May 31, 2007

Oil Taxes: Higher! Lower!

State lawmakers around the nation are clearly torn on the issue of oil/gas taxes. On the one hand, you see folks like Indiana Speaker of the House Patrick Bauer and future Indiana gubernatorial candidate Jill Long Thompson arguing that consumers need a cut in gas taxes in that state. On the other, you see lawmakers in Wisconsin and Pennsylvania proposing higher taxes on companies bringing petroleum products into the state.

In each of these case, lawmakers clearly want to do two (potentially contradictory) things simultaneously: make oil companies pay more, and give consumers a break (or at least hold them harmless). Indiana Rep. Bauer bemoaned his ability to tag "gouging" oil companies with higher taxes even as he proposed tax cuts for consumers, and in both Wisconsin and Pennsylvania, lawmakers have drafted bills that would impose a new tax on oil companies while forbidding them to pass the tax through to consumers.

The Wisconsin-Pennsylvania approach is certainly creative. The big question is, how are lawmakers going to enforce it-- and will they even try?

It's easy to enact language forbidding companies to pass on a tax to consumers, but very hard to enforce. For example, suppose Wisconsin's new tax was roughly equivalent to 5 cents for each gallon of gas sold in the state. Now suppose that, one week after this new tax goes into effect, the price of gas in one particular gas station goes up 2 cents per gallon. Can the state impose sanctions on the gas station? Obviously not, because there are a lot of other factors governing weekly changes in gas prices. State taxes are a pretty small part of the gas prices we're paying now. And it could well be that, in the example here, these other factors would tend to drive up the price of gas by 7 cents per gallon in that week. If that were true, the gas station in this example would be perfectly justified in jacking up the price of gas by 2 cents-- they'd be doing exactly what the legislature told them to.

Just as interesting, as ITEP's Jeff McLynch points out, is whether lawmakers will even try to enforce such a provision. Lawmakers of both parties know that you can score cheap political points by knocking big oil for not paying their taxes (and, as various groups have shown in the past, the oil industry richly deserves these knocks), but there's not necessarily all that much political payoff from following through and making sure that companies refrain from passing through the tax hike to consumers. Posturing may be sufficient to win votes.

A better approach, from a federal perspective, would be to eliminate the host of tax subsidies for oil companies that have sprung up over the past quarter century. Since state corporate taxes generally piggyback on the federal corporate base, shoring up the federal base would help states too. That won't win state lawmakers any political points, of course-- but would help ensure that oil companies pay their fair share of state corporate income taxes in a quiet way.


May 30, 2007

A "Marriage-Strengthening Tax Deduction"?

Louisiana lawmakers face the pleasant prospect of a big budget surplus-- at least in the short run. As a result, this year's legislative session has been primarily about how (and how much) to cut taxes. There's been a parade of clever, and not-so-clever, ideas.

Yesterday's session of the state House tax writing committee was no different. Representative Gary Beard (R-Baton Rouge) proposed what he calls a "marriage-strengthening tax deduction" bill, HB 279. The bill gives a tax deduction of $100 for each year of marriage starting with the fifth year, with a cap of $2,000 on the deduction for each return.

The implications are fascinating.
  • The first five years of marriage apparently are trouble-free enough that no tax incentives are needed to keep the marriage together.
  • But at the five-year mark, marriages start going to hell pretty fast. The longer you stay married past this point, the bigger your tax deduction.
  • And it's only on their silver anniversaries that Louisianans find themselves able to keep their marriages together without a little extra encouragement from the tax system each year.
  • Since the marriage tax break is designed as a credit rather than a deduction, the sponsor clearly thinks that rich people need more incentive to stay married than do poorer families.
  • Since the tax break is a nonrefundable deduction, the clear implication is that families too poor to pay state income taxes have more stable marriages than do wealthier families.

Ways and Means Committee members had few questions before they politely put the bill on the "bone pile" of tax proposals that may (or may not) someday be voted on in committee.

But Rep. Rick Farrar had a good one, asking whether there would be a "clawback" provision: in other words, if you get divorced, do you have to give the money back?

At a time when Louisiana lawmakers are discussing some big-ticket tax cuts, the Farrar bill is small potatoes-- hardly worth discussing except to laugh at it. But it's actually a pretty good allegory for the economic development tax incentives state lawmakers offer every day. Earlier this month, Alabama lawmakers gave the ThyssenKrupp corporation $800 million in immediate tax incentives-- and the promise of a thirty-year exemption from state corporate income taxes--to encourage them to build a steel mill in Alabama. Did the incentives change ThyssenKrupp's mind-- or just reward them for what they were going to do anyway? No one really knows except ThyssenKrupp. Similarly, no one know if a $100 tax deduction is going to be enough to keep a bad marriage going for one more year. The most likely outcome is that a bunch of happy couples will get a tax break for doing something they were going to do anyway-- stay married.

May 29, 2007

How to Deal with Corporate Welfare in the Tax Code?

Writing for the New Republic's blog, Bradford Plummer points out that the Cato Institute has published a new report calling on Congress to establish a commission to choose corporate welfare programs to eliminate -- but leaving tax subsidies off the table. The report's author, Stephen Slivinki, envisions a commission like the Base Realignment and Closure Commission (BRAC) which was established by Congress to create a list of military bases for closure to be voted up or down without amendment in each chamber.

Which sounds reasonable enough, but why leave out tax subsidies? Giving a tax break to a corporation that reduces federal revenue by a billion dollars has the same effect as giving a direct subsidy of a billion dollars to the corporation. The report says tax subsidies are not included "because they do not require an actual net expenditure of money from the government," which is not an explanation at all.

Slivinski does make the point that tax subsidies for corporations could be dealt with in a comprehensive tax reform bill. There's just one problem with this idea. Whenever conservatives or libertarians utter the words "tax reform" or "tax simplification" they almost always mean something that cannot rationally be called reform or simplification. As Slivinski explains, one way of doing it would be "to replace the current tax system with a consumption-based tax, such as a flat tax or a national sales tax, that doesn't make distinctions between politically favored taxpayers and others."

First consider the flat tax, which would apply the same tax rate to everyone, meaning higher rates for the poor and lower rates for the rich, or just a massive reduction in government revenue. But none of the complexity and confusion people face during tax season comes from the progressive rates that would be flattened under these plans. Under the current system, once taxable income is calculated, most of us can just go to the tax tables that tell us exactly what our tax liability is for the year. Flat tax schemes really just suck the progressivity out of the tax code, and many versions even allow income from wealth (capital gains and dividends) to go tax-free so that the wealthiest can pay very little in taxes.

