walked in public daily like dogs do.

The city seems to be fine with that. It just wants some money, according to NBC’s San Diego affiliate in an article cleverly titled “Cat Owners Hiss at Licensing Proposal:”

If just 5 percent had been registered at $25 a head, the auditor’s office says the city could have saved $536,000 over the past three fiscal years.

Curiously worded. For the city government to save money, it would have to spend less. Here the city auditor is saying the city government would save money by taxing more. For that statement to be true, residents’ money couldn’t actually be theirs. It would be the government’s. They’re just nice enough to let the citizens have some of it. That ugly philosophical presumption alone is enough to discredit this proposal.

There’s more to it, though. Collection costs and establishing a licensing system would eat into the revenues.

Then there are the unintended consequences. Every city has stray cats. To keep their numbers in check, some kind souls will take them off the streets, have them spayed or neutered, then release them. Doing so would require a $25 license, even if the cat only stays with the person long enough to recover from the surgery. That means a lot of people wouldn’t bother with their good deeds, and San Diego would have even more stray cats.

Other cat owners would refuse to take their cats to the vet, where licenses would be issued. It can be expensive to get cats their shots and have them fixed. Making it even more expensive means fewer people will do the right thing. That’s bad for the animals’ health and life expectancy.

UPDATE: This is already happening in North St. Paul, Minnesota. Reader Maggie sends along this article:

Doug and Annette Edge thought they were doing the right thing for their community.

With feral cats roaming their North St. Paul neighborhood, the couple trapped the wild felines, took them to be sterilized and vaccinated, and then released them back into the city.

City officials, though, say the couple was breaking city animal laws.

In April, North St. Paul charged Doug Edge, 45, with two misdemeanors: failing to have a cat license and allowing domestic animals to run at large. Edge faces a fine and up to 90 days in jail.

Fun with the IRS

The IRS is never fun to deal with. But Radley seems to have it especially bad, through no fault of his own.

Happy Tax Day

The tax code is now 72,536 pages long.

It wasn’t always that way; take a look at this chart by Cato’s Chris Edwards. The years aren’t evenly spaced, so the actual slope of page growth is different than it looks in the chart. But you get the point.

State of the Union Live-Blog

As promised, here is my live-blog of last night’s State of the Union address:

8:17 In line with recent tradition, the full text of President Obama’s speech leaked early. National Journal is hosting it – http://nationaljournal.com/whitehouse/exclusive-obama-to-declare-the-rules-have-changed–20110125

8:18 Here are excerpts from Rep. Paul Ryan’s response – http://budget.house.gov/News/DocumentSingle.aspx?DocumentID=221278

8:41 Here comes Biden. Introduced as President of the Senate, not as Vice President.

8:42 Just turned on the tv. Curious to see which Ds and Rs will be sitting together. I hear Pelosi declined Cantor’s offer.

8:47 CNN is using the music from the John Adams miniseries. Inappropriate?

8:48 If you’re bored while waiting for the speech to start, you can read last year’s State of the Union live-blog here – http://www.openmarket.org/2010/01/27/state-of-the-union-live-blog/

8:53 CNN poll – Which is more important? 78% say not cutting social security is more important than reducing the deficit. 21% say the reverse.

Remember, in a democracy, the people get what they want in the long run. This is why neither party is willing to take on entitlement reform.

8:53 Wolf Blitzer looks like he just got out of a wind tunnel.

9:00 Important People continue to file in.

9:01 The Supreme Court is front-and-center. I’m guessing there will not be a repeat of Scalia’s mouthing “that’s not true.”

9:05 There sure are a lot of Important People in Washington. They’re still arriving.

9:05 Here he is.

9:06 Much applause.

9:08 I’m guessing this is as much “face time” as most of these Congress-critters will get.

9:08 Nice acknowledgment of Coburn’s missing beard.

9:10 CNN is debating the political significance of the color of Obama’s tie. It’s not news, it’s CNN.

9:11 Here we go!

9:11 But first, much applause and many thank yous.

9:12 That’s two standing ovations already.

9:12 Hearts to you, Rep. Giffords.

9:13 Please recover quickly.

9:14 Oh, dear. He’s blaming the Tucson tragedy on partisan bickering. But it wasn’t that. It was the act of a crazy person. Tone had nothing to do with it.

9:15 “We need to work together tomorrow.”

Somehow, I don’t see this happening.

9:16 “We will move forward together, or not at all.”

Given how politicians move, let’s hope for the latter.

9:16 [Comment From KevinKevin: ]
Hello from Elyria Ohio !

9:17 Congress didn’t actually pass tax cuts in December. Tax cuts are when rates go down. Congress voted to keep them the same.

9:18 People don’t have the same job for life, anymore. A reference to the decline of American manufacturing.

9:19 One problem with that is that U.S. manufacturing output is near an all-time high.

9:19 Another is that few people want their children to grow up to be factory workers.

9:19 India! China! Scary!

9:20 “The competition for jobs is real.”

