Category Archives: Taxation

How Not to Tax the Internet

Posted on March 24, 2009 | Comments Off on How Not to Tax the Internet

The American Spectator Online ran an article of mine today on sales taxes on the Internet. Taxation without representation at its finest. Read it here.

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Posted in Economics, Publications, Taxation

How to Boost Tax Receipts

Posted on January 31, 2009 | Comments Off on How to Boost Tax Receipts

The Obama administration has found an innovative way to close the tax gap. Via the satire site Scrappleface:

1. Find a wealthy individual who hasn’t paid their taxes.

2. Nominate him or her to a cabinet-level position.

3. Bad publicity ensues. Taxes are paid.

Best of all, tax evasion is a bi-partisan phenomenon. It’ll work just as well during a Republican administration.

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Posted in Economics, General Foolishness, Taxation

Stimulus and Taxes, Part Two

Posted on January 27, 2009 | Comments Off on Stimulus and Taxes, Part Two

When taxes are cut and spending isn’t, future taxes go up. It’s the only way to pay off the resulting debt. That’s why the stimulus plan’s tax cut isn’t really a tax cut.

CBO just came out with a number for this future tax increase: $347 billion. (Hat tip to Katherine Mangu-Ward)

Wait, hold on a minute. I missed something. Actually, that’s just the interest payments on the debt from the stimulus package.

Just the interest payments. $347 billion.

Wow.

That’s going to be a pretty big drag on the economy. Maybe this stimulus isn’t such a good idea.

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Posted in Economics, Stimulus, Taxation

Tax Effects of the Stimulus Package

Posted on January 27, 2009 | Comments Off on Tax Effects of the Stimulus Package

Christina Romer and Jared Bernstein’s January 9 report on “The Job Impact of the American Recovery and Reinvestment Plan” marshals an impressive array of theory and data in support of President Obama’s stimulus package.

Some of their tax analysis seems suspect, though. On page 5 they write, “tax cuts only have effects [on employment] when people go out and spend money.” Sounds reasonable enough. If people don’t spend money, they save it. And people save most of their tax cut windfalls.

But the only way for saved money to have no effect on the economy is to keep it under a mattress. And very few people do that.

Most people save their money in a bank. Or they invest it. The banks spend the money by lending to businesses and homebuyers. They in turn spend the money on their own projects. Companies receiving investment funds spend the money on salaries, capital, and so on. Saved money is still spent, you see. Just by different people.

There is no reason for saved money to create fewer jobs than spent money. Different jobs, certainly. But more or fewer? No compelling theory points in either direction. It depends on what it’s spent on.

The long-run effects of tax cuts are a little trickier. The stimulus package will increase spending. Deficits, too. So really, the tax cut… isn’t. Deficits have to be paid back. That requires higher future taxes. Lower taxes now mean higher taxes later.

Higher government debt also crowds out private investment. Every dollar that investors put in government bonds is a dollar not invested in the private sector. Hard to tell what the net employment effects are. Depends on what the investment opportunities are.

Maybe the stimulus package is a good idea. Maybe it isn’t; I have a strong hunch it isn’t. As regards tax policy, Romer and Bernstein’s report sheds little light.

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Posted in Economics, Stimulus, Taxation

When Is a Tax Cut Not a Tax Cut?

Posted on January 5, 2009 | Comments Off on When Is a Tax Cut Not a Tax Cut?

When spending doesn’t go down to match. Seen in that light, President Obama’s tax cut… isn’t. George Mason professor Russ Roberts just nails it over at Cafe Hayek:

an increase in spending coupled with lower tax collections is an INCREASE in taxes. AN INCREASE in taxes. NOT A TAX CUT. If I spend more money and collect less, the government is promising to collect more taxes in the future. It is not a tax cut.

Is that really so hard to understand? Judging by both parties’ reactions, apparently it is. Welcome to Washington.

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Posted in Economics, Taxation, The Partisan Mind

Corporate Tax Avoidance

Posted on August 18, 2008 | Comments Off on Corporate Tax Avoidance

The New York Times fumes that “This country’s corporate tax rates are among the highest in the industrial world, yet the taxes that corporations pay are among the lowest.”

The article doesn’t mention this, but one of the top causes of tax avoidance is high rates. State and federal tax rates add up to an average of about 40%; the European average is now below 25% and declining. Little wonder, then, that few companies are paying the high U.S. rate if they have better options.

The lesson is simple – lower tax rates mean less tax avoidance.

Of course, it would be best to abolish the corporate tax altogether. It’s really an indirect sales tax. Businesses pass on their costs, you see. When it comes down to it, consumers pay every cent of corporate tax. Direct sales taxes are much more transparent — and harder to dodge.

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Posted in Economics, Taxation

The Cost of Regulation

Posted on August 5, 2008 | Comments Off on The Cost of Regulation

Wayne Crews and I have a piece in today’s Investor’s Business Daily about the extent and cost of regulation.

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Posted in Economics, Publications, regulation, Spending, Stimulus, Taxation

House Passes AMT Relief… Again

Posted on June 25, 2008 | Comments Off on House Passes AMT Relief… Again

The Alternative Minimum Tax is almost universally hated. It’s basically a second tax code. If your income is high enough, you have to do your taxes twice. Once under the normal tax code, and again under AMT rules. Then you pay whichever is higher.

That’s bad enough. But Congress didn’t index the AMT for inflation when they enacted it in 1969. Almost forty years later, that means as many as 30 million people are subject to AMT. Some of them have incomes as low as $40,000.

This is where Congress gets a chance to look good. Every year, without fail, they pass an AMT relief bill. By sparing over 20 million people the hassle of doing their taxes twice, they earn voters’ gratitude.

Why don’t they just pass a one-and-done permanent AMT repeal or reform? That would be much easier.

Passing a patchwork bill every year means Congressmen get to hold more press conferences and talk to more reporters. It gives voters an annual reminder that their representative is looking out for them. It’s better for getting Votes. That’s why fundamental, permanent AMT reform is unlikely to happen.

Politics is a loathesome business.

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Posted in Economics, Political Animals, Taxation

Let’s Move Election Day

Posted on June 11, 2008 | Comments Off on Let’s Move Election Day

CNN’s Roland Martin thinks that elections should be held on Saturdays, not Tuesdays. He thinks that would increase turnout.

I have a better idea. Move Election Day to Tax Day — April 15. We can decide who gets to spend our money while our tax bills are still fresh in our minds. Politicians would have less incentive to come up with grandiose schemes for spending other peoples’ money.

Besides, I’ve always thought it borderline suspicious that elections are held at the opposite end of the calendar from when we pay our taxes.

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Posted in Economics, Elections, Political Animals, Taxation

Bad Economics and Income Tax Withholding

Posted on April 11, 2008 | Comments Off on Bad Economics and Income Tax Withholding

CNN has a poll on its homepage that asks, “On your taxes this years, are you: 1) Getting a refund, 2) Have to pay the IRS, or 3) Not sure yet.” (emphasis added)

Truth is, everyone pays the IRS. Most of us just do it in advance, not on April 15. That’s what withholding is. If you get a refund, that just means you overpaid in advance. A refund is just getting some of your own money back.

We also give the government the time value of that money; we are denied the chance to save or invest that money and earn interest on it.

A lot of people don’t realize that. It’s frustrating when people look forward to April 15, because they think they get free money.

We should end withholding, so people get a better sense of what they’re really paying.

While we’re at it, we should also move tax day to the day before election day.

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Posted in Economics, Taxation