Or consider the idea of a "national sales tax." Sales taxes are inherently more regressive because poor people spend most of their money on consumption since there's not much left for savings and investment after they pay for the basics, like food, shelter, medical expenses and clothes. A CTJ analysis found that if Congress really wanted switch to a national sales tax that would bring in the same amount of revenue as our current system, the sales tax would have to be as high as 45 to 53 percent. Good luck to the Senator who wants to explain that on CSPAN.

These are the types of alternatives we hear being touted in any context in which "tax reform" is discussed. Which is unfortunate, because we could use some real tax reform. Real simplification could mean taxing different forms of income equally (whereas now income from investments, which mainly the wealthy have, are taxed at lower rates than income from work). It could mean eliminating or limiting some of the most regressive tax expenditures for businesses and individuals. Senator Ron Wyden has such a plan, and it's a pretty good one.

But what progressive in his right mind wants to call for tax reform when the debate could be hijacked by proponents of some crazy scheme to shift taxes towards the poor and middle-class? And let's face it, as long as you-know-who is still in the White House, it's hard to imagine any honest, good tax reform becoming law.

This problem comes up in many contexts. For example, another advocate of libertarian principles from Cato, Chris Edwards, testified before the Senate subcommittee that is considering tax subsidies for alternative energy. His written testimony argues that creating narrow favors for certain businesses and activities in the tax code leads to complexity and economic inefficiency. Which might be true, at least in the context of energy policy. (CTJ has criticized several tax subsidies for large oil and gas companies, for example). At certain times, Edwards seems reasonable. He quotes Dick Gephardt (hardly an off-the-wall libertarian) saying during the tax reform debates of the 1980s,

The main argument for tax reform, I believe, is to achieve greater efficiency in the way the tax code works. When Congress gets into the business of figuring out $370 billion of tax breaks a year, the House Ways and Means Committee and the Senate Finance Committee really are put in the business of trying, at least partially, to plan the American economy. . . . I confess that I am not qualified to act as a central planner and I do not know anybody on either committee who is.

This sounds pretty reasonable. But then Edwards can't help himself from concluding that the real answer is a consumption tax. "A consumption tax would limit current consumption, including energy consumption, while removing tax barriers to investment—including investment in energy production, energy technologies, and energy conservation." Once again, what might sound at first like a reasonable case for keeping the tax code simple and efficient becomes a call for a massive shift towards a tax system that either soaks the poor, cuts government down into something unrecognizable or both.

There will come a time for tax reform -- that is, real tax reform. Until then, people need to know that a lot of the schemes being touted as "tax simplification" are pure snake oil.

May 25, 2007

Alabama "Wins" ThyssenKrupp Smokestack Chasing Contest

It's official: Alabama will be the home of the new ThyssenKrupp manufacturing facility. The company announced earlier this month that it will build its newest steel plant in Alabama, ending a tense two-state battle between Alabama and Louisiana for this economic development prize.

So what did it cost Alabama? Let's start with what we know:
  • $461.1 million in direct financial aid, including land acquisition, site preparation, worker training, and road improvements.
  • $350.3 million in "abatements of sales, property and utility taxes by state and local governments."

Which adds up to a cool $811 million in direct spending and tax breaks up front. Now for the part we can't put a price tag on:

In addition, the company won't have to pay any state income tax for the next 30 years unless its tax liability exceeds $185 million in any year.

And since the entire state corporate income tax only brought in $484 million in fiscal year 2006, it's hard to imagine how Thyssen's new plant could possibly rack up $185 million on its own. So that "unless" statement is pretty meaningless: Thyssen is getting a free pass for 30 years on the corporate income tax.

You can't put a price tag on that part of the deal, but that doesn't mean it's free.

So if Louisianans are looking for consolation in the wake of "losing" this smokestack-chasing contest, try this on: maybe this is a race they couldn't have afforded to win. And maybe Alabama will find they can't afford it either.

GOP Presidential Hopefuls on Tax Policy: Mitt Romney

Last week's Republican presidential debate showcased a shockingly uniform "how low can you go" attitude toward taxes -- and a set of leading questions from the Fox News moderators that didn't help matters. Here's Mitt Romney, defending his tax record as governor of Massachusetts:

WENDELL GOLER (Fox News): Gentlemen, we have a series of questions on the economy, the budget, taxes and entitlements. And I have one for each of you, starting with you, Governor Romney.
Your critics have called you "flip-flop Mitt" for, among other things, your decision to take the "no new taxes" pledge this year after refusing to do so in 2002. Tell me why your decision to take the pledge shouldn't be seen as a blatant appeal to the party base, sir?
MR. ROMNEY: I want to make it very clear that I'm not going to raise taxes. As governor of Massachusetts, I made it very clear there, and I did not raise taxes. We faced a huge budget gap, and I went in and said, you know, what? I know some people want to raise taxes, but that's going to hurt working families and scare away jobs. I recognize that raising taxes could also lead to a slowdown in our economy, and so we didn't do it. We balanced our budget, and that's exactly what I'll do with the federal government.
The key thing you have to consider, as you look at what's happening in the federal government, is that Washington is broken. We need to have fundamental change in the way business in Washington is carried out. What that means is we're going to have to have leadership that can reorganize the government. We're going to have about 40 percent of the government employees turn over in the next couple of terms. And if we can -- we can reduce the employment there, but more importantly, is to go through all the agencies, all the departments, all the programs and cut out the unnecessary and the wasteful.
We're also going to have to do something we talk about on in Iraq. We all talked about benchmarks. Well, how about benchmarks in Washington? Let's lay out what we're going to get done, and instead of just talking about the same old same old, let's streamline and make Washington more efficient.

And that's all for Mitt. A couple of things are worth noting here.
1) Goler's question. The implication of his question is that the "no new taxes" is a lifetime commitment, and that it's impermissible to imagine a fiscal situation in which tax hikes might conceivably be part of the way out. If you took the pledge in '06, stands to reason you must have also taken it in '02-- or else you're a "flip flopper." This sort of reasoning betrays the basic irrationality of the "no new taxes" crowd-- it doesn't matter what the current fiscal situation is. There's always a better solution than tax hikes, he's saying.
2) Mitt's answer. He could have said "I knew we were in a tough fiscal spot that year, and I was gonna try my hardest to not raise taxes, but I couldn't guarantee it so I didn't take the pledge." He could, in short, have taken the opportunity to show his understanding of nuance-- of the distinction between really wanting to do something and guaranteeing that it will happen. And he chose not to.
3) How stale, how recycled, does his "fraud, waste and abuse" rote response sound: he wants to "go through all the agencies, all the departments, all the programs and cut out the unnecessary and the wasteful." Will every anti-tax office-seeker until the end of time use this as his/her "plan" for balancing the budget?

