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Tax Those People!

April 30th, 2009 by John LaPlante

In 2005, the U.S. Supreme Court ruled, in case of Kelo v. New London, that the U.S. Constitution is no bar to cities seizing property from one private landowner and giving it to another. Following that decision, a number of states changed their laws to restrict the powers of eminent domain.

Minnesota was one of those states, though it allowed existing projects to proceed. One of those was the Cedar Grove project in the south metro suburb of Eagan.

In the words of mayor Mike Maguire, who recently wrote an op-ed on the subject,

“The area went into a steady decline over two decades. Restaurants became engine repair shops, a gas station became a truck rental facility, a grocery store became a paintball range and the old mall housed fewer and fewer shops.”

My first thought upon reading this was “what’s wrong with engine repair shops?” In recent years, some members of the city council have complained that the city’s northern section has “too many” trucking companies and not enough “quality” development.

City government has invested seven years in an effort to redo the area. It used its power of eminent domain to forcibly acquire properties in the area. Together with a commercial developer and community activists, it developed grand plans. In other words, it substituted the political process for the free market.

During these seven years, the city has incurred carrying costs for the project, which it had hoped would someday pay off. But now, thanks to the tanking of the economy, those plans are had to be altered, once again.

Some city residents have recently complained about these changes, which cut back on green space. (Arguing against greens space is like arguing against every American having a 50-inch TV. The question, in both cases, is “Who’s going to pay for it?”) They don’t like the mix of land use in the current plan, and want the city to hold back on its current development plans until the economy improves.

Mayor Maguire argues that the city should go forward with its revised plans, citing further costs to the city from delay.

It’s certainly not an easy situation for Eagan officals or taxpayers. But the seven wasted years, and the costs incurred during that time, could have been saved had the city stayed out of the business of land speculation. After all, that’s what the free market is for.

PARKING LOT FAVORITISM
The Dakota County Regional Rail Authority has been busy with several new transit stations going up in recent years. The first “Bus Rapid Transit” station in the state was opened in Apple Valley this month, though required modification of the road system won’t begin until 2012.

There are a lot of things to be said about the service, including the effects of federalism (local officials have gone, hat-in-hand, to Washington) and whether the system will actually improve personal mobility.

But I was struck by the following description from a local newspaper:

“The primarily glass structures will have wave-like roofs and level boarding platforms for smooth entry onto buses. Other features include six hybrid vehicle-only parking stalls in the ramp, 10 bike lockers and three bike racks.”

Did you catch that symbolism? Six “hybrid vehicle-only parking stalls.”

Some people call the Toyota Prius the “Toyota Pius,” for the alleged good feeling that you get from driving a “green” car. That’s a little harsh. I say, if you want to spend more on a car for whatever reason, go for it; it’s your money.

Reserving spots for the handicapped is all and good. But reserving them for specific cars based on their method of propulsion? Gimme a break.

TAX THOSE PEOPLE!
My column last week on the morality (or lack thereof) of whacking the rich with punitive marginal tax rates drew some angry responses.

Here’s one:

“At what point, Mr. LaPlante did you stop doing what is best for this country and the people of this country? At what point did you become a syncophant of a small minority group of people who are driving this country into the ground just because they can’t stop their massive greed?”

Nothing like a little character assassination to advance your argument, right? And by the way, have you checked out the growth of government (and government-fueled non-profits) lately? Who’s being greedy?

Wall Street Journal: “The Real Culture War Is Over Capitalism”

April 30th, 2009 by Adam Axvig

American Enterprise Institute President Arthur C. Brooks has an op-ed in today’s Wall Street Journal about the “major cultural schism” happening in America over the value of free enterprise. The piece contends that contrary to the current economic direction the nation seems to be going in, free enterprise remains a core value in mainstream American culture and the recent tea parties reflect that attitude. The op-ed is worth reading, check it out here.

The Further Adventures of Alice in Wonderland

April 28th, 2009 by Craig Westover

alice1Politics in Minnesota quotes Rep. Alice Hausman, DFL-St. Paul, criticizing Governor Tim Pawlenty’s requirement that any project in the bonding bill currently under consideration be for asset preservation and not new construction.

