March 29, 2006

The Debate Over Replacing Gas Taxes With Mileage Taxes

Over the weekend the New York Times published a fascinating article about an alternative to traditional gas taxes. Oregon researchers are heading up an experiment, set to start in the next six weeks, where individual cars will be equipped with GPS systems that track how many miles a car has traveled on Oregon roads and whether or not the car was driven in rush hour. Participants in the study have their cars equipped with these mileage counters and must fill up their gas tanks at one of two local service stations, at these service stations the driver will not pay a gas tax, but instead pay a tax on how many miles they drove in Oregon.

Notice any red flags?

The most obvious red flag is privacy. Do we really want a device measuring where we are going and how many miles it took us to get there? The article raises questions about whether or not the device could be used to prove that a husband/wife is cheating on his or her spouse.

This GPS-mileage tracker system would take years to implement. Presumably each state would have their own per mile rate and getting gas stations to update technology so that paying tax by the mile is an option would take awhile.

As this article on reports Oregon and other states are seeing gas tax revenues decline because of the use of more fuel efficient cars. This shrinking revenue base pays for about 40% of Oregon's infrastructure needs. The need for road maintenance certainly isn't going away just because the tax base is deteriorating. Switching to a mileage based tax would ensure that revenues continue to be generated so that there is adequate funding available for road projects. However, how would this change impact a driver of a gas guzzling SUV compared to someone who drives a Hybrid? The Hummer obviously uses more fuel than a Hybrid, but if both drivers travel the same 30 miles, they will pay the same tax.

One last concern is overall tax fairness. Traditionally gas taxes are a combination of user fee and consumption tax. They are user fees in the sense that the more you fill up your car with gas, the more you pay in tax. However, they are also consumption taxes (and do not take into account someone's income) which means that these taxes take a larger share out of poor people's income compared to the wealthy. If plans go forward and this experiment is deemed a success, the tax on miles driven will still be a regressive-consumption tax.

Perhaps in this instance it's more important that adequate revenues are raised and fairness then takes a bit of a backseat. But the two fundamental issues that need to be considered with this new tax are privacy and fairness for those who drive oil efficient vehicles.

March 24, 2006

Unfair Tax Breaks for the Elderly

Georgia already allows one of the most generous income tax breaks for pension benefits in the nation, exempting the first $35,000 of retirement income. Now lawmakers are pushing a constitutional amendment that would increase this exemption to as much as $100,000. A critical analysis of the Georgia plan is here.

Georgia lawmakers aren't alone in looking for ways to give older Americans with lots of retirement income tax cuts. See Talking Taxes blog posts earlier about the debate that is raging in Iowa to eliminate taxing all retirement income. Deciding what type of income to tax should ultimately be a decision about fundamental tax fairness. Of course, it's politically popular to ensure that seniors don't pay tax on some of their income, but it's certainly not the FAIR thing to do - especially if these tax breaks apply to the wealthiest seniors.

For national perspectives on how best to design tax breaks for seniors, check out what ITEP and the Center on Budget and Policy Priorities have to say.

Parts of this post were originally published in CTJ's Tax Digest, a weekly email that highlights state and federal tax trends across the country. If you'd like to subscribe to the digest send an email to:

March 21, 2006

Opportunity is Knocking for Mississippi Lawmakers

For the past several months Mississippi lawmakers have debated various "tax swap" options, all built around the basic idea of cutting the sales tax on food and using a cigarette tax hike to make up the revenue loss. The legislature has passed two such bills, each of which has been vetoed by Governor Haley Barbour. There's much debate now about whether there are enough legislative votes to override the Governor's veto.

Whether or not this legislation ultimately dies with the Governor’s veto or a compromise is reached, the debate over the food tax swap has energized the public debate over the goals Mississippi's tax system ought to achieve. Ideas of "tax fairness" and "adequacy" are being bandied about regularly-- as they should be. So the public spat over the food tax gives all Mississippians an important opportunity to study and explore other ways to improve Mississippi’s tax structure.