Goler's question is, in fact, a good one. How to reconcile Romney's behavior as leader of Massachusetts with the harder line he's taking in his Presidential run? Was he tailoring his positions to a moderate demographic in Massachusetts-- or is he tailoring his positions now? And even if the answer is "both," is that obviously a bad thing, or just the sign of an effective politician?

Louisiana's "Middle Class" Tax Cut?

The Louisiana Senate has approved a bill that would undo part of the "Stelly" income tax reforms of 2002. The bill would gradually re-introduce a provision allowing Louisianans who itemize their federal income taxes to claim some itemized deductions on their state tax forms.

Marsha Shuler covers the story in today's Advocate. Regarding the question of how many Louisianans would benefit from this tax change, she makes the point a bit subtly:
SB66 would phase in itemized personal deductions at 57.5 percent beginning this year — at a $157 million state cost — and it would reach 100 percent in 2009-2010. About one-fourth of Louisiana’s income tax filers itemize.
The omitted point-- that 75% of Louisianans would get nothing at all from this plan--may be obvious to some, but not to many.

And the omission becomes more glaring later on in the story, when Senator James Cain makes a very different assertion about who would benefit from this plan:
Cain noted that a group of teachers were in the Senate chamber opposing the move. “That’s what hurts me the most,” Cain said. He said many in their number are being hurt by the Stelly income tax. “It hurts the middle class,” he said.
The disjunction between what Cain says and what the data tell us is there if you want to look for it, but it would have been nice to see Shuler connect the dots a bit more.

An equally interesting argument from Cain is that Louisiana should re-introduce itemized deductions simply because most other states allow them.
“Only seven states in America do what we do. We are the only state in the South doing it,” Cain said.
The fact of the matter is that plenty of tax policy types think federal itemized deductions (at least some of them) are just bad tax policy, providing expensive and poorly targeted subsidies for homeownership, charitable giving and other "good" behaviors. The President's tax reform commission (remember them) recommended modifying or repealing most of them a while back. And you can make a pretty good case that the states that have gotten rid of these deductions (like Louisiana) or that never had them (like, say, Illinois) are the ones that have the right idea.

No one like to stick out, and one hears this argument being used to sway state lawmakers all the time. But being different doesn't always have to be bad.

For more on Louisiana's developing tax debate, check out the Louisiana Tax Blog.

May 22, 2007

Are Cell Phones a Sin? Florida Thinks So

In virtually every state, some of the items we consume are taxed at higher rates than the general sales tax rate. These tend to be items that are consumed by two categories of people: tourists from other states and "sinners." A good example of the first category is hotels, which in Washington DC are taxed at 14.5 percent, more than double the regular sales tax rate. This is seen as a good way of dinging visitors from around the country, since any DC resident who stays in a DC hotel is, in fact, staying less than 10 miles away from their actual home. Typically, the second category includes alcohol, cigarettes, and (more or less) gasoline-- things that we generally wish people would consume less of.

Then there are cell phones. It's hard to describe using cell phones as an inherently damaging activity (unless you're driving at the same time), apart from the subtle but real damage it arguably does to our social fabric. But Florida, like many states, has decided to tax the heck out of cell phone use, with combined state and local tax rates approaching 20 percent in some areas.

Once upon a time, there was a pretty good argument for considering cell phones a "luxury" that could be taxed at a higher rate because its consumers could afford it. (Remember Gordon Gekko's lunch-box-sized cell phone in "Wall Street?) But now these phones are pretty universal, and a growing number of consumers are abandoning their land lines entirely and living on a cell phone. Given this change, cell phones are approaching the vaunted status of "necessity" currently enjoyed by food, clothing and shelter.

So why tax this pseudo-necessity at a rate three times higher than the regular sales tax rate? Because it's easy, says one analyst:
Kurt Wenner, a senior analyst with Florida Tax Watch, also said government has a penchant for taxing utilities because companies pass through the taxes to all consumers through their bills. "It's an easy way to do it," Wenner said.
This is exactly right. High taxes on utilities have historically been an easy thing for lawmakers to do because the costs get passed straight through to consumers.

Current legislation would take baby steps toward equalizing the tax treatment of phone and other services-- but the real question Florida lawmakers should be asking themselves is, why baby steps? Why not tax this form of consumption at the regular sales tax rate right now? The most likely answer-- that lawmakers are too busy finding creative ways of blowing tens of billions of dollars on poorly designed property tax "reform" schemes-- isn't very comforting.

ABC's Nightline Gives a Free Pass to Property Tax Repeal Advocate

Florida House Speaker Marco Rubio's tax plan-- which would cut property taxes dramatically and offset some of the revenue loss with a higher sales tax-- has been (correctly) criticized as a tax shift that will hit the poor hardest. But little attention has been paid to Rubio's stance on the property tax as a revenue-raising device, which is essentially that he hates it:
Should we tax the American dream? We don't tax food or medicine in Florida. Why would we tax home ownership? But we do.
The comparison is a bit silly on its face. Like our homes, food and medicine are what most people would consider "essentials"-- things we can't live without. And more and more starts now are exempting both of these purchases from their sales tax. But food and medicine are just part of each state's sales tax base. If you exempt them, you've still got plenty of consumption left to tax. (Although states exempting them have to increase the rate on everything else to keep themselves whole.) But repealing the real property tax, even if it's only done for homeowners, would basically eliminate an entire tax base. Given the zeal with which Florida lawmakers have moved to completely exempt other types of property (like intangible stocks and bonds) in recent years, it's clear that what Rubio proposes is simply wiping a tax off the face of the map.

So when I saw that ABC's Nightline was doing a story on the emerging Florida property tax mess, I was heartened. Hey Nightline, you're gonna ask Rubio to explain why repealing the nation's oldest major tax is a good thing, right? Let's hear the hard questions:

CHRIS BURY (ABC NEWS): In your heart of hearts, would you like to do away with the property tax altogether?
REPRESENTATIVE MARCO RUBIO (REPUBLICAN): I think the property tax is a horrible way to tax people.
And the interview sorta stops right there. Not the most incisive questioning.
So here's what Nightline should have asked Rubio:
1) Isn't a well-administered property tax based on a pretty decent measure of ability to pay-- the value of your home?
2) And to the extent the property tax falls short of this goal (as it arguably does when home values are skyrocketing in a temporary way), aren't there approaches, like a circuit breaker credit or assessment cap, that are demonstrably better ways of fixing this problem than outright repeal?
"Reform, not repeal" is a tired refrain. But that's because it's a pretty sensible tune to be humming. You simply can't argue with a straight face that the property tax cannot be reformed and must simply be junked-- there's just no legitimate argument to make on this point.
Which makes it a shame that Nightline didn't ask just that one hard question.