“We can put many more people to work” with new construction projects thrown into the mix, Hausman said Monday at a news conference in St. Paul for the high-speed rail project between Chicago and the Union Depot in St. Paul.

Hausman is just one of many legislators that labors under the fallacy that the purpose of a bonding bill is creating jobs. She compounds that fallacy with the idea that building a high-speed rail line between Chicago and St. Paul that will operate at a loss will somehow be a benefit to the economy. Alice’s adventures in this economic Wonderland are explored in these Minnesota Free Market Institute commentaries:

State Bonding: Essential — or not, period

Bonding Bill: What’s essential  (by Alice Hausman)

Bonding Bill: From the taxpayer’s side of the looking glass

Rep. Matt Dean on Bonding for State Buildings



Should the Rich Pay More? They Already Do; Calls for a new income tax rate should be rejected

April 27th, 2009 by John LaPlante

The DFL majorities in both chambers of the Minnesota Legislature have proposed adding yet another tax bracket to the state’s income tax system, targeting the highest-earning households. That’s an unfortunate turn of events, though I’m certainly not surprised—“Soak the rich” must be the unofficial state motto. But for economic, moral, and political reasons, Minnesota and the nation need to end the obsession with income tax “progressivity.”

First, some numbers. According to the Tax Foundation, in 2006 the top decile (10 percent) of households by income earned report 47 percent of all AGI (adjusted gross income) in the nation. They paid 71 percent of federal income taxes. In Minnesota, the top decile earned 43 percent of all AGI but paid 66 percent of all the federal income taxes that Minnesota sends to the national government. The Congressional Budget Office, meanwhile, says that nationally, the top decile earned 39 percent of pretax income and paid 71 percent of all income taxes.

You can find a similar pattern in state income taxes. According to the 2009 Minnesota Tax Incidence Study, produced by the Minnesota Department of Revenue, the top decile earned 42 percent of all household income, but paid 57 percent of all income taxes.

The highest-earning taxpayers, in other words, already pay an outsized portion of the income tax.

Rather than making our so-called “progressive” income tax systems even more so, Minnesota and the nation should move towards some form of flat-rate system.

There are a lot of economic arguments against a progressive, or as I call it, graduated tax system, but I’ll stick with moral and political ones.

First, at some point, graduated tax rates resemble involuntary servitude. A 100 percent tax would be morally wrong—even if government in turn provided that person with food, housing, clothing, transportation, and every other need in life. Such an arrangement would be a form of slavery.

What percentage of personal income can government take before it gets to that point? I don’t know, but the logic behind raising taxes on the wealthy (“we need it, they don’t”) is troubling.

Placing extraordinary taxes on high-income earners is bad for another reason: That fuels majoritarian impulses that imperil our political system. The majority rules, but our national and political institutions do have checks on majority rule, including the U.S. Bill of Rights. These checks are useful—it’s a fact of human existence that small groups of people are vulnerable to rough treatment at the hands of the majority.

Indeed, our political history has been marred by majoritarian excesses, including vigilante justice, lynchings, wartime internment of American citizens and, at our worst, slavery.

By definition, people in the top decile of income earners are a minority vulnerable to being plundered for the benefit of the majority. It is true that a new marginal income tax rate is not as objectionable as mob violence. But it is an attack on the freedom of some people to reap the rewards of their labor.

A graduated tax system invites bad policy. To paraphrase the late economist Milton Friedman, you’re going to be a careful shopper if you buy something using your own money—and rather careless if you’re spending other people’s money.

And our governments spend far too much of other people’s money. According to the Tax Policy Center (a joint program of the Urban Institute and the Brookings Institution), 43 percent of the American population (65 million) pays no federal income tax. And, according to the Tax Incidence Study from Minnesota, households in the two lowest deciles here pay no income tax.

Some government programs work well. Others work at cross-purposes with each other, or have long since ceased to be useful. Too few people apply political pressure to fix or scrap dysfunctional programs. If a large portion of the public has little skin in the game, it’s not surprising that government doesn’t receive the scrutiny that it should.

