In Honor of Tax Season

Debt: Taxation Without Representation

As you probably know, the federal debt is now over $16 trillion. Members of both political parties (elected by us) have added to this staggering total for decades. The debt rose $4.899 trillion during the two terms of the Bush presidency and Obama has managed to rack up more debt than that in just one term. As you may have heard, we reelected him.

Technically it's Congress that wields more power over the federal government's purse strings than the president. Despite record low approval ratings of these big spenders, we just sent 91% of the incumbents back to Congress. Don't look for a sudden change to frugality there.

The Congressional Budget Office (CBO) projects that the federal debt will be $25 trillion by 2021. Unfortunately, CBO projections historically have been about 40% low 80% of the time.

Of course none of these figures include the unfunded liabilities that we are going to have shell out for Social Security and Medicare. These currently stand at about $121 trillion. Any way you slice it there is a mountain of debt coming down.

Children who didn't get to vote for or against the crooks running up this debt will one day labor to repay it. Perennial Iowa Libertarian candidate Dr. Eric Cooper has called this “taxation without representation in its purest form.” It is hard to argue otherwise.

"No taxation without representation" was the rallying cry that lead the American colonists to rebel against the British Empire. Someday, when we hand a future generation of Americans the bill for tens or hundreds of trillions of dollars worth of taxation without representation, they will be just as morally justified to do to us what the founding generation did to the redcoats.

The Ron Paul Plan

At a time when we are adding over a trillion dollars to our national debt every year, the Congressional Joint Select Committee on Deficit Reduction (a body designed to make the hard decisions that Congress itself has been too cowardly to make) is expected to recommend making about that much in spending reductions over ten years. When they’re driving us over a fiscal cliff I guess it’s nice to know that they’re at least thinking about downshifting. This laughable budget-cutting contrasts with the economic plan offered by Congressman and Republican presidential hopeful Dr. Ron Paul.

Dr. Paul’s detailed “Plan to Restore America” would cut $1 trillion from the federal budget during the first year of the Paul presidency and deliver a balanced budget by the third year. Paul’s plan would eliminate five do-nothing federal departments (Energy, HUD, Commerce, Interior, and Education) and reduce the federal workforce by 10%. It would block grant Medicaid and welfare to the states, allowing flexibility and cost-savings.

If you think such cuts are too much and would knock the federal budget back into the 1800’s, no such luck. Nationally syndicated columnist Jacob Sullum points out, “Paul's plan would not return the country to the 1990s, let alone the 19th century. It calls for total outlays of $2.9 trillion in 2015, which is about as much as the federal government spent as recently as 2003, adjusted for inflation.” They are substantial cuts, but not oppressive.

Ron Paul would extend the Bush tax cuts, lower the corporate tax rate to 15%, and abolish taxes on inheritance, capital gains and personal savings. Paul’s plan would repeal the job-crushing Obamacare, Dodd-Frank, and Sarbanes-Oxley laws and repeal many onerous regulations. It would audit the Federal Reserve and use free market techniques to strengthen the dollar and stabilize inflation. In a symbolic gesture, President Paul would take a salary of $39,336, the median income of the American worker.

You can read the plan in-depth at RonPaul2012.com. At a recent forum, Governor Branstad praised Ron Paul’s plan as “the boldest plan to reduce the federal deficit.” With the country careening ever closer to socio-economic collapse, if now isn’t the time for “bold plans” such as Dr. Paul proposes, when will be? I’ll vote for Ron Paul in the January 3rd Republican caucus.

Report From The Tea Party

Thursday I attended my very first tax day tea party in my small town. A local business had hung a Gadsden flag and banner saying to gather there at noon on the 15th. By my count, there were about 20 of us down on Main Street carrying signs. That may not sound like many people, but the population of my town is only 3,600 and most folks were at work. (If I hadn't taken the day off work, I wouldn't have been there either.)

There were no major incidents, although one guy driving by did give us a "thumbs-down." A few cars and trucks honked in support. Mostly people just drove by trying to avoid eye contact though.

There were no "infiltrators" as several news organizations had warned. One guy showed up in a purple SEIU tee shirt and I wondered if he was there to start trouble. To my surprise, he just stood there with his child, holding a sign that read, "I love my country, but fear the gov't."

One gal, I'd say in her sixties, tried to give everyone a copy of the U.S. Constitution. She said she had distributed about 600 copies so far (not just on that day). Good for her!

