Category Archives: Taxation

Peter the Great’s Tax Policy Innovations

From p. 401 of Peter K. Massie’s 1980 biography, Peter the Great: His Life and World:

The Tsar’s demands for money were insatiable. In one attempt to uncover new sources of income, Peter in 1708 created a service of revenue officers, men whose duty it was to devise new ways of taxing the people. Called by the foreign name “fiscals,” they were commanded “to sit and make income for the Sovereign Lord.” The leader and most successful was Alexis Kurbatov, the former serf of Boris Sheremetev who had already attracted Peter’s attention with his proposal for requiring that government-stamped paper be used for all legal documents. Under Kurbatov and his ingenious, fervently hated colleagues, new taxes were levied on a wide range of human activities. There was a tax on births, on marriages, on funerals, and on the registration of wills. There was a tax on wheat and tallow. Horses were taxed, and horse hides and horse collars. There was a hat tax and a tax on the wearing of leather boots. The beard tax was systematized and enforced, and a tax on mustaches was added. Ten percent was collected from all cab fares. Houses in Moscow were taxed, and beehives throughout Russia. There was a bed tax, a bath tax, and inn tax, a tax on kitchen chimneys and on the firewood that burned in them. Nuts, melons, cucumbers were taxed. There was even a tax on drinking water.

Money also came from an increasing number of state monopolies. This arrangement, whereby the state took control of the production and sale of a commodity, setting any price it wished, was applied to alcohol, resin, tar, fish, oil, chalk, potash, rhubarb, dice, chessmen, playing cards, and the skins of Siberian foxes, ermines, and sables. The flax monopoly granted to English merchants was taken back by the Russian government. The tobacco monopoly given by Peter to Lord Carmathen in England in 1698 was abolished. The solid-oak coffins in which wealthy Moscovites elegantly spent eternity were taken over by the state and then sold at four times the original price. Of all the monopolies, however, the one most profitable to the government and most oppressive to the people was the monopoly on salt. Established by decree in 1705, it fixed the price at twice the cost to the government. Peasants who could not afford the higher price often sickened and died.

And from p. 402:

No matter how much the people struggled, Peter’s taxes and monopolies still did not bring in enough. The first Treasury balance sheet, published in 1710, showed a revenue of 3,026,128 rubles and expenses of 3,834,418 rubles, leaving a deficit of over 808,000 rubles. This money went overwhelmingly for war.

IRS Licensing of Tax Preparers Is Ripe for Abuse

Roughly a quarter of all jobs in America now require some sort of occupational license. Sixty years ago, it was about one job in 20. Should tax preparers join the list? The Taxpayer Protection and Preparer Proficiency Act of 2021 (H.R. 4184), introduced by Rep. Jimmy Panetta (D-CA), is the latest legislative attempt to do so. CEI signed onto a coalition letter this week, led by the Institute for Justice, opposing the idea.

The bill is being marketed as a consumer protection measure that would ensure that taxpayers are guaranteed quality service by a knowledgeable tax preparer. In practice, it would harm both consumers and small tax preparers. Like many occupational licensing requirements, licensing of tax preparers is economic protectionism. It would favor big accounting firms over small preparers, while raising consumer prices. The IRS’ ability to approve and deny licenses would give it an additional tool to threaten tax preparers and abuse taxpayers. And it would potentially open black markets for unaccountable “ghost preparers” who work outside the system.

First, the rent-seeking argument. H&R Block and other big firms can afford the time and expense it would take to get their employees licensed. But thousands of individual tax preparers who work part-time to help make ends meet, cannot. They would go out of business, and their customers would have no choice but to turn to the big firms. Actions speak louder than words.

Second, the power to grant licenses is also the power to take them away. If the IRS believes that a tax preparer advocates a little too hard for her clients and saves them too much money, it can put that preparer out of business. Under the bill, the IRS only needs to show in a hearing—which it convenes, for which it sets the procedures, and where the participating personnel are on its payroll—that a preparer is “incompetent” or “disreputable.” These terms are defined so vaguely under 31 U.S. Code § 330 that the IRS can use them almost any way it wishes. Penalties include fines to the preparer and her client, censure, and loss of license.