The fundamental question Mississippi lawmakers should be asking is this: how can we make the tax system less unfair while providing a reliable, progressive way of paying for any tax cuts? Cutting the sales tax on food is a progressive move-- but an expensive one. And Governor Barbour has repeatedly expressed his (understandable) concern about the ability of the cigarette tax to reliably replace lost food tax revenues.

The common-sense reform options available to Mississippi lawmakers include:
  • Including more personal services in the sales tax base could help pay for a cut in the grocery tax. Mississippians' spending on services (such as haircuts and car repairs) is growing much faster than their spending on traditional good such as books and groceries. From the perspective of both fairness and adequacy, taxing services makes a lot of sense. For more about the expansion of the sales tax base to include services, check out ITEP's Policy Brief called "Should Sales Tax Apply to Services?"
  • A second option available to lawmakers is to increase revenue through the addition of a new top income tax rate comparable to neighboring states, which could be offset through an increase in the state’s personal exemption.
  • Alternately lawmakers could use the revenue from a new top tax bracket to pay for the cost of a new targeted low income credit. For more about the merits of targeted low-income credits click here.

These are just some examples of the revenue-neutral "tax swap" options available to Mississippi policymakers. Since serious discussions about Mississippi’s tax structure are underway, there’s a unique opportunity to broaden the debate and focus on reforms that would modernize the state’s tax structure and make it more equitable.

More on Religion & Taxes ...

It appears that more controversy is building on the religious tax exempt status front:
Weeks after the Internal Revenue Service announced a crackdown on political activities by churches and other tax-exempt organizations, a coalition of nonprofit conservative groups is holding training sessions to enlist Pennsylvania pastors in turning out voters for the November elections.
This particular tax issue is complicated because deciding whether activities by religious organizations constitute political activity or simply a promotion of values is difficult to decipher. The only clear thing about this is that the politics of this issue will surely make for an interesting policy debate.

March 20, 2006

Economic War Between the States and NBA Tickets

In the wake of Hurricane Katrina, state and federal lawmakers are mobilizing to rebuild New Orleans as quickly as possible. But Oklahoma lawmakers appear not to have gotten the memo.

The Big Easy's professional basketball team, the Hornets, has been playing its games in Oklahoma City while the hurricane cleanup is underway. Now Oklahoma lawmakers, in the words of one miffed Louisiana commentator, have gone "from being good hosts to doing whatever necessary to keep the Hornets permanently."

State lawmakers have enacted a sales tax exemption for tickets to professional basketball games in a naked effort to keep the Hornets from returning to New Orleans. As it happens, Louisiana law already contains the same exemption, so Oklahoma's tax break is just leveling the playing field between the two states.

But this is exactly the sort of "economic war between the states" that the ongoing Cuno Supreme Court corporate tax break case will hopefully resolve. For those who missed the fireworks two weeks ago, a transcript of the Court's Cuno debate is now available here.

This post was originally published in CTJ's Tax Digest, a weekly email that highlights state and federal tax trends across the country. If you'd like to subscribe to the digest send an email to:

March 19, 2006

Democracy is Alive and Well in Iowa

Last week the Iowa House of Representatives voted to ban the state's new "Touchplay" video gambling machines, which had been introduced less than a year earlier. This has been a big issue this spring for Iowa lawmakers, with a lot of heated debate on both sides. Businesses that are making money from Touchplay machines wanted to keep it; the handful of big casinos scattered around the state were dead set against it, since a dollar spent on Touchplay in a tavern is a dollar gamblers won't spend in the casinos.

Turns out that just days before this vote, the speaker of the Iowa House, Christopher Rants, went on a weekend golf trip with a casino industry lobbyist in Myrtle Beach, South Carolina.

This isn't as bad as it sounds. Rants had made his anti-Touchplay position quite clear for some time. The casino folks weren't gonna change his mind on this trip-- he was already on their side. There were other folks on the trip too, and thanks to Iowa lobbying rules limiting gifts to lawmakers to $3, everyone paid their own way. And apparently no one even discussed the Touchplay issue during the trip.