I saw no hatred, malice or racism toward anyone, just concern about excessive taxation and government spending. These are my people.

Next stop: The Second Amendment March in Des Moines on Monday.

Eliminate Iowa's Income Taxes

There seems to be a little more chatter about eliminating Iowa's state income tax these days. Ed Failor, Jr., President of Iowans for Tax Relief (ITR), for instance, had a guest column in the Cedar Rapids Gazette advocating such.

In the extended version of Failor's column on ITR's website, Failor cites a 2008 study by the Mt. Pleasant-based Public Interest Institute. The study found that South Dakota, which has no income taxes, outpaced neighboring Iowa in the growth of total personal income, per capita personal income, population, and non-farm employment from 1967-2007. Failor points out: "We all know people are not flocking to South Dakota for the warm climate. These jobs and former Iowans are leaving the Tall Corn State and moving just across our western border because there is no income tax in the Mount Rushmore State."

At least two Republican gubernatorial candidates have expressed support for eliminating Iowa's income tax. “That would be an ultimate goal, absolutely. Other states have done it and they have seen good growth," said state Senator and gubernatorial candidate Jerry Behn of Boone. I don't know whether or not Senator Behn actually worked to repeal the income tax while in the legislature.

Businessman, Corridor Recovery president and GOP candidate Christian Fong also supports getting rid of the state income tax. Fong says that his immigrant father put the issue into perspective for him. "He said, 'You don't need all that policy talk,'" Fong explained. "He said, 'High taxes are wrong because they inhibit personal freedom.' Done. For an immigrant from China who's bottom line is about the American Dream, taxation is really a freedom issue."

Whether or not the Republicans actually believe in any of the principles that they espouse while campaigning and whether they will follow through if elected remains to be seen. Either way, it's good to see that the idea of eliminating income taxes is at least part of the discourse.

Time To Wrap Iowa's Show Biz Giveaway

Just about everyone in Iowa knows that the Iowa Film Office (IFO) has been embroiled in scandal lately. The office issues tax credits to filmmakers who film in Iowa. By August, IFO had issued more than $31 million in such credits. Unfortunately, some filmmakers have used their money to buy themselves fancy cars, rather than hire Iowans, and the whole operation is shot through with accounting irregularities and poor record keeping.

The whole mess got so bad that Governor Culver actually had to put down his paddleball, amble over and fire somebody. Of course, Culver’s political rivals in the Republican Party are capitalizing on the scandal. They could run the IFO better, they contend. Other critics say that the IFO needs stricter oversight. But should IFO and other similar incentive programs exist at all?

There are nut-and-bolts reasons that indicate that they shouldn’t. A study by New Mexico State University found that for every dollar that N.M. spent on it’s film program, it got back 14 cents in tax revenue. (The state of N.M. claims it gets $1.50 back.) The Wisconsin Dept. of Commerce found that for every dollar that it invests in it’s film program, it gets back $1.70. For other economic development programs, the return on each dollar invested was said to be $161.

Victor Elias with the nonpartisan Child and Family Policy Center has studied Iowa’s film tax credit. He says that there is little evidence that the program does much of anything. “I couldn’t even figure out how many jobs this creates,” said Elias. “Whether they were full-time jobs or part-time jobs. And a film shoot only lasts for so long, so we’re not talking about permanent jobs.” $31 million is a lot of hard-earned taxpayer dollars to invest on hope alone.

Even if the incentive program was well-run and got a return on the investment, it (and special incentive programs for other industries) don’t really make sense. While it may now be customary for state and local governments to offer special goodies to get targeted businesses to relocate here, it comes at the expense of people and businesses who have already invested their time and money here.

According to Iowa’s Tax Education Foundation, Iowa has the highest corporate and personal income taxes among it’s neighboring states. Some have ranked Iowa as one of the worst states to start a business. Does it make sense to offer monetary incentives to get businesses to locate here, while simultaneously driving established businesses out?

It would make more sense to implement policies making the state attractive to new businesses and existing ones as well. Lowering state taxes and red tape would be conducive to all commerce in Iowa.

The bottom line is that there is no cash incentive that government can offer to new business that it didn’t first take away from the people and industry already here. The state needs to forget the bribes and just get out of the way.

Cap & Tax Won't Save The Earth

Today the U.S. House of Representatives passed the "American Clean Energy and Security Act," known as a "cap and trade" system. It now goes to the Senate where it's fate is unclear. Opponents charge that the bill is too costly and will hurt the faltering economy, while doing little to improve the environment. Here is a quick video from the Heritage Foundation dealing with subject.

