The Tax Reform Commission is in Good Hands

As long as former Senator Connie Mack is in charge. In yesterday's New York Times magazine, Deborah Solomon interviews him for her weekly "Questions for..." feature-- which is rapidly becoming the first thing I turn to in the Sunday paper each week.
Here's Mack (with an italicized interjection by Solomon) on why the "death tax" should be repealed permanently:

Mack: Well, let's say, if you are in the farming business and you have the desire to pass this farm on to your children. The problem is that when your parents die, you have to come up with cash to pay the estate tax. One thing you don't have is cash. You've got plenty of land. So I just don't believe it's a fair tax.
Solomon: That strikes me as a red herring. The issue is not really small farms, but zillion-dollar estates made up of stocks and bonds.
Mack: I don't know what the percentage breakdown is. I still go back to the same notion that these individuals who have accumulated these resources have paid taxes on them many times in their life, and then to say, when you die, now you pay more taxes on it? There is a limit.

How can anyone sit on a handpicked, highly visible federal tax reform commission and still buy the "family farm" attack on the estate tax-- even as he blandly admits that he doesn't know if farm taxation ever happens? And how disturbing is it that he can retreat (so quickly, too!) to the equally wrong "double taxation" argument?

Here's another exchange, on why mounting federal deficits and debt shouldn't trouble us:

Solomon: Well, the U.S. government has to get money from somewhere. As a two-term former Republican senator from Florida, where do you suggest we get money from?
Mack: What money?
Solomon: The money to run this country.
Mack: We'll borrow it.
Solomon: I never understand where all this money comes from. When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis?
Mack: In a sense, we do. Maybe the Chinese.
Solomon: Is that fair to our children? If we keep borrowing at this level, won't the Arabs or the Chinese eventually own this country?
Mack: I am not worried about that. We are a huge country producing enormous assets day in and day out. We have great strength, and we have always adjusted to difficulties that faced us, and we will continue to do so.

We already knew that Bush's stated goal of a "revenue neutral" tax reform package was a farce, since by "revenue neutral" he actually means "revenue neutral after we enact another bunch of tax cuts." And now we know that the guy in charge of making recommendations that meet Bush's goals doesn't give a rat's ass about revenue neutrality-- however you define it. Maybe Mack was hesitant (or repentant) in the actual interview in a way that doesn't come across in print, but there's something pretty chilling about the ease with which he responds, "we'll borrow it."

Usually Solomon's interview go so well because of the sharp questions she asks. But with this guy, remarkably little prodding is necessary to get behind the mask. Disturbing stuff.

Why I'll Never Run for Local Elected Office in Illinois

Because when it's time to raise new revenue for necessary public services, I'd have to choose between hiking the gas tax and hiking property taxes. The Chicago Tribune notes [free registration required to read the article] that the village of Oak Park has apparently chosen to hike its local gas tax-- a true testament to how unpopular the property tax has become in Illinois.

Reforming the property tax by offering more generous low-income relief is something Illinois lawmakers will be talking about in 2006. But until progressive property tax reform becomes a reality, Illinois local governments will have to continue making the politically difficult choices that state leaders have so far managed to avoid.

Kentucky Smokers Can't Take the Heat

Yet more evidence that cigarette tax hikes aren't good revenue raisers. Kentucky's Lexington Courier Journal reports that smokers bought 145 million packs of cancer sticks in the past three months, down from 161 million over the same period last year. [Boy, that still sounds like a lot of cigs for three months, though....]
An economist in the governor's office admitted that they hadn't forecast such a big drop in taxable consumption:

The tax increase should have produced about a 4 percent decline in sales, he said, "and we've got between a 10 and 20 percent decrease in consumer behavior, and that's very surprising."

Surprising in a "gosh, where's the WMD?" way, maybe. But when this cig tax hike was enacted in combination with a variety of cuts in the income and corporate taxes, lawmakers were obviously counting on new cigarette tax money to offset cuts in more progressive taxes. Cutting the income tax and replacing the revenue loss with a "tax increase" that you don't expect to materialize amounts to an opportunistic shell game by the anti-tax crowd.

Undaunted, Governor Ernie Fletcher is now saying that he wants to tack on another 10 cent cig tax. Oh, and he wants to use the money to add a new income tax credit for teachers.

That would make the proposal "revenue neutral," Fletcher said.

At least he's consistent...

No-Tax Pledge Bites the Dust in Utah

Provo, Utah will have a mayoral election in November, and (this being Provo, Utah) the debate on tax policy there is so far revolving entirely around whether candidates should promise to never, ever raise taxes. As the Deseret News tells it, challenger Dave Bailey has no problems making such a promise, while incumbent Lewis Billings has given it some more thought:

While Bailey pledged not to raise taxes — "Yes, I can guarantee you I won't raise taxes. It's a horribly unpopular thing to do" — Billings called taking such a position "impractical." Billings hasn't raised any taxes during his eight years in office but said he couldn't swear "on a Bible" that it wouldn't be necessary in the future.
"It would be impractical for any politician or government leader to say so," he said.

Kudos to Billings for saying exactly the right thing about the no-tax pledge.
RE the other guy, I don't know what's worse, Bailey's reflexive willingness to completely abandon half of the fiscal policy options he'd have available to him as mayor, or his reason for doing so. Fun exercise: try dropping the phrase 'raise taxes' from that quote and substitute some other basic function of government.

Example: "Yes, I can guarantee you I won't protect the first amendment rights of flag-burners. It's a horribly unpopular thing to do."

Fun for the whole family...

Qualms Over Oklahoma's Lottery?

