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Shifting Towards a Sales Tax

While government needs taxes to run, not all taxes are equal in their effect. A new report from the Tax Foundation–State and Local Sales Taxes in 2012–evaluates the burden of state and local sales taxes across the United States. It shows great variation. State sales tax rates range from 0 percent (Alaska, Delaware, New Hampshire, Oregon), to 7.25 percent (California). Some states have local sales taxes, while others do not. And of course states define the “base” differently: Some tax food and clothing while others don’t.

If you look only at state-level taxes, Minnesota has the seventh-highest burden in the land, behind California, Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.

Local sales taxes in Minnesota are widespread or high as they are in some other states. So when you add in the burden of local sales taxes and rank the states, Minnesota drops from its position as the seventh-highest-taxed state (in sales taxes). But in the “new” position of 17, it’s still more heavily taxed than other states. When you consider all taxes, Minnesota is the seventh-most heavily taxed state.

Relying on the income tax, whether personal or corporate, presents a lot of challenge for state lawmakers as well anyone who depends on the state budget. For one thing, income taxes, especially progressive ones, are prone to boom-or-bust revenue cycles.  (Minnesota has the 44th-heaviest burden of personal income taxes, so it’s quite a relevant point.) This means that the state has to scramble whenever hard times come, and that lawmakers are tempted to build unsustainable growth into the budget when times are good. Aside from cutting back from spending (a good thing in itself), the way to budget stability is to change the mix of taxes that government depends on. To quote from Russell S. Sobel (West Virginia University) and Gary A. Wagner (University of Arkansas), “the retail sales tax, when it includes food, is quite a bit more stable than is the individual income tax, and that when it excludes food it is about  as variable as the income tax.”

Given all this, I wouldn’t mind seeing a higher sales tax rate if it meant lower rates in income taxes.

Individual Mandate May Be Linchpin of ObamaCare, But It’s Still Unconstitutional

Should a state-focused think tank care about ObamaCare? How about state legislators? You betcha! That’s why the Minnesota Free Market Institute at the Center of the American Experiment has joined in a legal brief on the question of whether Congress can require you to purchase health insurance.

Let’s review a few of the harms that ObamaCare does to states and to federalism. You can make the case that the law does the following:

  • It commandeers state agencies to carry out the wishes of Congress
  • It threatens state budgets through requiring an expansion of Medicaid
  • It threatens the idea of dual sovereignty (certain powers reserved to the states)

You could argue, though, that the most destructive element of ObamaCare is the requirement that each American purchase health insurance. If Congress can require you to buy something simply as a condition of living, what can’t it do?

Oddly enough, the “minimum coverage” requirement, otherwise known as the individual mandate, may be one of the most sensible parts of the law. Why? Without it, other portions of the law “don’t work.” Some of the requirements the law puts on insurance  (guaranteed issue and community rating) will likely, absent the mandate, destroy health insurance as we know it. So ObamaCare is a great example of how one government requirement (what kind of insurance companies are allowed to buy) can logically lead to yet another government requirement (that you buy insurance).

Thankfully, there have been many legal challenges to the law, some of which have made it to the U.S. Supreme Court, which soon will hear oral arguments on a challenge brought by Florida, and 25 other states.  (See ACA Litigation Blog for more.)

Today, we’re proud to announce that we are part of a new brief that the Cato Institute has turned into the Court. According to Kin Crocket, general counsel of the Center of the American Experiment, the brief calls on the Court to uphold U.S. District Court Judge Roger Vinson’s decision striking down the individual mandate in the Florida case.

The brief asks this question: “Can a limited government to whom a free people have delegated only certain enumerated powers commandeer that people into purchasing a product from a private business pursuant to its power to pass laws “necessary and proper for carrying into execution” the authority to “regulate Commerce . . . among the several States”?

Not surprisingly, the answer is “no.” Here’s the conclusion from the brief: “In sum, there is no ‘generally applicable, judicially enforceable limiting principle that would . . . uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.’ Unless this Court wishes to make federal power boundless—a result contrary to the Constitution’s text, structure, and history—it should affirm the judgment below.”

The brief also argues that “The individual health insurance mandate is not constitutionally warranted simply because it is ‘necessary’ to make other legislation function properly.”

At Cato-at-Liberty, Ilya Shapiro offers a few more thoughts that explain the brief.

“Under modern doctrine,” he writes, “regulating intrastate economic activity can be a ‘necessary’ means of carrying out Congress’s regulatory authority (as that term is understood under the Necessary and Proper Clause) if, in the aggregate, it has a substantial effect on interstate commerce. But the obvious corollary is that regulating non-economic activity cannot be ‘necessary,’ regardless of its economic effects. And a power to regulate inactivity — to compel activity — is even more remote from Congress’s commerce power.”

Five members of the Minnesota Senate have signed onto the brief, as have 22 members of the Minnesota House. In total, 333 legislators nationwide have signed on, as have a number of state-focused think tanks. In May, 2011, some members of the Minnesota Legislature signed onto another brief in the case.

 

 

Stadium Talk Sucks Money Into Politics

About a week ago at Politics in Minnesota, Briana Bierschbach described how Indian tribes have changed their political donations. (Tribal gaming dollars go bipartisan) In short: They’re giving more money to Republicans these days. In rough terms, the ratio has gone from 12:1 (favoring the DFL) to a ratio of 1:1.

The flipping of the Legislature from DFL to Republican control is one reason. But it may not be the most important one.

“Former GOP legislator-turned-lobbyist Bill Haas believes the shift in tribal donations is almost entirely attributable to the increased talk of expanded gambling.” Sure, the shift is important. But consider this observation, courtesy of Bierschbach: in the last decade,  political donations from the tribes have increased as talks about pro stadiums heat up.

There are many reasons why a taxpayer subsidized stadium for professional sports leagues is a bad idea. If you’re a “clean government” supporter, here’s another reason: The mere existence of political talk about a stadium sucks money into the political machinery.

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