May 21, 2007

Florida: Playing the Percentages on Property Tax Reform

With about three weeks left to go before a scheduled special Florida legislative session on property tax reform, a joint House-Senate committee is listening to new ideas about how to reform the state's homeowner property tax breaks. The idea of the day: percentage-of-value homestead exemptions.

It's a simple idea. Right now, most Florida homeowners get to exempt the first $25,000 of potentially taxable value from all property taxes. From the cheapest shanty to the most expensive mansion, every home gets the same basic exemption. But several proposals discussed in today's hearing would change the homestead exemption from a flat-dollar amount to a percentage of a home's value.

To see the impact of such a change, take two neighboring homes: one valued at $100,000 and the other valued at $1 million. The current $25,000 exemption provides the same dollar amount of tax cut for the houses. But a percentage-of-value cut of, say, 25%, would give the low-valued house a $25,000 exemption (the same as it gets now) while the higher-valued house would get a $250,000 exemption-- ten times as big as the poorer house.

As this example indicates, the big winners from such an approach would be owners of expensive houses-- hardly a tax-fairness strategy that most lawmakers would champion.

But lawmakers also heard two wrinkles on this broad plan today that would allegedly make the percentage-of-value homestead less unfair. One idea would apply lower percentages to higher-valued houses. In the previous example, the higher-valued house might get an exemption for 25 percent of value up to a certain amount (say, $300,000 of home value) and then an exemption for 15 percent of all value above that. This would still leave the wealthy homeowner better off: their exemption would be $180,000 under this approach (25% of $300K is $75,000; 15% of $700K is $105,000), which is more than seven times higher than what the lower-income homeowner would see in tax cuts.

So it's less unfair than a simple percentage-of-value exemption-- but not by much. And this sort of exemption certainly wouldn't be the most transparent approach to property tax cuts. (Although by comparison to the much-lamented "Save our Homes" tax break, it sounds remarkably straightforward.) And neither of these proposal would do much to target property tax breaks to those homeowners who are truly (to coin a phrase) in danger of being taxed out of their homes. Got a home? You'd get a tax break.

The second twist on this basic tax cut proposal heard by lawmakers today would vary the percentage exemption not by the value of the house but by its geographic location. The bigger a district's median home value, the bigger that district's homestead exemption would be. This approach is certainly a refreshingly new approach to inequitable property tax cuts, but is inequitable nonetheless. Reserving the biggest property tax breaks for the wealthiest areas will be cold comfort for fixed-income families living in less-wealthy districts who are nonetheless simply unable to pay their property tax bills-- and will provide a huge boon for many upper-income families who simply don't need such a tax break.

Florida wouldn't be the only state with such an upside-down property tax break. The New York Fiscal Policy Institute's Frank Mauro has beaten the drum convincingly for years to get rid of a similar, poorly-thought-out homestead exemption in New York called the STAR program. As ITEP pointed out in a 2005 study, providing bigger exemptions to wealthier districts creates inequities that are hard to justify:
[T]wo homeowners with the same income and the same home value can receive dramatically different exemptions simply because they live in different counties.
Unjustifiable discrimination between the tax treatment of identical houses is nothing new in the home of the Save our Homes tax break, of course-- but that's no reason to try it a second time.

For more on the developing property tax storm in Florida, check out the Florida Tax Blog and the "Fair Tax Florida" web portal.

Gas Tax Gimmicks

It's the start of the summer driving season, and gas taxes are back in the news again across the nation. Gas taxes have long been the main method used by states to fund their transportation system, but recent high gas prices have made gas taxes a hot political issue. The problem arises because most states' gas taxes are fixed dollar values, bringing in the same amount of revenue regardless of the sale price of gas. Every year, inflation decreases the value of the revenue these taxes bring in, forcing lawmakers to pass new laws raising the gas tax every few years. However, this time around, many states just can't seem to find the political will to do so.

Nebraska's Governor Heineman is threatening to veto the paltry 1.8 cents per gallon gas tax increase passed by the state's legislature as part of the biannual budget, designed to shore up declining revenues. Minnesota's Governor Pawlenty waited less than twenty-four hours to veto an equally modest five cent per gallon gas tax increase, calling the move ""untimely and misguided". That's an interesting turn of phrase--Governor Pawlenty thinks that raising the gas tax, even to keep up with inflation, is "misguided" during a time of higher gas prices. Pawlenty claims to be fighting the gas tax increase to help the taxpaying drivers-- but what word other than "misguided" describes the idea that we can best assist drivers by refusing to provide money to repair damaged roads?

Even worse, lawmakers in Connecticut and Minnesota have proposed completely suspending their state's gas taxes, for the summer and for one year respectively. It is bad enough to allow transportation revenues to shrink under inflation, now some lawmakers want to suspend collections of the one tax that provides virtually all the funding for transportation in these states. While in the short term these gas tax gimmicks may pay political dividends, in the not-so-long term these states cannot afford to play politics with transportation funding.

May 14, 2007

Louisiana: More Tax Breaks for U2?

As the Louisiana Tax Blog noted back in March, Louisiana's tax credit for film-making activities has come under scrutiny in some quarters this year. A tax proposal that made intuitive sense to some when Louisiana was one of the few states doing it-- giving tax breaks to movie-makers to encourage them to film in Louisiana rather than in other states--now seems less obviously good when dozens of other states are providing essentially the same tax giveaways.

But now, as the Associated Press' Melinda Deslatte documents, the Louisiana legislature is considering taking the next step: offering tax breaks to musical and theater productions. Rep. Jeff Arnold, a Democrat from New Orleans, has introduced HB 155, which would provide refundable tax credits for "musical or theatrical productions" that employ Louisiana workers.

There are lots of sensible questions to ask about such a credit. Start with two: What kind of productions should benefit? And how we do know the incentives will actually change these production's behavior rather than rewarding them for something they would have done anyway?

"Musical or theatrical productions" covers a pretty broad swath of the cultural spectrum. The bill's language says this term "shall include but not be limited to drama, comedy, comedy revue, opera, ballet, jazz, cabaret, and variety entertainment."

Does this mean that when Jerry Seinfeld brings his comedy show to Shreveport, he'll get a tax credit for doing so? That the Rolling Stones will be subsidized to appear before college students in Baton Rouge? That famed tax-avoiders U2 will get yet another tax bonus if they rock New Orleans? Apparently they will, as long as Louisiana marks the first stop on their US tour.

And what happens when neighboring states do exactly the same thing? In testimony before the Ways and Means Committee, bill booster Roger Wilson, the chairman of something called "Broadway South, LLC" argues unconvincingly that "no other state... is offering a similar incentive" and that no other state has the infrastructure in place to meaningfully offer similar incentives"-- and admits in the same breath that Louisiana has virtually no musical/theater industry to begin with. He doesn't make much of a case for why Texas or Mississippi can't productively enact exactly the same credit next year.