Taxpayers Ejected From Tax Hearing

During a public hearing on the Democrat plan to tax Iowans' taxes, House Speaker Pat Murphy ordered state troopers to remove the citizens sitting in the Capitol galleries when they refused to quit booing tax supporters and applauding tax opponents.

IowaPolitics.com's Lynn Campbell reported Wednesday:

"More than 500 people packed the Iowa Capitol and the House galleries Tuesday night, largely in opposition to a plan that would eliminate the ability of Iowans to deduct their federal tax payments when calculating state tax liability. They wore red T-shirts from Iowans for Tax Relief that stated, 'no tax on a tax.'

"The crowd booed and hissed supporters of the legislation, and applauded opponents. They were reprimanded several times by House Ways and Means Chairman Paul Shomshor, but the boos and applause continued. Murphy initially came out, ordered that decorum be kept and threatened to clear the chamber, but the applause continued.

"The final straw came when Greg Baker, a University of Iowa student and state chairman of the College Republicans of Iowa, told lawmakers: 'Please quit messing up this state.'

"The crowd burst into applause. Shomshor pounded the gavel and ordered the galleries cleared at 8:27 p.m. Murphy came out to enforce the order, which was immediately followed by angry shouts by the audience.

"'This is our House!' one person shouted.

"'We pay you!' another shouted.

"'You're fired!' a third shouted."

The first two people are right. Let's hope the third person turns out to be prophetic.

Time To Tax Our Taxes?

According to the Sioux City Journal, Governor Culver said Tuesday that he “would give ‘serious’ consideration to eliminating federal deductibility as a way to simplify and streamline Iowa's tax code.” This came just the week after Iowa Senate Democrat leaders announced their support for eliminating federal deductibility. Obviously there is growing support in Des Moines for this idea. What does that mean for Iowa taxpayers?

Federal deductibility simply means that, when figuring your state income taxes, you may deduct from your income the money that you’ve already paid in federal income taxes. For most of us, these federal taxes are withheld from our checks. It is money that we never get to see, touch, deposit or spend, so why on earth should it be counted as income?

For many low and middle-income taxpayers who don’t have mortgage interest or property taxes to deduct from their income, federal deductibility represents a significant savings on their state tax bill.

Federal deductibility is a matter of fairness. To eliminate it would mean allowing the state to charge a tax upon a tax.

Proponents of changing the deduction say that it would simplify the tax code. But one already-existing line on the tax form seems to be a worthwhile complexity to assure fairness. If they really wanted to simplify the tax code, they could eliminate the personal income tax altogether like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have already done. Or they could move to a flat rate personal income tax such as Colorado, Illinois, Indiana, Massachusetts, Michigan, Pennsylvania, and Utah have.

Proponents also claim that the deduction forces the state to charge higher taxes in order to compensate for its lost income from federal deductibility. This argument could also be made against any other state deduction. The watchdog group Iowans for Tax Relief is fond of pointing out that, when “simplifying” the tax code, any promised tax cuts are short-lived while the lost deductions are usually gone for good.

While the idea of eliminating federal deductibility might be popular with those who charge taxes, it is unpopular with the Iowans who pay the taxes. A January 2009 poll showed that 72.5% of Iowans support maintaining their right to deduct federal tax payments.

If you are a member of this majority of Iowans, you can look up your state legislators here and ask them to retain federal deductibility on state income taxes.

Further reading: Public Interest Institute Policy Study No. 07-3 "Federal Tax Deductibility in Iowa: Who Benefits and Why It Should Continue"

Iowa City Tea Party

I can see how cities effected by the 2008 floods may need additional funds, but still, you have to like these local tax-protesters' style.

From the Iowa City Press-Citizen, February 4, 2009:

"A local group has sent boxes of tea to Iowa City councilors to protest the possibility of a local option sales tax.

"The Iowa City Council is considering calling for a referendum on a 1-cent sales tax. Each city in Johnson County could accept or reject the tax.

"Mike Thayer of Coralville said a group of about 30 people met Monday night to discuss the measure. A statement from the group states that the tea 'kicks off an aggressive campaign of opposition to the tax.'

"In a play on the Boston Tea Party, Thayer said one box of loose-leaf tea was sent to each councilor with a tag including the names and addresses of those opposed to the sales tax.

"'Local government needs to spend the money they've already been given more responsibly,' he said.