Third, licensing requirements would open up black markets for “ghost preparers.” Licensing is not free, and businesses pass their increased costs on to consumers. That means people can get cheaper tax preparation services by going to unlicensed “ghost preparers” who do not sign their name onto clients’ returns. While this might save some money, it also lets ghost preparers escape liability for mistakes. That is the opposite of consumer protection.

At the very least, Rep. Panetta should withdraw his bill. But the best long-term reform would be to treat the root of the problem: a 70,000-page tax code that is too complicated for most people to navigate without professional help. The Tax Foundation estimated in 2016 that federal tax compliance alone costs 8.9 billion hours of paperwork and $409 billion. This does not include state and local tax compliance. Those figures have likely gone up in the last five years. There are better uses for those resources, especially during a tough economic recovery.

A simpler tax code would address most of the IRS’ complaints about tax avoidance and save taxpayers time, money, and hassle—and do so in a revenue-neutral way. Big accounting firms, their lobbyists, and their political allies’ losses would be more than offset by the gains to nearly everyone else.

The coalition letter is here. Back in 2010, Caleb O. Brown and I wrote in Investor’s Business Daily about a similar proposal that ultimately failed.

More on the Corporate Tax

Andrew Stuttaford, who edits National Review‘s policy-focused Capital Matters section, has a writeup in his daily newsletter on the consequences of a corporate tax increase, in which he quotes from my recent piece that ran on his site. Andrew’s analysis is excellent, and detailed.

The Washington Examiner‘s Sarah Westwood quotes me in an article about the proposed increase.

The Dispatch, an outlet founded by Jonah Goldberg to offer a less tribal voice for the right than the Trump-centered outlets, was also nice enough to draw from my National Review piece in their daily newsletter (scroll down to the “worth your time” section”.

I also discussed corporate taxes on the Rod Arquette show in Salt Lake City. I’ll post a link to the audio if I find one.

Who Pays Corporate Taxes?

Congress is considering increasing the corporate tax rate from 21 percent to 28 percent to help pay for the big infrastructure bill it is currently assembling. Over at National Review, I point out that corporations don’t actually pay corporate tax. You and I do:

That is because companies pass on their costs. Some of the tax is paid by consumers, who pay higher prices. Company employees pay some of the tax through lower wages. And investors’ retirement accounts pay some of the tax through lower returns.

There is also an often overlooked rent-seeking story behind Treasury Secretary Janet Yellen’s proposal for a global minimum corporate tax rate:

It is not difficult to imagine a U.S. company lobbying heavily to raise its rivals’ taxes in lower-tax countries. This would make the U.S. company more competitive, but in strictly relative terms. Such a lobbying win could aid a company without it having to do the hard work of improving its products or offering consumers better deals.

At the same time, though, foreign companies could lobby to raise U.S. corporate-tax rates for similar reasons. Why bother improving your own company when you can just hurt your rivals instead? That is the real race to the bottom.

A global minimum corporate tax rate turns out to be a form of hidden trade protectionism.

Read the whole thing here.

The 2020 Election Actually Had Some Free-Market Victories

Neither presidential candidate has much interest in limited government. But over at National Review, I look at some neglected down-ballot victories from the 2020 election. A divided Congress will prevent one party from running everything, regardless of who wins the White House. There were also several state-level victories across the country. 

California voters partially undid the AB5 gig-worker law that made unemployment even worse during the pandemic. They also voted against an expansion of rent control, which is one reason California’s housing prices are so high.

Not that legislators will listen, but Illinois voters sent them a message to address the state’s pension crisis by cutting spending rather than raising taxes:

The Illinois legislature had already passed a separate tax hike bill, conditional on voters approving the amendment. Voters disapproved by a 55-45 margin, and taxes will remain as they are.

Voters in Oregon and several other states also continued to deescalate the drug war:

In order for people to respect the law, they have to be able to respect it. That was a major cultural cost of alcohol prohibition in the 1920s, and of the drug war today. Drug legalization allows law enforcement to focus on real crimes and ease an avoidable source of antagonism between police officers and the communities they serve—especially in minority areas where drug laws are disproportionately enforced.