Wilson also compares the intended impact of the theater tax break to the alleged impact of the existing film tax break in a way that makes the motives of this giveaway seem pretty craven:
Any movie that’s made in Louisiana as a result of the initiatives you passed years ago is basically stolen from other cities... We want to propose an initiative that will do the same thing[for musical and theater productions.]
This is what economic development experts like the folks at Good Jobs First are talking about when they decry the "race to the bottom." When states or cities use tax incentives to simply steal investment from other states and cities, the net impact on the US economy is, at best, zero. The same investments are taking place-- just in a different place than they used to be. And if the tax breaks in question are encouraging companies to invest in an area that simply wouldn't make sense economically otherwise, the net impact on the US economy is arguably negative. Theater companies would be moving from a place that makes sense economically to a place that doesn't.

It's not popular to argue that the leeway given state and local lawmakers to provide tax incentives should be curtailed in the name of a more effective national economic policy. We all value state and local autonomy very highly. But listening to this sort of blatant job piracy gives one a lot of sympathy for imposing such limits.

Obama on Taxes: Lame or Lincolnesque?

You could write a book about things Democrats didn't like about John Kerry as a presidential candidate. One of them was his comparatively timid tax policy proposals, which insisted that the already-enacted Bush tax cuts could (and should) affordably be continued for all but the very wealthiest Americans. Beyond the specifics, there was a vague, but permeating, sense that the fiscally leaky ship of state could be repaired with no sacrifice of any kind required except from the "wealthiest few." (This was, at best, a mild improvement over President Bush's assertion that no fiscal sacrifice would be required from anyone.)

Now along comes candidate Barack Obama. Here he is on yesterday's "This Week" with George Stephanopoulos:
GEORGE STEPHANOPOULOS (ABC NEWS) Let's talk about taxes. In the town meeting you said you were willing to roll back President Bush's tax cuts to help pay for your health care plan when you announce it.
OBAMA:Rolling back the Bush tax cuts on the top 1%,
people who don't need it would be a good way of helping to pay for the additional services that were needed.
STEPHANOPOULOS: Senator Edwards has said he would consider going farther, raising taxes beyond that on the wealthy. Are you?
OBAMA: Well, I think the starting point has to be are we spending our current money wisely? That has to be the starting point, and I think that's true on health care, that, you know, we can save about $75 billion a year by increasing prevention, managing the chronically ill, applying medical technology. Once we have seen what savings can be obtained then my absolute commitment is to make sure we've got universal health care in this country and I will find the money to make up the difference.
STEPHANOPOULOS: So if it takes new taxes so be it?
OBAMA: If it takes a rollback of those tax cuts, I think that will be sufficient to pay for the health care fund. Now, there are other areas where we've got to make some investments. I have not made a promise and I won't make a promise that I'm going to be able to perfectly balance the budget immediately. What I can say is that we're going to pay as you go, that if I start a new program I'll find a way to pay for it. If I want tax cuts, then I'm going to find a way to pay for it and that over the long term we get a stable budget that is not simply running up the credit card on our children.
All of which sounds pretty Kerryesque to these ears-- the only people who get singed will be the "top 1%," no pain for anyone else.

But after seeing Obama walk this walk yesterday, I happened to read this quote from another Illinois politician in Doris Kearns Goodwin's Team of Rivals:
My paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that.
Which is pretty reprehensible to 21st century ears. At the time, quite a bit of Lincoln's political support came from folks who wanted to keep the Union and keep slavery too. So he thought he couldn't afford (at that stage) to come out with a blanket condemnation of slavery, even though (according to some, anyway) he'd already decided that slavery had to be eliminated. On the slavery issue, Lincoln was a master of telling people what they wanted to hear. The Lincoln-Douglas debates are a fascinating case study of how political messages could be tailored for anti-slavery audiences (in northern Illinois) and arguably pro-slavery audiences (southern Illinois) in a pre-television world. But in the YouTube era, Obama doesn't have that luxury.

So maybe Obama's thinking is that a more aggressive stance [IE, the Bush tax cuts are, by and large, unaffordable and poorly designed, and the burden should be on folks who have specific parts of the Bush plan they want to preserve] is pointlessly impolitic, and that the underlying position of a president Obama (and, possibly, of a president Kerry) would be that he'll do whatever needs to be done to right the fiscal ship of state when the time comes, and he's just sensibly trying hard to avoid giving anti-taxers an "I'll raise your taxes" quote. And maybe in a political climate where tax issues are seen as a powder-keg, this is the best we can expect out of a public appearance by a presidential candidate: a willingness to say that not all of the Bush tax cuts were good.

May 13, 2007

Louisiana Editorial Boards Urge Caution on Tax Breaks

When it was enacted back in 2002, the Louisiana legislature's "Stelly tax plan" was (correctly) hailed as a major progressive victory. The Stelly plan cut sales taxes on groceries and utilities, and increased income taxes on upper-income families to pay for it. Now lawmakers are debating whether to repeal the Stelly income tax increases based on what may be ephemeral budget surpluses. And, as the Louisiana Tax Blog notes, state-based editorial boards aren't too hot on the idea.

The Baton Rouge Advocate, in a Friday editorial, argues that if tax cuts are affordable, lawmakers need to explain why the income tax is the right thing to cut:
If tax cuts are called for, why should they not be targeted on economic development issues? By that, we mean reducing or cutting the business taxes levied in Louisiana but not in competing Southern states, or that otherwise impede business development.
The Advocate also (correctly) questions "the political wisdom of railing against a tax policy change that left the vast majority of taxpayers better off."

And in a Sunday editorial, the Shreveport Times argues that repealing the Stelly reforms would simply be bad policy:
A massive overhaul of that favorite whipping boy, the Stelly Plan, is a step backward. It properly shifted the state away from a dependence on regressive sales taxes on food and utilities, "temporary" taxes that made Wall Street bond analysts nervous, and shifted the burden to a less regressive income tax.
This is absolutely right. The Stelly reforms made Louisiana's chronically-unfair tax system less bad than it used to be. Repealing either part of this fiscally-responsible tax swap would put Louisiana squarely back in the ranks of the most regressive tax systems in the nation. Here's hoping that our elected officials read the papers...

May 11, 2007

The Federal Tax Gap: Is Max Baucus to Blame?

Wednesday's Wall Street Journal has this interesting tidbit from Brody Mullins, entitled "Senator's Two Slip-Ups Show Difficulty of Closing Tax Gap," which I would respectfully suggest should be subtitled "WSJ's article Shows Lengths to Which Journalists Will Go To Make Tax Stories Interesting."