But it's still unseemly. And that's presumably why Rants felt compelled to offer this defense of the trip:
Rants said, 'I look at most of those folks... who are lobbying on behalf of the TouchPlay folks, and I've played golf with them at some point in time, too.'
As if he had completely covered the spectrum of opinions on legalized gambling in Iowa by hitting the links with two different kinds of gambling interests.

But of course, there's nothing to be done about this. As long as lobbying is legal (and it should be), better-funded and better-organized groups will be the ones who get to ride in the golf cart with state lawmakers. Maybe a publicly-funded effort to train low-income advocates in the fine points of putting would help, but at the end of the day lawmakers will hang out with whoever they want to hang out with. Nothing you can do.

Which maybe explains this:
Larry Noble, executive director and general counsel of the Center for Responsive Politics, is leaving the campaign finance and lobbying watchdog group for Skadden, Arps, Slate, Meagher & Flom, where he'll advise clients how to stay out of the sights of such groups as CRP in matters of campaign finance, lobbying rules and other laws and regulations that govern political activities.

Iowa: Gambling Advocates Look In the Mirror

Legalized gambling touches a nerve for most people-- even those who are willing to hold their nose and make it part of the way their state raises money. That's one explanation for a major policy shift by Iowa lawmakers this past week, where the legislature has sent Governor Tom Vilsack a bill that will ban use of the state's "TouchPlay" machines-- which sound and look remarkably like plain old slot machines.

At a time when state lawmakers are flocking to gambling revenue as an allegedly "voluntary" alternative to unpopular tax hikes, this move is a welcome, if unusual, move. But the Iowa change is doubly odd because the "Touchplay" machines were introduced less than a year ago.

Why the about face? One reason is that some members of the legislative leadership-- most notably House Speaker Christopher Rants-- are asserting that the legislature never authorized the Iowa Lottery to create as many of the "TouchPlay" machines as they did. The confusion arises from a series of legislative oversight hearings in which lawmakers asked Lottery officials to "find new revenue sources as the state faced the potential of record deficits." The "TouchPlay" machines were one of the new games dreamed up by Lottery officials in the wake of this request. It seems increasingly clear that lawmakers were informed that a new game in development would bear a close resemblance to the slot machines found in casinos, but either just didn't get the message or didn't anticipate the public outcry against the pervasiveness of the new machines. Read here for Iowa pundits' take on this debate.

The "he said, she said" element of this fight aside, the main problem here is that the Iowa Lottery is being run like, well, a business. Far from simply regulating a perennial vice that humans have engaged in millenia, Lottery officials-- and, ultimately, Iowa elected officials-- are milking Iowa residents for every cent of gambling revenue they can. What's offended the Iowa legislature appears to be the too-visible way in which they've done it. David Yepsen puts it quite well:
(This quote was published in all capital letters on the Iowa Public TV website-- caps are left in on the off chance that Yepsen was actually screaming these sentences.)

This isn't the first indication of the state's revenue-maximizing goals. From the March 3 Des Moines Register:
State regulators are urging Prairie Meadows Racetrack and Casino to construct a hotel and parking garage to spur more business, contending the Altoona gambling operation is underperforming in its market....'You know, we have always found as a commission that casinos tend to do a lot more business with a hotel. So we hope you keep that kind of thing in your sights,' [Racing and Gaming Commission Chairwoman Diane]Hamilton said.
At the end of the day, legalizing gaming always pits Iowa lawmakers against the best interests of their constituents.

March 15, 2006

Collecting Something for Nothing

Here's a thought-provoking article from today's New York Times about utility companies collecting corporate income taxes from customers but then not passing it on to the government:
Many electric utility companies across the nation are collecting billions of dollars from their customers for corporate income taxes, then keeping the money rather than sending it to the government.
In the amounts they charge customers, utility companies include the cost of the corporate income tax they're supposed to be paying to the government. However, as the Times article documents, some utility companies that are part of larger corporate entities have been able to offset the profit their utility companies make with losses they incur from their other interests - this allows corporations to avoid paying any income tax. So in essence, some utility companies are charging customers for taxes they're not even paying. It's this type of tax scheming that destroys the public's confidence and perceived fairness in the tax system.