Washington state voters registered disapproval of a plastic bag tax. This is a victory for my colleague Angela Logomasini, who has written about the issue here and here.

A lot went wrong in the 2020 election, as is true every year. But some things also went right. Now let’s build on those victories and create some new ones.

Read the whole thing here. Ideas for the next free-market victories are at neverneeded.cei.org.

In the News – Canadian Tariffs

Thomas Howell, Jr. from The Washington Times quotes me in a story about President Trump’s reinstatement of 10 percent aluminum tariffs against Canada:

“The timing is just terrible. The USMCA trade agreement is barely a month old, the economy is fresh off the worst quarter in American history, and here comes a tax increase on something everyone uses. It makes no sense politically, let alone economically,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute.

Corporate Welfare in Illinois

The state of Illinois is implementing a tax break for new cloud data storage centers located in the state. The Center Square’s Greg Bishop quotes me in a story about it:

A special carve out for data centers is bad policy, Competitive Enterprise Institute Senior Fellow Ryan Young.

“A principle of good policy is that the rules should apply to everyone, not just a select few,” Young said. “By that measure, Illinois’ tax break for cloud data centers is bad policy.”

Young said Illinois’ exemptions applies to one sector and is only available to large companies.

“The sales tax exemption requires a $250 million upfront capital investment, which more or less restricts it to the Googles, Amazons and Oracles of the world,” Young said. “None of these companies need the help.”

He said if the point of the tax break is to make Illinois a better place to do business, then why not apply it to everyone.

“This tax break is corporate welfare, plain and simple,” Young said.

“Given Illinois’ perilous fiscal situation, the state’s taxpayers would be better served if Springfield concentrated its efforts on reducing spending and deficits rather than doing favors for profitable businesses,” Young said.

Read the whole thing here.

Unemployment, Taxes, and Spending

Alongside Charles W. Baird, whose writing I have enjoyed since my high school and college days in FEE’s The Freeman magazine (then called Ideas on Liberty), I am quoted in a Heartland Institute piece on unemployment and how to keep it low.

Official Disdain for Commerce

Most cultures have held trade and commerce in low regard. This is true in nearly all times and places, and whether people are rich or poor, religious or secular, and cuts across political beliefs. Governments don’t much like the merchant class either, even though this disdain is biting the hand that feeds. James C. Scott provides an example from ancient China on p. 131 of his thought-provoking 2017 book Against the Grain: A Deep History of the Earliest States:

One reason for the official distrust and stigmatization of the merchant class in China was the simple fact that its wealth, unlike that of the rice planter, was illegible, concealable, and fugitive. One might tax a market, or collect tolls on a road or river junction where goods and transactions were more transparent, but taxing merchants was a tax collector’s nightmare.

Suing the IRS – And Winning

Proving that sometimes good guys can win, our friends at the Institute for Justice are celebrating a big win against the IRS. In a move supported by large, established tax preparation firms, the IRS tried to require all tax preparers to get licenses. The licenses, along with other requirements such as annual continuing education courses, would raise costs for smaller firms and put many individual preparers out of business entirely; one sees why large firms would welcome the extra burden. They would face less competition. IJ sued to put a stop to his perfidy and preserve a more open competitive process.

A few years ago, before IJ filed its lawsuit, now-CEI Adjunct Scholar Caleb Brown and I co-authored an op-ed warning why mandatory tax preparer licenses are a bad idea:

Since the IRS has the power to revoke registrations, tax preparers will have to be careful not to advocate too aggressively for their clients. Besides this chilling effect, mandatory registration reduces consumer choice.

There are at least 600,000 unregistered preparers. Many of them are retirees. Others have jobs, but prepare taxes on the side to help make ends meet. Still others are volunteers. They give their services for free to people who can’t afford a tax preparer. How many will give up, rather than jump through the proposed regulatory hoops?

The IRS estimates the total cost of the new regulations at $48.5 million, plus 1.71 million hours of paperwork and record-keeping burdens. That’s equivalent to 855 full-time jobs — and not the kind that will spark an economic recovery.

Read the whole piece here. Read more about IJ’s victory here, and see a short video they produced about the case here.