Baucus, of course, has been one of the leaders in the US Senate who has been banging the drum for closing the federal "tax gap," which is the difference between the amount of federal taxes that are supposed to be collected and the amount that actually gets paid. The IRS released a study last year estimating the tax gap for 2001 at $290 billion. (The numbers behind the numbers: $345 billion in 2001 federal taxes weren't paid on time; late payments of $55 billion shrank the total gap to $290 billion.)

But as Mullins breathlessly informs us, Baucus appears to be part of the problem. It's a two-part story:
1) Baucus owns a house in Washington DC, and was given a homestead exemption by city tax administrators. This was a mistake on their part, because as a resident of Montana Baucus isn't eligible for the DC homestead credit. After giving him the credit for a couple of years, the city figured out they'd made a mistake and gave him 30 days to pay the extra tax he owed over those couple of years. The bill: $5,625. He paid it, but not within the 30 days given by the city. Mullins says it took him "a few weeks" after the 30-day deadline.
2) Baucus owns a home in Helena, Montana, which he bought from his brother in 2002. (It was their childhood home.) The two of them didn't coordinate over who would be responsible for paying the first property tax bill for 2002, and it got paid (in full) "a few weeks late." Baucus incurred a penalty of $60 for this transgression.

The lesson, according to Mullins, is that Democrats are overselling the potential gains from closing the federal tax gap:
[A]s a taxpayer, Mr. Baucus shows it isn't so simple. Part of the gap is caused by people who purposefully avoid paying taxes and presumably could be caught with stepped-up enforcement. But much of the shortfall is thought to result from confusion and honest mistakes...The senator's tax history shows just how difficult it is to narrow the... $290 billion a year [tax gap].
There are, of course, two tiny problems with this story.
1) Baucus's late payments did, in the end, get paid. The $290 billion tax gap estimate that everyone is citing is what just never got paid at all back in 2001. So even if Baucus's error had anything to do with federal taxes, it wouldn't count as part of the $290 billion tax gap. The resolution of these errors demonstrates, in fact, that the system works well enough (in these cases) to ensure that the taxes owed actually get collected.
2) The taxes in question actually are collected by Washington DC and the state of Montana, so even Baucus actually had contributed to a "tax gap" through these mistakes, it wouldn't be the federal tax gap he was adding to. And it wouldn't be the federal government's fault that the mistakes got made.

There is an important kernel of... something behind Mullins' story, which is why it's not entirely worthless. There are plenty of elected officials out there who are using the federal tax gap as the "waste, fraud and abuse" du jour: they don't want to raise taxes on anyone, so they resort to the "tax gap" as their explanation for how all their pet projects will get paid for. We should all be a little bit suspicious of the attitude that all our fiscal problems can be solved by closing down the federal tax gap.

But that's really as far as one can go in praising this story. Mullins' story doesn't give any insight into why, five years later, the IRS remained unable to collect $290 billion in federal taxes, or what exactly needs to be done to ramp up collection efforts. And that's what we all ought to be getting smart about right now.

Related random notes:
The DC tax error really does appear to be the fault of Washington, DC tax administrators, who implemented a rule just in 2002 that restricts the use of homestead exemptions by people who don't vote in DC. A Washington Post story a couple of years back discussed Karl Rove's difficulties with this provision, and made it clear that it wasn't Rove's fault and that a bunch of other folks in Congress had fallen afoul of the rule. Here's an excerpt from a letter the city wrote to Rove at the time:
"OTR failed to rescind the benefit when the law changed. As a result of OTR's error, the property inadvertently received tax deductions for which you no longer qualified," chief assessor Thomas W. Branham wrote Rove. "We regret any inconvenience that this error on the part of OTR may have caused you."
So it's a problem with city tax administration, and one that the city figured out eventually.

Reprehensibly, the Montana Republican Committee has made political fodder of this, with a TV ad you can see on Youtube.

May 08, 2007

Louisiana Survey: Fix the Roads First

Louisiana has a budget surplus for the upcoming fiscal year-- and the state legislative session that began this week will likely be focused on how this surplus should be disposed of. The early favorite target of anti-tax lawmakers: repealing some, or all, of the progressive "Stelly" income tax reforms ratified by Louisiana voters back in 2002. The Public Policy Research Lab at Louisiana State University (LSU) has released its spring 2007 public policy survey, just in time to inform this important debate.

The results, summarized by the Shreveport Times here, suggest that tax-cut-happy lawmakers are misinterpreting voter preferences in a couple of important ways:

1) It turns out Louisiana voters aren't all that interested in tax cuts. They'd rather see adequately funded public services.
2) For those who do want tax cuts, income taxes don't seem to be the thing they're most worried about.

Here's the skinny on the spending-hike-versus-tax-cut point:
  • Among survey respondents who want to see any budget surpluses used for one-time expenses, road repair was the top choice (89 percent favor or strongly favor this option), following by paying off pension debt (75 percent) and hurricane recovery projects (71 percent). A one-time tax rebate came in a distant fourth place (57 percent).
  • Among those who want to see surpluses used to pay for recurring spending needs, the two big favorites were health care for the insured (84 percent favor or strongly favor) and increasing teacher pay (82 percent). Permanent tax cuts were a distant third, with 59 percent approval.

Equally interesting is that for respondents who are mad about their taxes, the income tax appears to be the least of their worries. 50 percent of survey respondents now think that Louisiana sales taxes are too high. A smaller 40 percent of respondents think property taxes are too high, and just 33 percent of survey respondents thought income taxes were too high.

[As this chart from Fair Tax Louisiana shows, the survey respondents got it just about right: the only types of tax in Louisiana that are emphatically above average are sales and excise taxes. Income and property taxes just aren't that high.]

The conclusion to be drawn, according to LSU survey director Kirby Goidel:"[P]eople are less anti-tax than is commonly believed," Goidel said. "Most people realize this is a relatively low-tax state. What they want is value in what their money is spent for."

Anyone who watched the Ways and Means Committee hearing yesterday would be forgiven for being confused. A parade of anti-taxers explained that Louisiana voters are outraged, outraged at the Stelly changes. One guy asserted that the Stelly plan (which used progressive income tax increases to pay for a reduction in sales taxes on food and utilities was "the worst disaster that ever hit Louisiana besides Katrina."

Ignoring the sheer silliness of this rhetorical flourish, the LSU data make it pretty clear that anti-taxers in the state legislature have badly misjudged the public's appetite for tax cuts.

May 04, 2007

More Baloney on the "Clinton AMT"

Not to beat a dead horse, but anti-taxers keep piling on with this idea that the impending AMT mess is President Clinton's fault. (The real answer, as I note here, is that the inaction of Congress over the past 20 years, and the 2001-2003 federal tax cuts, are actually to blame.)