March 09, 2006

Washington DC as a Flat Tax Laboratory...again

The Washington Post is reporting that Senator Sam Brownback held a hearing to discuss implementing a voluntary "flat tax" on residents of the District of Columbia.
Sen. Sam Brownback (R-Kan.), chairman of the Senate Appropriations subcommittee on the District, held a hearing to talk about implementing a flat tax on city residents, which would be voluntary. D.C. residents could opt to remain under the current federal tax system.
The specifics of the proposal aren't mentioned. However, even the mention of instituting a flat tax should be hotly debated. Check out our earlier post on this topic to read the varied comments that post received.

The usual arguments about DC Statehood apply here. Why does a Senator from Kansas get to dictate a new tax code to DC? The article notes that while national experts and former majority leader Dick Armey were allowed to testify, no one from the DC government offered their perspective. Apparently another hearing is scheduled and representatives from DC will be invited to offer opinions. There's little reason to rehash the "Taxation without Representation" argument as it clearly applies here.

Secondly, this voluntary flat tax system sounds really confusing. Taxpayers can chose which tax form to use? It's tricky enough to figure out what taxes are owed without having to do the calculation again using presumably different rates and exemption levels.

Thirdly, there's a lot of rhetoric around a flat tax. It's hardly fair to ask a poor family to pay the same 5% (for example) tax rate as a wealthy family. Are we just referring to the income tax when we say flat tax? If so, that seems short sighted because obviously D.C. residents also pay property and sales taxes. If a flat tax is defined broadly as a proportional tax system where each income group pays the same percent of their income in state and local taxes overall, then the way to create a flatter and fairer tax system is to create a more progressive tax structure, not to dismantle it. A progressive income tax helps to offset regressive sales and property taxes and ideally, while a totally progressive tax structure isn't created, a flatter proportional tax structure is formed.

When we stop the rhetoric about a flat tax and ensure that we're on the same page with exactly what that means, only then can we have intelligent discussions about the Senator's proposal. For a good explanation of different types of tax structures check out the first chapter of ITEP Guide here.

March 07, 2006

"No New Taxes": Not That Simple

Anyone who's seen their local property taxes shoot up in the last five years probably senses that "no new taxes" may make a great campaign slogan for state lawmakers, but it has a much more nuanced meaning in practice. Something more along the lines of "Let's find a less visible way to pay for public services." A new Houston Chronicle report documents the proliferation of user fees--and surtaxes on user fees, and surtaxes on those surtaxes--that are being used to make ends meet while state lawmakers avoid the hard questions about how to reform the Texas tax system:
Chemical plant technician Steven Lozano really got nailed: speeding, an expired inspection sticker, an expired driver's license and dubious proof of insurance. The cost of his traffic infractions: $675 and a wait in line recently at Houston Municipal Court. What Lozano didn't know — few people do — is that only about half of the hefty fines had anything to do with his traffic conduct.... Lozano and everyone else in line that day were paying 21 mandatory fees that now grace the average local traffic citation.
User fees have their place, of course. But there should always be a well-thought-out rationale for enacting them, and Texas lawmakers aren't inspiring much confidence on this front:
State Sen. Royce West, D-Dallas, created a 50-cent traffic-ticket surcharge, the Prairie View A&M fund, by amending a bill in 1997. He makes no apology. 'That type of funding is used. Period,' West said.
Lawmakers are paid to ask, and answer, hard questions about how to fairly and adequately fund public services. Taking a "no new taxes" pledge is generally about as far as lawmakers can get from fulfilling this duty, and in the end is often just a smokescreen-- something to remember the next time you register your car or pay a speeding ticket.

Kansas: Decision Made on Taxing Green Fees

As a follow up to my earlier post on 2/21, the Kansas House has decided against broadening the sales tax base to include taxing green fees on city and county golf courses.