But, you may ask, what about payroll taxes? The Center on Budget and Policy Priorities says these taxes are a larger burden for most Americans than federal income taxes. That may be true, but they fund two grossly underfunded programs—Social Security and Medicare—that the top decile will eventually be called upon to pay for. And if few people pay that little in federal income taxes, perhaps we’ve cut federal taxes too much at the lower end of the income scale.

Isn’t a flax tax regressive, meaning that lower-income people will pay more as a percentage of their income? Yes. Then again, a Toyota Prius, a Big Mac and a subscription to basic cable also claim a smaller portion of someone’s income as they earn more. In short, life itself is regressive.

Even with a flat tax—or even if the state doesn’t impose a new income tax bracket—the top decile will still be paying more than the rest of us. They buy more stuff, which means they pay more sales taxes. They buy more expensive houses, and thus pay more in property taxes. When people produce and consume more, they’ll pay more. In short, if “soak the rich” is your theme, you don’t need a graduated income tax.

This article was first published in a slightly different form in the April 23 edition of the Saint Paul Legal Ledger.

More Transit Taxes; Sincerity Costs Extra

April 24th, 2009 by Adam Axvig

By a 47-18 margin, the Minnesota State Senate passed a $73 million property tax increase on metro area homeowners to help plug a $75 million dollar hole in Metro Transit’s budget. (Pioneer Press: “Minnesota Senate votes for property tax increase to fund Metro Transit” April 24, 2009)

“This should not be a surprise,” says Minnesota Free Market Institute senior policy fellow Craig Westover. “In March of 2008, Rep. Bernie Lieder, chief architect of the tax-laden transportation bill that passed over the governor’s veto, told the Civic Caucus that if the newly enacted transit sales tax fell short of meeting required subsides for transit, then counties should look to property taxes to make up operating shortfalls and not come to the state – despite the sales pitch that a new sales tax dedicated to transit would provide property tax relief.”

Westover notes that property tax relief was the same pitch made in 2001 when the Legislature dedicated the state motor vehicle sales tax to highways and transit – with a cap on the percentage that can be spent on highways and a minimum percentage that must be spent on transit. When auto sales dipped, and vehicle sales tax wasn’t enough to support transit, the Legislature added the transit sales tax. That’s still not enough to support Metro Transit, and it has yet to incur the projected operational losses of the Central Corridor light rail line.

“So now we find ourselves spending motor vehicle sales tax AND the new transit sales tax on public transit and public transit is still running an operational deficit,” said Westover. “The Legislature is on the verge of adding a property tax increase to cover the transit deficit, and a raft of new public transit projects are on the drawing board – none of which is projected to come close to a breakeven operating cost.

“The simple fact is the Met Council’s transit expansion plans are unsustainable without a massive infusion of new taxes.”

See also:

Drama, promises and DFL duplicity

Transportation: Fighting over the spoils

Transit Sales Tax: A bite here, a bite there, pretty soon we’re limping

Does Peter Bell actually get it?

Climate Depot Report: Democrats Refuse to Allow Skeptic to Testify Alongside Gore At Congressional Hearing

April 24th, 2009 by Adam Axvig

Climate Depot is reporting that Christopher Monckton, a former science advisor to UK Prime Minister Margaret Thatcher, was denied an opportunity to testify along side Former Vice President Al Gore at a high profile house committee meeting being held today. “The House Democrats don’t want Gore humiliated, so they slammed the door of the Capitol in my face.” said Monckton, in an interview with Climate Depot. 

Read the full story here

Craig Westover: Sunday morning sound bites vs. an honest debate

April 24th, 2009 by Craig Westover

I just heard the sound bite again on a Sunday morning talk show: “The wealthiest Minnesotans pay only 9 percent of their income in state and local taxes while middle-income wage-earners pay 12 percent.”

Those numbers are accurate. They come right out of the Minnesota Tax Incidence Study, a biennial report of who pays how much in state and local taxes. And the Minnesota report even earns the kudos of center-right economists for its intellectual rigor and clear statement of assumptions and limits — a rigor and integrity lacking, however, when tax burden percentages are tossed out as disembodied “facts.”

Among many relevant but ignored economic issues affecting interpretation of the Tax Incidence Study, three stand out.