What makes this such a clever (and complicated to disprove) thing for anti-taxers to claim is that Clinton did spearhead changes in the AMT in 1993, and that one of those changes involved increasing the AMT tax rate. If your description of Clinton's AMT tax changes starts and ends there, you're gonna make it sound like Clinton actually is to blame. But the reality is that Clinton's 1993 changes did two other things as well:

1) increased the regular income tax rates;
2) increased the AMT exemptions.

And each of these two things actually decreased the number of people owing the AMT. Net impact of the three Clinton AMT-related changes? A decline in the growth of the AMT, as the Tax Policy Center demonstrates here. But again, if you don't tell the whole story you can make Clinton sound like the bad guy.

So here's Grover Norquist, who somehow convinced the usually-good Tax Notes to let him publish this under the tactful heading "Viewpoints":
The debate on the AMT will be helpful to taxpayers. Where did the AMT come from? It was invented by Democratic President Lyndon Johnson and pushed as a class warfare, envy tax because a handful of Americans were not paying taxes despite high incomes — much of that flowing from laws that make interest payments on government bonds tax-free, which itself is a tax subsidy for big government. And later Clinton increased the AMT from 24 percent to 28 percent with the help of yes votes from such Democrats as . . . Rep. Nancy Pelosi, D-Calif., Rep. Charles Rangel, D-N.Y., and Reid.
As a first step, the taxpayers’ movement should demand that the Clinton AMT be repealed.
See how he did that? Very clever-- and totally misleading. Not a word about the true causes of the AMT time bomb-- just pins it on Clinton. One can understand how informal observers of this debate would start to believe that black is white and night is day...

May 03, 2007

GAO Says IRS Needs More Time to Audit Offshore Tax Cheats

The indefatigable Edmund Andrews reports in today's New York Times on the inability of the IRS to effectively track down US tax cheats who are stashing their cash in overseas tax havens. The occasion: a new GAO report on this topic. He reads it so you don't have to.

You can fill a warehouse with what tax administrators don't know about the volume of overseas tax avoidance; all we really have to go on right now are broad guesses.
Tax analysts say it is almost impossible to know how much the government is losing from international tax evasion.
Reuven S. Avi-Yonah, a professor of law at the University of Michigan who will testify at the Senate hearing on Thursday, estimated last year that the United States could be losing as much as $50 billion from international tax maneuvering.
Mr. Avi-Yonah based his estimate on calculations by the Boston Consulting Group that residents of the United States — individuals as well as corporations — are holding about $1.5 trillion outside the country. If that money produced a 10 percent return, he said, the United States might be failing to collect taxes on about $150 billion a year.
This is an inspired guess, but ultimately just a guess. Lacking concrete knowledge about the scope of the problem, the new GAO report looks at specific case studies of IRS audits of Americans who shelter income overseas to try to get a handle on the nature of the problem.

Three big findings of the GAO report:
1) audits of international tax cheats routinely turn up more tax avoidance, on average, than audits of domestic tax avoiders. Johnston says:"the average audit of people with money offshore turned up twice as much in unpaid taxes — about $5,800 — than audits of money kept inside the United States.
2) The longer audits are allowed to run, the closer the US government gets to collecting what's owed: The average assessment of unpaid taxes tripled to $17,500 for the limited number of audits that were allowed to run longer than three years, and it shot up to nearly $100,000 for the small number allowed to run four or five years.
3) Tax administrators aren't benefiting from finding #2 as much as they should be able to, because of laws that require auditors to wrap up their investigations in three years.
The Internal Revenue Service is curtailing audits of many people who use offshore tax havens, even when agents see signs of tax evasion, because agents fear they cannot meet a three-year deadline for finishing an examination. Anyone who's ever been audited can probably understand why you'd want to put a statute of limitations on the audit period.
But as the GAO report documents, the overseas tax avoiders the IRS is dealing with are a different breed, often doing everything they can to delay the audit process:
In one case, which the G.A.O. said typified the obstacles, the I.R.S. spent four years investigating a person with businesses in both the United States and an unnamed overseas tax haven.
The investigation included 20 summonses, 23 demands for documents, 5 missed appointments and 2 refusals by the person being investigated to supply information. After four years, the government still did not know how much money had been moved to the tax haven.
There's a growing consciousness that the defanging of the IRS that occurred in the late 1990s went too far-- that what should have been a good-faith effort by Congress to restrain a few "overzealous" tax collectors got hijacked by anti-tax grandstanders in the House and Senate who simply wanted to prevent the IRS from effectively doing its job. The latest GAO report is just the latest evidence that the pendulum has swung way too far in favor of tax cheats-- and too far against federal tax administrators.

May 02, 2007

Nevada: Green Tax Break Has Lawmakers Seeing Red

It's not always easy to know how expensive a tax break is going to be, and this is especially true when the tax break in question is designed to change people's economic behavior. Case in point: a tax cut enacted in 2005 by the Nevada legislature that gives up to a 50 percent property tax abatement, for up to 10 years, for companies that abide by certain "green" energy conservation standards in buildings they own. The bill also granted sales tax breaks for green construction materials. When the bill was passed, its sponsor estimated the annual cost at about $250,000. But the (admittedly gloomy) conventional wisdom today is that the cost can be measured in the hundreds of millions-- which is why Nevada lawmakers are acting fast to scale back the tax break.

For anyone who was paying attention back then, this sounds eerily like Arizona's alternative fuels tax credit fiasco back in 2000, where a tax credit designed to cost about $10 million rapidly ballooned to $200 million before lawmakers pulled the plug. Of course, in Arizona the beneficiaries were individual taxpayers, while the Nevada cuts are limited to businesses.

The move by Nevada lawmakers to pare back the tax break is a sharp retreat from what legislators were discussing just one month ago: extending it to individual homeowners as an incentive to make Nevada homes greener.

The lesson in Nevada, as in the ill-fated Arizona experiment, is that tax breaks designed to encourage behavioral changes can be too successful-- and at the same time, not successful at all. For sure, the Nevada break encouraged some companies to go green in their building management practices-- but some others were likely going to do it anyway. And others are likely just going through the motions, acting just as green as they need to in order to satisfy the terms of the tax break.

This isn't to say that using tax policy to achieve environmental policy ends is entirely wrong-headed-- these guys, whose goals are quite noble, think it's terrific-- but the Nevada experience makes it clear that the success of these green tax efforts can be hard to quantify.

Florida: Ding Dong, the Witch is... Going on Vacation

Reuters reports that Florida lawmakers have given in to the inevitable and thrown in the towel on their efforts to craft a big fat property tax cut before the end of the regular legislative session.