Except there isn’t a fixed number of jobs to be fought over between different countries.

9:21 Lots of talk about the future. A way of avoiding talking about the present?

9:22 “We need to out-innovate the rest of the world.” Get out of the way, then!

9:22 Curious to hear his thoughts about how he wants to make America a better place to do business.

9:23 Needs to encourage innovation. Sounds to me like an open invitation to rent-seeking and lobbying for politically popular industries.

9:23 First mention of Facebook in a State of the Union address?

9:23 [Comment From KevinKevin: ]
Blah Blah stop the bs

9:24 Ah, Sputnik.

9:24 [Comment From KevinKevin: ]
yes stop the spending Obama !

9:25 The Soviet Union launched a satellite in 1957. Therefore the federal government needs to invest in green jobs.

9:26 Yes, take money out of the economy, waste some of it on bureaucracy, then put it back into the economy. Maybe that’ll work!

9:26 [Comment From KevinKevin: ]
We need less goverment !

9:26 [Comment From KevinKevin: ]
didnt he cut NASA money ?

9:27 Kevin — don’t believe so. The shuttle program is ending soon, but budget remains the same

9:28 End oil subsidies — good! Government-sponsored innovation — yeesh.

9:28 How about ending all energy subsidies, period?

9:29 If it’s commercially viable, it doesn’t need a subsidy. If it isn’t commercially viable, no amount of subsidy will make it so.

9:29 Education.

9:30 Family rhetoric. Trying to appeal to Republicans, no doubt.

9:30 Much applause.

9:31 [Comment From KevinKevin: ]
not teachers ?

9:31 Race to the Top as meaningful reform.

9:32 Do people in Washington really know how to educate kids in California, Texas, Maine, and beyond? This is properly a state and local issue. Get the feds out of it.

9:33 Is anyone against good schools across the country?

9:33 Teachers unions have to be loving this.

9:33 Merit pay! maybe not.

9:34 100,000 new teachers, in the fields of his choice. Echoes of Clinton, except not in a good way.

9:35 Student debt for all!

9:36 I like that he’s giving two-year colleges some respect. But they are also properly state and local issues, not federal.

9:36 [Comment From KevinKevin: ]
Yes !!!!!!!!!!!!!!!!!!!!!

9:36 [Comment From KevinKevin: ]
NO jobs for teachers ! local schools are broke

9:37 Much applause.

9:37 Immigration.

9:37 Sounds good so far…

9:38 “Protect our borders.” Yeesh. Sounds like a Republican.

9:39 The best way to end the problem of illegal immigration is to make the legal channels easier, faster, and cheaper.

9:39 Prohibition doesn’t work.

9:39 Infrastructure.

9:40 Paid for by…

9:40 Good luck keeping politics out of this!

9:40 Especially with high-speed rail.

9:41 Nice pat-down joke. Please do something about those, Mr. President. They don’t make the country safer.

9:41 [Comment From KevinKevin: ]
Yes I need the votes !

9:41 [Comment From KevinKevin: ]
taxes !

9:41 [Comment From KevinKevin: ]
get the shovels its getting thick

9:42 If the government spends more on education, innovation, and infrastructure, good things will happen.

9:43 Lower corporate tax rate, with an allusion to the Laffer Curve.

9:43 Makes sense — who knows about the revenue, but U.S. corporate tax rates are now the highest in the developed world.

9:44 Not the way to encourage businesses to locate in the U.S.

9:44 Korea FTA – no specifics

9:44 I hear it may implemented by July. Let’s hope.

9:45 Increase exports! Fewer goods and less direct foreign investment for all!

9:45 Ah, regulation.

9:45 They are why food is safe and air is clean. I’d wager that wealth has more to do with it.

9:46 Child labor laws didn’t hit the books until that vile practice was well in decline.

9:46 Ditto with Clean Air Act, Clean Water Act, etc.

9:46 The health care bill. The elephant in the room.

9:47 The reactions are very partisan.

9:47 Anecdote!

9:47 Another anecdote!

9:47 How about some data?

9:48 “Fix what needs fixing, let’s move forward.” Curious as to his definition of what needs fixing.

9:48 National debt.

9:48 Blames Bush for beginning the spending binge. Right on.

9:49 Not sustainable. Quit sustaining it, then! His presidency has been Bush’s third term in almost every respect.

9:49 Spending freeze.

9:49 $40 billion per year. That’s roughly 1 percent of federal spending.

9:50 Deficit is something like 25%+ of federal spending. Try harder, please.

9:50 Curious to see how fast people spin this into spending cuts.

9:50 Oh wait, he just did.

9:51 A cut is when spending goes down. He is proposing that 12% of the budget stay the same, while the rest continues to increase.

9:51 [Comment From KevinKevin: ]
never going to happen

9:51 [Comment From KevinKevin: ]
Lip service !!!!!!!!!!!!

9:51 [Comment From KevinKevin: ]
more TAXES !!!!!!!!!!!!! lost jobs!!!!!!!