First, the Tax Incidence Study is a snapshot of income distribution at a specific point in time and does not consider the significant changes in income that occur over a person’s lifetime. Consequently, the study implies more income inequality than is reality over a person’s working life.

A report provided by the U.S. Treasury Department found that more than 50 percent of taxpayers were in a different tax bracket (higher or lower) at the end of a 10-year study period than at its beginning. Although an insignificant percentage in the lowest tax bracket made it to the top bracket in just 10 years, only 33 percent remained in the lowest bracket — and 32 percent elevated themselves to the 15 percent tax bracket.

Likewise, a small percentage of those who in Year 1 were in the 28 percent tax bracket and above dropped to the lowest income levels. However, after 10 years, a significant percentage of once upper-income earners were in the 25 percent, or middle income, tax bracket. Over the 10-year timeframe, income levels trended toward the middle-income tax brackets.

Discounting income mobility ignores the impact of taxes on the ability of people to both pay back debt they incurred in low-income-earning years and save for later, low-income-earning years. Legislating people into a higher tax bracket punishes education, saving and upward mobility.

Take the case (reported by Yahoo News) of Van Moore, who graduated from optometry school $150,000 in debt. His first job brought in less than $20,000 a year. Then he made $50,000 for several years, all the while paying on his student loan, which still carries a balance. Now he is making just above $250,000, the arbitrary dividing line between “the rich” and the rest of us. A higher tax penalizes Moore for borrowing money in his low-income years to educate himself so he could earn more in the future.

A second misuse of the Tax Incidence Study is making it a barometer of “ability to pay.” The measure of income is very important to creation of a meaningful tax incidence study. The Minnesota study uses Federal Gross Income as its measure of income because the law requires that it use “the broadest measure of income available.” Using a broad-based definition of income and a narrow definition of tax liability skews the study findings to appear more regressive than the tax system actually is.

My colleague at the Minnesota Free Market Institute, economist King Banaian, suggests two ways to eliminate that problem. One could deduct federal tax payments from federal gross income, or one could calculate the tax incidence including federal taxes paid (neither technique currently allowed by the state law mandating the Tax Incidence Study). The law notwithstanding, the combined federal, state and local tax system is progressive. The Congressional Budget office calculates the effective federal tax rate is only 4.3 percent on taxpayers in the bottom 20 percent of income earners, but 25.8 percent on taxpayers in the top 20 percent of income earners.

A third issue: Even accepting “fairness” as the overriding objective, the progressive solution of higher state income taxes actually increases, not decreases, the pre-tax income gap.

“Fairness” in the perfect progressive world means middle- and upper-income earners each pay 12 percent of their incomes in state and local taxes. Of course, some rich guy paying 12 percent doesn’t reduce the out-of-pocket tax burden on a middle-income person, but progressives aren’t talking effective taxation; they’re talking “fairness.” Here’s what really happens.

A uniquely skilled individual commanding a high salary can work just about anywhere he chooses. The mobile worker, the kind who pays the most taxes, will gravitate to where his net income, not gross income, is highest. To lure and keep highly productive individuals in Minnesota, Minnesota employers, including school districts looking for superintendents and universities seeking nationally known professors, must pay higher gross salaries to compete with low-tax states.

Higher salaries for those already earning top dollar don’t just increase the salary gap; they contribute to higher consumer prices and lower wages for non-mobile workers — the rest of us. When a company pays top-earners more to compensate for high tax rates, it means fewer dollars available to pay the rest of a company’s employees, further increasing the real wage gap irrespective of what the Tax Incidence percentages indicate. Is that really “fair”?

Bottom line, there are tradeoffs between a tax system based on economic principle, tax burden and efficiency objectives and a tax system motivated by distributional effects and equity objectives.

The public would be better served understanding and debating those tradeoffs than by class-baiting Sunday morning sound bites.

Craig Westover is a contributing columnist to the Pioneer Press Opinion Page and a senior policy fellow at the Minnesota Free Market Institute (mnfmi.org). His e-mail address is westover4@yahoo.com.

This commentary originally appeared in the St. Paul Pioneer Press, Friday April 24. 2009.