The good news is that this was exactly the right thing to do. Various editorial boards have pointed out that a poorly constructed tax reform thrown together at the last minute could be worse than no tax reform at all. The St. Petersburg Times explains quite well what a good property tax fix should do:
Floridians need property tax relief, but they need it done right. That means it has to be equitable, fair and reasonable. It should be targeted toward the taxpayers who need it most: businesses, nonhomesteaded property owners and recent home buyers. It should spread the tax burden, not merely shift it from one group of taxpayers - homeowners - to another - consumers who may not even own property. And it should not force local governments to make painful cuts in programs and services that residents expect in safe, vibrant communities.
Which makes it unfortunate that the plans being debated by the House and Senate this past week pretty much don't achieve any of these goals.

And which leads us to the bad news: the legislature will be back for a special session in June, and all indications are that they'll be discussing the same basic plans they've been fighting over for the last couple of weeks. The sense you get from reading lawmakers' quotes this week is that they've got broad agreement on most things, but simply don't have time to iron out all the details before the session is scheduled to adjourn at the end of the week. Here's House Speaker Marco Rubio:
“The good news is I believe we have made tremendous conceptual progress in our conversations with our colleagues the senate. We can feel confident that property tax relief and reform is going to happen for Floridians and God willing, it’s going to happen this year,” he said.“The bad news is, and it’s really not all that bad, is that in order to put this into practice 72 hours simply is not enough time."
In other words, the solution lawmakers come up with next month is going to be a cross between the House approach (an unaffordable, unfair property tax-for-sales tax swap) and the Senate approach, which is merely unaffordable. So to paraphrase Rubio, the good news isn't all that good, and the bad news remains pretty bad.

May 01, 2007

Indiana: Smile for the Camera...

As the dust clears on Indiana's 2007 legislative session, there's lingering controversy over the way Indiana lawmakers have chosen to provide local property tax cuts.

The mechanism-- a temporary one, in force for just the next two years-- is a tax refund. Sometime after Hoosiers pay their property taxes this year, they will receive a check in the mail with their share of a $300 million property tax cut. Accompanying the check will be a little note:
"A portion of your local property taxes due in 2007 are being refunded due to tax relief provided by the Indiana General Assembly. Your refund is in the amount of $_____."
Just in case homeowners might not get the message, the budget bill that authorizes the rebate also specifies just how big the bold print needs to be on the refund letter: "at least 12 point type."

There's a good reason for the bold print. If writing a big property tax check is a painful experience for Indianans, this bill won't make it any less so. When they receive a rebate later on, they'll be told what it is (and, of course, who to thank for it). But that's no substitute for simply not having to pay the property tax in the first place.

And, if the experience of other states is any guide, the rebate checks will count as taxable income when some Hoosiers file their federal income tax forms next year. (This will only be true for Indiana residents who itemize their deductions and write off their property taxes, and makes perfect sense: if your initial property tax bill is $2,000, and you later get a rebate for $200, your itemized deduction will probably be for the full $2,000-- so you need to count the $200 as taxable income next year just to keep the books in balance.)

There are more substantial reasons to be unhappy about this year's Indiana property tax refund, which I discuss here. But for the moment, it's enough to note that this appears to be a carefully tailored PR move.

Indiana's Property Tax Refund

Facing homeowner property tax hikes estimated at close to 25 percent for the upcoming year, Indiana lawmakers have included a temporary property tax refund in the budget bill they passed over the weekend.

As we note here, the refund appears to have been designed by public relations strategists rather than tax policy wonks. Every homeowner will get a check in the mail this fall telling them with a little note telling them what the check is for and who they should thank for it. Republican leaders saw this as a political trick:
House Minority Leader Brian Bosma, R-Indianapolis, called the rebates a "harebrained idea" that "helps politicians and not the taxpayers."
But there are more substantive reasons for thinking that this year's property tax rebate may not be the best way of staving off a property tax revolt. With the property tax, the first thing lawmakers should ask after noting that their constituents are mad as hell about property taxes is "why are they mad?" In Indiana, as in most states, the answer is usually that people see their property tax bills going up even though their ability to pay them has not.

From this perspective, the main thing to know about the budget bill's property tax refund is that it doesn't seem very well tailored toward making people less mad. Getting a rebate check in the mail a couple of months later will be cold comfort for someone on a fixed income who simply can't afford a double-digit property tax increase.

A second reason to be concerned about this approach to doing things is that it basically asserts that everyone needs a property tax cut. As we've noted before, lawmakers have a disturbing tendency to rail about the plight of fixed-income families in drumming up support for property tax cuts-- only to pull a shell game that ends up cutting taxes for even the wealthiest family. This is a concern because the refunds going to the best-off Indianans could have been more productively used to help keep fixed-income seniors from having to sell their homes-- a goal that virtually any lawmaker would sign on to in theory.

A third reason? Upper-income Hoosiers will be sending part of their refund directly to Uncle Sam. The refunds will reduce, dollar for dollar, the amount of itemized deductions for property tax that itemizing Indianans can write off on their federal 1040 next year. So anywhere between 10 and 35 percent of the refund check, depending on your federal tax bracket, will never see the inside of your wallet. This problem could have been avoided of Indiana lawmakers had decided to target property tax relief to fixed-income families (who tend not to itemize their federal income taxes).

Property Tax Advice for Florida Lawmakers: "Step back and Cool Off."

As Florida lawmakers totter toward the May 4 conclusion of this year's legislative session, conferees are feeling growing pressure to come up with a solution-- any solution-- for the state's property tax woes. Yet, as the Daytona Beach News-Journal editorial board points out, there are good reasons to resist this urge:
The best course of action for Floridians is none at all. The constitutionally mandated Taxation and Budget Reform Commission starts a comprehensive review of all taxes this year. There's no reason for the Legislature to push bad legislation forward, and plenty of reasons to step back and cool off.
Regarding the specific shortcomings of the plans put forth by the House and Senate so far, the News-Journal faults the Senate proposal for expanding the much-lamented "Save Our Homes" tax break rather than repealing it, but thinks the House plan is much worse:
The sales-tax swap is a bare-faced shift of tax burden onto the shoulders of low-income Floridians, and an even more blatant picking of city and county government pockets. (House leaders claim they plan to redistribute the money to local governments, but lawmakers also promised several years ago to stop hitting local governments with unfunded mandates, a pledge broken almost immediately.)
All told, the House measure would carve as much as $47 billion from local governments' coffers. It's money most can't afford to lose and still keep providing services demanded by city and county residents.
This is all dead on. None of the plans currently on the table achieve the sort of meaningful reform that Florida really needs. If Florida property taxes are to "drop like a rock," as the Governor has requested, it should be done in a way that eliminates inequities in the current property tax and doesn't leave locals holding the bag.