Earlier this week, Oklahoma became the 41st state to implement a lottery. The Daily Oklahoman holds their nose and starts counting the money here, while correctly noting that there are some pretty fundamental ethical concerns about a tax that not only preys upon a vice but encourages it.

We've said plenty about why lotteries are a bad policy choice for states here in the past. There are a couple of interesting twists in Oklahoma worth mentioning, though:

1) It's nice to see lottery administrators tearing their hair out a little bit about the ethical problems involved. They've apparently agreed that it would be unseemly to allow lottery sales in pawn shops and payday loan shops. The Lottery Commission chair pats himself on the back for this decision here.
The admission that there is something, well, unethical about allowing pawnshops to sell lottery tickets is much like Senator Chuck Grassley's admission that estate tax repeal would be "unseemly" in the wake of Hurricane Katrina's devastation. In both cases, folks who are pushing a fiscal policy change that many opponents consider unethical are essentially agreeing that their opponents are right-- while continuing to insist that the policy change should go through.

2) A TV news clip linked in today's Oklahoman breathlessly interviews hordes of Arkansans flooding across the border to take advantage of new gambling frontiers in Oklahoma. (Arkansas is one of the few states that still don't have a lottery.) This may be a rah-rah thing, or may just be part of the endless search by local newscasters for human interest stories, but seems pretty irresponsible that the news guys went to the trouble of filming one of these pilgrims actually winning some money. And while they may see it as their civic duty to encourage people to take part in the lottery, it sure feels gross to me.

Postscript: Didn't notice the first time through that the end of this clip actually tells viewers that they can go to the news channel's website to find locations at which they can gamble. Even grosser.

Alabama Sales Taxes Hitting 10 Percent

Lawmakers usually see 10 percent as a cap above which combined state/local sales tax rates can't go without an uproar being raised. But some Alabama cities have now crossed into double digits, as described in this Birmingham News article. What's prompted this politically perilous move? Inaction on the part of state lawmakers.

When tough fiscal policy decisions don't get made at the state level, they usually get shunted down to the local level. Alabama is no exception to this rule. Since the failure of Governor Bob Riley's revenue-raising tax reform in the fall of 2003, the inadequacies of Alabama's tax system have continued to hamper the state's ability to provide necessary public services.

Groups like Alabama Arise continue to carry the torch for needed progressive tax reform, but until these changes happen at the state level, local governments will continue to bear the brunt of the state's inaction. Faced with the choice between unaffordable school spending cuts and hiking the limited array of local taxes under their control, locals have to do pretty unpopular things-- including a 10 percent sales tax.

Check out Alabama Arise's excellent Tax Reform Handbook for more on what the state ought to be doing to reform its tax system.

TABOR in Kansas

Kansas is one of more than a dozen states in which anti-tax organizations are pushing to enact stringent limits on the allowable growth of state/local taxes and spending from year to year. In Kansas, the man in the black hat is a group called "Americans for Prosperity," (and who doesn't want prosperity?). AFP wants to pass a constitutional amendment limiting growth in revenues to the growth of population and inflation.

The editorial board of the Topeka Capital-Journal gets it just right in their October 7 editorial on this topic:

The first problem with the concept is what year will be used as the standard where the taxation level was just right?

In other words, when you allow revenues only to grow with population and inflation, you're pretty much asserting that the current levels of spending are just right and are not likely to ever change.

"2005" is pretty clearly not the answer to the Capital-Journal's question, since state courts have repeatedly told lawmakers in recent years that the state is not meeting its constitutional requirement to provide an adequate education for Kansas kids. And one of the big topics in the 2006 legislative session will be how the state's gonna find new money to satisfy the court's mandate.

It's hard to imagine that there will ever be a time and place when a government knows that it is adequately funding current needs and will never face new spending needs that would force overall public spending higher-- but if such a place exists, it sure isn't Kansas. Hats off to the Capital-Journal for recognizing this basic truth.

Tierney calls for a special kind of gas tax hike...

...One that doesn't hit low-income taxpayers the hardest. His October 4 NYT column, available here for those who don't subscribe to the Times, calls for a 50-cent hike in the federal gas tax. This would be a good thing, he argues, not just because it would help shift Americans toward a lifestyle less oriented around driving, but because it would do so without loading up on the poor:

Since low-income people tend to drive less than the average American, they pay less in gas taxes than average...

This is, of course, exactly the wrong way to think about tax fairness. When we think about people's ability to pay taxes, what matters is not the dollar amount they pay but the percentage of their income that dollar amount represents. Gas taxes are clearly regressive in that low- and middle-income Americans pay a lot more of their income in these taxes than do wealthier taxpayers.

It's unquestionably true that the tax paid on a gallon of gas is the same for the poorest American as it is for the wealthiest. And that set amount of tax is a much bigger share of total income for low-income Americans than for the wealthy. That's what makes the tax regressive. Now, you can argue (I haven't seen stats on this) that low-income Americans are less likely to own cars, and that they are also less likely to own gas-guzzlers. This is probably true, and is what sets the gas tax apart from very regressive taxes such as the cigarette tax. But at the end of the day, these probabilities don't come close to offsetting the inherent regressivity of gasoline taxes.

Tierney is right about the positive social impacts of a gas tax hike. It would make most of us rethink our decisions about what we drive and how far we travel each day. But we have to recognize that without any offsetting low-income tax rebates, the burden of such a change would fall most heavily on low-income and middle-income Americans-- exactly the opposite of the progressive income taxes that the Bush administration has worked so feverishly to cut over the past five years.