April 24th, 2009 Weekly Update

April 24th, 2009 by Adam Axvig

The Minnesota Free Market Institute
 
The Minnesota Free Market Institute Weekly Update
Friday, April 24, 2009



 

 

 

 

In This Issue
DFL Lawmakers to all Taxpayers: Guess What? You’re Rich!”
State’s New TAP-MN Web Site a Small First Step Toward Transparency
EPA Carbon Ruling: Constitution Optional
Must Reads
In Case You Missed it from the Minnesota Free Market Institute

DFL Lawmakers to all Taxpayers: “Guess What? You’re Rich!”
After months of posturing and trying to make the case for tax increases, the DFL finally came clean and laid out their proposal to raise billions on everything from tobacco and alcohol sales to increased income taxes on 85% of Minnesotans.  

  • Need to sell your snowmobile to keep your family afloat, well now you would have to charge sales tax and file numerous forms with the Department of Revenue.   
  • Have kids in daycare?  You will pay more in taxes. 
  • Want to donate a kidney to your diabetic brother?  Well the DFL wants to give you a tax increase for your generosity.  
     
They obviously don’t get it.  With a housing market in the dumps, the DFL budget calls for eliminating part of the mortgage interest tax deduction.  Um, aren’t we trying to get people to BUY homes?
 
In making their case the past few months, the DFL talked about “raising taxes on the rich”.  We warned that their definition of “rich” includes just about every Minnesotan.  From our analysis, the only folks who don’t get a tax increase are those who don’t own anything, live in public housing, don’t smoke or drink and certainly don’t work.  Oh, and I suppose you are alright if you already own a car.  There are no gas tax increases this time.

Pat Anderson is President of the Minnesota Free Market Institute

 

 

 

State’s New “TAP-MN” Web Site a Small First Step Toward Transparency

TAPMNGovernor Tim Pawlenty and Minnesota Management and Budget unveiled the new “Transparency and Accountability Minnesota Project” website last month. According to the TAP-MN front page, the website “provides a powerful new way for the public to access information about state government spending. ” Governor Pawlenty himself heralded the site by saying, “Taxpayers are paying the bills and they should have the ability to easily look at the state’s checkbook.”
The TAP-MN site is a database of state expenditures with a front end that allows a user to search by vendor, spending category, source of funding and state agency as well as narrow their search by other parameters like the year of the expense.
It has its limitations. The first one is the URL.  http://www.mmb.state.mn.us/tap Got that? Better bookmark it because it’s not easy to remember. Other states like Nebraska have come up with convenient URLs like http://nebraskaspending.com/ . Do you use a browser other than Microsoft Internet Explorer? Too bad, the TAP-MN website will not work for you. Also, once you get on the site, you will find that that some spending is hidden due to “privacy” issues, most notably, checks issued to individuals.
Another problem is that since we do not yet have consistent transparency down to the local government level, when the state sends checks to local government, the trail goes cold for citizens interested in what local governments are doing with their state tax dollars. Some cities and counties are better than others in reporting their budgets in detail. Some do only the minimum required by law. There are other quasi-government entities with limited fiscal reporting requirements, such as “development corporations” and “port authorities.” Opacity rather than transparency is a better descriptor at those levels of government.
 
 
Margaret Martin is a Policy Fellow at the Minnesota Free Market Institute.

 

 

 

EPA Carbon Ruling: Constitution Optional

Amid the self-destructive lunacy of the Environmental Protection Agency’s declaration of carbon dioxide as a pollutant that threatens public health and welfare, the New York Times reports this gem:

 
Clean Air Act, Congress is engaged in writing wide-ranging energy and climate change legislation that could pre-empt any action taken by the agency. President Obama and Ms. Jackson (E.P.A. administrator Lisa) have repeatedly said that they much prefer that Congress address global warming rather than have the E.P.A tackle it through administrative action.”
 
Read More

Craig Westover is a Senior Policy Fellow at the Minnesota Free Market Institute

 

 

Must Reads

Waste, Fraud, Abuse.  Investors Business Daily. This editorial describes how Federal TARP money meant to bail out the banks is being wasted through ill considered policies and sweetheart deals like ccommerical real estate contract offered to Sen. Dianne Feinstein (D-CA) husband’s company by the FDIC.  When everybody’s part of government there are no conflicts of interest?
 