9:51 Taxes.

9:52 Reduce Medicare and Medicaid? Don’t see this happening in the current political environment.

9:52 Medical malpractice reform to rein in frivolous lawsuits. Much applause. Rightfully so!

9:53 Bi-partisan solution to Social Security reform. In other words, punt it down the road.

9:53 Distrusts IRAs, apparently.

9:53 Not just personal accounts.

9:54 Millionaire tax break equals taking scholarships away from children. How about reducing spending on frivolities?

9:54 Simplify the tax code. Yes! If only either party had any interest in this.

9:55 Government should be affordable, competent, and efficient.

9:55 Brave stance.

9:55 Nice job poking fun at salmon regulations!

9:55 [Comment From KevinKevin: ]
how many jobs is the health care reform making ?

9:56 Sell off unused federal real estate.

9:56 “I will send a vague proposal to Congress in the near future.”

9:57 People need to believe in their government.

9:57 Good transparency rhetoric. Put it online.

9:57 Earmark ban! I’m guessing the definition of ‘earmark” will change, or else Congress will be, shall we say, less than cooperative.

9:58 [Comment From KevinKevin: ]
BLAH BLAH !!!!!!!!!!!

9:58 Foreign policy. New threats could emerge at some point! EVERYBODY PANIC

9:59 [Comment From KevinKevin: ]
God bless the troops !

9:59 [Comment From KevinKevin: ]
get them HOME !!!!!!

9:59 Right on, Kevin.

10:00 Armies can fight wars. but they can’t build nations.

10:01 Don’t hate Muslims. Blame the individual, not the ideology. Hopefully this is widely heeded. Sound advice.

10:02 Congress likes it when he gets belligerent towards foreigners.

10:03 [Comment From ChrisChris: ]
I’ll believe the part about N Korea abandoning nukes when I see it.

10:04 South American tour. Hopefully this means action on the Colombia and Panama free trade agreements?

10:06 Democracy for all! I hope he realizes that freedom and democracy are not the same thing. They often correlate. But they are not the same thing.

10:07 Sounds like he wants to spend more on defense.

10:09 Franken looks bored.

10:09 He is not alone.

10:10 Constitutional rhetoric.

10:11 Biden and Boehner are quite the pair.

10:11 Anecdote!

10:11 [Comment From GuestGuest: ]
McCain applauds like there is no tomorrow.

10:12 [Comment From ChrisChris: ]
This seems like it’s falling flat.

10:14 Just like last year, this was a long one. Much applause.

10:15 On to Rep. Paul Ryan’s response.

10:21 This will be an important speech for Paul Ryan.

10:24 His style is policy-heavy. I don’t always agree with his voting record, but here’s hoping he stays true to form. Policy is far more important than rhetoric, even if it is less glamorous.

10:25 It also helps that President Obama takes him seriously, even when they disagree.

10:25 Here he is.

10:25 Oops, they cut out his first few words.

10:26 Nice words about Tucson.

10:26 Necessary. But get on with it.

10:27 House as cut its own budget. Nice symbolism,but small potatoes.

10:27 Debt is growing.

10:27 “No economy can sustain such levels of spending and taxation.”

10:28 It’s a bipartisan problem. Yes. See the Bush years as well the Obama years.

10:28 Obama has increased domestic spending by 25%, added $3 trillion to the debt.

10:29 Doesn’t like the health care bill. It will increase costs.

10:29 Washington should not pick winners and losers.

10:29 Regulatory reform. CEI has many, many ideas for that.

10:30 What was a challenge is now crisis. Hyperbole, but with a grain of truth.

10:30 Unlike last year, Congress will actually propose a budget.

10:31 I like his ambition, but I doubt he’ll get all he wants.

10:31 Founders rhetoric alert.

10:31 Definitely trying to appeal to conservatives.

10:32 “Individual liberty requires limited government.”

10:32 Dems want to increase government, even though it’s already at an all-time high.

10:33 But not just over the last two years. His own party is just as guilty when they hold the reins.

10:33 Transform the social safety net into a hammock.

10:33 We still have time, but not much. Cf. Greece, et al.

10:34 Day of reckoning?

10:35 Spirit of initiative should triumph over political clout. hear, hear. Too bad two major political parties disagree with him.

10:36 American exceptionalism. no, it’s actually institutional exceptionalism that has made America great.

10:36 Nice and brief!

10:36 Sometimes it’s good to be the opposition. You can be more honest, less flowery, and mercifully brief.

10:38 Well, that’s all for tonight. Thanks for following along, and thanks for your comments. My CEI colleagues will have more in-depth analysis for you tomorrow. Good night!

Live-Blogging the State of the Union

Since I wasn’t clever enough to figure out how to syndicate the content to this blog, just click on over to CEI’s staff blog, OpenMarket.org, to read my live-blog of tonight’s State of the Union address.

I’ll paste the full text over here sometime after the speech. But at OpenMarket, you can follow along as it happens. So head on over.