Here's the story from the Wichita Eagle:
TOPEKA - Duffers who like to play a round of golf at municipal courses can breathe a little easier. The Kansas House killed a bill today that would have required golfers to pay state and local sales taxes on their green fees.
Sales tax currently is collected at private golf courses but not city- or county-owned facilities. The owners of the private courses argued that they are often in competition with municipal courses and that it was unfair to require sales tax for them and not their city or county competitors.
Lawmakers opposed to the bill called it a tax increase on seniors and middle- and lower-income people who can't afford country club memberships. The House voted 75-34 against a motion to advance the measure to a final vote today. That kills the bill unless a motion to reconsider is offered successfully today.
Ironically, it sounds like the measure was defeated largely because of its potential impact on low- and middle-income people. However, when ideas about increasing the sales tax are debated, rarely do these same legislators make the connection between the sales tax and its regressivity.

As ITEP has "noted, taxing personal services is a great option for making the sales tax less unfair. But if taxing the poor was really the problem that legislators wanted to address, a better option would be to expand the sales tax base to include as many personal services as possible and then increase the Food Sales Tax Rebate that Kansas now offers. Expanding the sales tax base to include most services would also take away the unfair competitive edge between services that are and aren't taxed. By voting against this sales tax expansion, Kansas legislators also ensure that the sales tax isn't modernized and able to react to the country's shift from a goods to a service based economy.

Kansas legislators have missed out on an opportunity to improve the state's sales tax--but it's a decision they'll have to come back to.

Who Said It?

"In the history of the world, the true test of a civilization is how well people treat the most vulnerable and most helpless in their society."
Answer: South Dakota Governor Mike Rounds, in today's New York Times. And he wasn't talking about fiscal policy or health care.

March 04, 2006

Nebraska: Powerball Win Brings Out the Worst in Media, State Leaders

Most people now know about the recent huge "Powerball" award in Nebraska-- even those of us who have no interest in Powerball or in gambling more generally. A Harold Andersen editorial in the Omaha World-Herald asks some very uncomfortable questions about why this has been such a big deal in the media:
Recall the number of times - an exact count is not necessary, of course - that you have seen the press give major attention to the winning of a large gambling jackpot. Then try to recall - you are likely to come up with zero in this case - the number of times you have seen the press report the amount of money lost by other gamblers in a predictably vain pursuit of that jackpot.
This sounds an awful lot like the Bush administration's criticism of the media's Iraq coverage, of course: how come the press is only covering the interesting, unusual stories (suicide bombings) and not the boring, typical stories (opening schools, training Iraqi policemen)? In both cases, the answer is sorta obvious: no one would watch the news if it was about the millions of everyday lottery losers and the incremental growth of a civil society in Iraq.

But Andersen is right. I bet most people would agree that press coverage of Powerball is not driven just by the all-too-infrequent winners, but by the mere existence of a big potential jackpot. Who hasn't seen local news coverage showing a line out the door at the local convenience store as people try to cash in on the big jackpot? This sort of coverage has the effect of encouraging people to take part in an activity they have statistically no chance of benefiting from. It doesn't have to be this way, of course; an Iowa paper took a better approach in congratulating recent local winners.
While we’re happy to see these women win, we hope people remember to follow their example, to spend only what you can afford to lose. Jackpots don’t grow to $365 million by themselves, it takes a great deal of people investing a lot of money and getting nothing back. Throwing a dollar aside if you have it is one thing, but we’re guessing there are some people out there who think spending $20, $50 or $100 on Powerball tickets is a sound investment, when all it does is feed the gambling beast. Just like our local riverboat casino, you should only bet what you can afford to lose. Because in most cases, you will.
But in the end, the media is not the real culprit here. Ultimately, it's state lawmakers who have decided to help balance their budget using Powerball revenues-- which means it's state officials who have to help preserve the illusion that the experience of the Nebraska Powerball winners is something other state residents might achieve, with a hoopla-laden press conference. Andersen hits it again:
As to all the hoopla that Nebraska Lottery officials helped generate: The commission's responsibilities would have been fully discharged by simply issuing a press release announcing the names of the winners and the financial details, period. It seems to me totally unnecessary to call a press conference, invite Gov. Heineman to speak and supply each of the lucky eight gamblers with a "photo opportunity" poster representing an oversized version of the multimillion-dollar check payable to each winner. The Lottery Commission's intent seems pretty obvious: Encourage more gambling by Nebraskans, in spite of the fact that the law of probabilities makes it less likely that a record-breaking Powerball payoff will strike in Nebraska again.
This is the uncomfortable, but very real, truth behind the state lottery game: state officials aren't simply extracting some benefits from a habit that has always existed and always will, as legalized advocates routinely claim. They're actively encouraging people to gamble more than they otherwise would, propagandizing for Powerball-- because once they've established gambling as part of their revenue stream, they have to do their best to ensure that that revenue stream keeps flowing. If only lawmakers would show the same enthusiasm for maintaining the health of the other taxes they adminster...