Larry Kudlow. The Death of Democratic Capitalism. CNBC’s Kudlow, who has been somewhat optimistic on the prospects for an economic recovery nonetheless warns of an end of Democratic Capitalism and the beginning of an era of “corporate capitalism.” Whether you think these new financial and economic policies are socialism, fascism, “corporate capitalism” or “state capitalism,” it still boils down to a giant increase in state control.

 

 

 

In Case You Missed It from the Minnesota Free Market Institute

 
Craig Westover

John LaPlante State House Call

King Banaian SCSU Scholars

 

 

 

Notable Quotes
No man’s life, liberty, or property is safe while the legislature is in session. –Mark Twain (1866)Talk is cheap…except when Congress does it. –AnonymousThe government is like a baby’s alimentary canal, with a happy appetite at one end and no responsibility at the other. –Ronald Reagan 

 

 

 

 

 

 

 

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The Minnesota Free Market Institute conducts research and advocates for
policy that limits government involvement in individual affairs and
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State’s New “TAP-MN” Website a Small First Step Toward the Goal of Transparency.

April 23rd, 2009 by Margaret Martin

Governor Tim Pawlenty and Minnesota Management and Budget unveiled the new “Transparency and Accountability Minnesota Project” website last month. According to the TAP-MN front page, the website “provides a powerful new way for the public to access information about state government spending. “ Governor Pawlenty himself heralded the site by saying, “Taxpayers are paying the bills and they should have the ability to easily look at the state’s checkbook.”

The TAP-MN site is a database of state expenditures with a front end that allows a user to search by vendor, spending category, source of funding and state agency as well as narrow their search by other parameters like the year of the expense.

It has its limitations. The first one is the URL. http://www.mmb.state.mn.us/tap Got that? Better bookmark it because it’s not easy to remember. Other states like Nebraska have come up with convenient URLs like http://nebraskaspending.com/ . Do you use a browser other than Microsoft Internet Explorer? Too bad, the TAP-MN website will not work for you. Also, once you get on the site, you will find that that some spending is hidden due to “privacy” issues most notably, checks issued to individuals.

Another problem is that since we do not yet have consistent transparency down to the local government level, when the state sends checks to local government, the trail goes cold for citizens interested in what local governments are doing with their state tax dollars. Some cities and counties are better than others in reporting their budgets in detail. Some do only the minimum required by law. There are other quasi-government entities with limited fiscal reporting requirements, such as “development corporations” and “port authorities.” Opacity rather than transparency is a better descriptor at those levels of government.

Digging around in the vendor reports it’s easy to see that there are probably inconsistencies in how the books are kept and how spending is reported at the lowest levels of government. For example, a professor at the U might have their membership to the American Academy of Poets paid for through a reimbursement or by directly submitting the membership invoice. The TAP database would pick up the latter method but the former? That would probably be black boxed as a payment to a private individual. Antiquated accounting methods at the beginning of the process probably don’t help TAP-MN live up to the ideal of “transparency.”

Still, for budget hawks, a consideration is that many hands make light work. When the public is given access to the information contained in the TAP-MN website, a bright light will shine in many dark corners for many different reasons. Say you own a pizza joint. You can look up your competitors as vendors on the TAPS-MN website to see if they are getting catering gigs from state government. If you are not getting them, you can ask why and perhaps prepare a competitive bid. That may disrupt a few sweetheart deals that vendors have been getting in the past but it is a big win for taxpayers, the state budget, competition and transparency in government.

Tax Cut Rally May 2nd

April 23rd, 2009 by Adam Axvig

taxcutrallysticker-copyThe 2009 Tax Cut Rally is on May 2nd at the state capitol. It’s a prime opportunity stand up and voice your opinion on the tax increases proposed by the state legislature. Scheduled speakers include Jason Lewis and Governor Pawlenty. There will also be a Hope for the City canned food drive, so bring a donation for a good cause. The Minnesota Free Market Institute will be up there as well, stop by and say hello!

View the Tax Cut Rally Flyer here.

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