"Thayer said examples of money poorly spent include $50,000 to support The Englert Theatre and $62,000 that was spent in 2007 to fund a downtown study. He said the city shouldn't be funding a 'failing theater' and said the downtown survey didn't 'tell us anything we didn't already know.'

"Thayer said that local government needs to cut back 'just like Johnson County families are.'"

To learn more about the tax protest, go to http://coralvillecourier.typepad.com/community/2009/02/no-new-taxes.html.

Let's hope things don't go all "Concord Bridge" down there.

Laboring For Truth

The Iowa Policy Project (IPP) has just released it’s annual “The State of Working Iowa” report and things don’t look good. The report warns: “Stagnation in Iowa jobs and a continued decline in job quality have combined with high gasoline and food prices, flooding and housing pressures to present daunting challenges for Iowa’s working families on Labor Day 2008.” Colin Gordon, senior research consultant for IPP and co-author of the report said, “The numbers and some of the circumstances are new — but our basic Labor Day story remains: Iowans on balance are becoming less economically secure and having a tougher time getting by.”

Things needn’t be so bleak for working class Iowans, Gordon assures, “To get a new story line for Labor Days to come, our policy makers must grasp these realities and address them.” Policy makers apparently should “address these realities” by implementing IPP’s included recommendations. This assurance is not comforting considering IPP’s past policy recommendations that have been implemented and apparently are ineffective.

Last year the Democrat-controlled Iowa legislature and governor raised Iowa’s minimum wage to a rate higher than the current federal minimum wage and higher than most of Iowa’s neighbors. At that time IPP executive director David Osterberg crowed, “It’s nice to be ahead of the curve for a change. […] This will be good for low-income families, and will be good for Iowa businesses that depend on local purchases. It is a bright spot in an economy that is offering few such signs for low-income folks.”

“More income in the hands of lower-income families means they will have more to spend with local businesses. This is good for the Iowa economy,” Osterberg said in 2007. “A pizza shop owner should understand that better-paid pizza delivery people can more easily afford pizzas for themselves.” Given the glumness of the new report, apparently the pizza scenario prophesized by Osterberg must have broken down somewhere. Perhaps, since the pizza shop owner had to raise his prices to reflect the reality of his increased payroll expense, the pizza delivery guy couldn’t buy any more pizzas than he could before the minimum wage was raised. (There were plenty of factors driving prices up in 2008, but the minimum wage hike was definitely one of them.)

It’s not surprising that the minimum wage hike was not the promised panacea, given the mountains of research showing that minimum wage requirements don’t reduce poverty. For instance a 2002 study by David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found “no compelling evidence supporting the view that minimum wages help in the fight against poverty. Rather, because not only the wage gains but also the disemployment effects of minimum wage increases are concentrated among low-income families, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families.”

Since increasing government regulation and fiats didn’t seem to help, the 2008 IPP report recommends increasing government regulation and fiats. The minimum wage should be indexed for inflation, the report suggests, since it is already too low after less than a year at it’s current rate. IPP also recommends increased nanny-state meddling in childcare and healthcare. In short, more of the same.

If we truly want “a new story line for Labor Days to come,” we must close IPP’s report and turn to a recent policy study by Public Interest Institute, a non-partisan, market-oriented public policy research organization located at Iowa Wesleyan College. The title of the study explains it’s own findings, “No Income Tax: The Key to Economic Growth.”

Iowa taxes money when it is earned, through the state income tax. With the state sales tax it taxes the money again when it is spent. If you bought real property with that money, you are taxed again yearly to keep it, via property taxes. Essentially, Iowa taxes you coming, going and staying. No wonder the Tax Foundation ranks Iowa near the bottom of the heap on tax issues. Eliminating the income tax would help change that.

The Public Interest Institute study concludes, “States with low or no income tax are more attractive to individuals looking for a place to live and for businesses looking for a place to locate. Studies show that states with no income tax have higher rates of economic growth, have greater domestic in-migration, and are rated higher in the qualities that businesses look for when considering location.

“Iowa has an income tax, while our neighbor to the northwest — South Dakota — does not. South Dakota ranks better than Iowa in growth in total and per capita personal income, growth in state population, and growth in employment. South Dakota also has greater growth in the number of housing units, more hospital beds per capita, and lower rates of crime.”

The IPP and Public Interest Institute reports offer opposing roadmaps to a happier, more affluent and productive workforce in Iowa: the proven failure of government by fiat or the general success of free markets. Let’s hope Iowa makes the right choice.