March 03, 2006

Capping Assessments In Georgia

Here's an analysis by the Georgia Budget and Policy Institute on the impacts of a proposal to cap the growth in property assessment values.

The proposal (HR 162) restricts the growth of assessments to 3% or the rate of inflation, whichever is less.

The analysis makes two great points in particular:
Similar to a Taxpayer's Bill of Rights (TABOR), HR 162 places an arbitrary limitation on the growth rate. If the rate of inflation slips down to 1.6%, as it did in 2002, the assessment of Georgia property is tied to a national economic phenomenon (inflation) rather than the true value of homes in the local area. If legislators believe that property taxes should be capped, then there should be a thorough and detailed debate on what that percentage restriction should be. Is 3% the right level? Is 1.6% or other levels of recent inflation? Washington, DC caps at 12% while Arkansas caps at 5%. This fundamental change in the taxing structure deserves open debate on how and why to set the cap at a certain rate.
Secondly, the analysis offers a better targeted and more progressive way of providing property tax relief - enacting a circuit breaker:
Circuit Breakers provide tax relief by restricting property taxes to a certain amount of income. When taxes exceed that amount of income, the excess tax is refunded or credited through the income tax system. As of 2005, thirty-five states and the District of Columbia had some form of circuit-breaker program.
As we have noted many times already on this blog, capping rates of growth simply don't make for good tax policy.

March 01, 2006

Push Back Against No New Tax Pledge

Illinois Governor Rod Blagojevich (D) is taking a lot of heat politically for taking "the pledge"-- a promise not to hike income or sales taxes if he's reelected this fall. His unwillingness to ask the hard questions about how to fund public services--combined with the raft of new spending proposals included in his budget proposal for the next fiscal year--may mean that the governor has bitten off more then even he can chew.

Blagojevich unveiled his budget last month, and it was filled to the brim with new spending initiatives, including:
- Hiring 1,100 more state employees
- Universal preschool program
- 100 new state police officers
- $15 million for stem cell research

As reported by the Center on Tax and Budget Accountabilty, the fiscal problems facing Illinois are quite serious and go beyond just the issues that lawmakers will face this legislative session. The state faces a structural deficit-- a long-term mismatch between the state's spending needs and its ability to fund them. CTBA notes that Illinois is deeply dependent on debt to fund current services, and is notorious for its inequitable funding of public education. But perhaps most interesting is that the governor is taking enormous heat for taking two of the largest revenue sources (sales and income taxes) off the table. His reluctance to even discuss an income or sales tax increase amidst the enormous pressures facing the state has got the Illinois Black Caucus (a former Blagojevich supporter) calling for a third party candidate to run.

A good decision-maker doesn't take anything "off the table." Anti-tax pledges are poorly informed showboating, not responsible leadership. So it's good to see this ill-advised pledge falling on deaf ears in Illinois--let's hope that others around the country follow in their footsteps and push back against these careless and politically-motivated promises.