Tag: Sales Tax

Sweden, Spending Restraint, and the Benefits of Obeying Fiscal Policy’s Golden Rule

When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I’m particularly impressed that Swedish leaders imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

Swedish Fiscal Restraint

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress. It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

Swedish Spending+Deficit as % of GDP

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

Grading the Camp Tax Reform Plan

To make fun of big efforts that produce small results, the Roman poet Horace wrote, “The mountains will be in labor, and a ridiculous mouse will be brought forth.”

That line sums up my view of the new tax reform plan introduced by Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee.

To his credit, Chairman Camp put in a lot of work. But I can’t help but wonder why he went through the time and trouble. To understand why I’m so underwhelmed, let’s first go back in time.

Back in 1995, tax reform was a hot issue. The House Majority Leader, Dick Armey, had proposed a flat tax. Congressman Billy Tauzin was pushing a version of a national sales tax. And there were several additional proposals jockeying for attention.

To make sense of the clutter, I wrote a paper for the Heritage Foundation that demonstrated how to grade the various proposals that had been proposed.

More Internet Sales Taxes—and Your Privacy Compromised

Yesterday, Senator Mike Enzi (R-Wyo.) and 19 cosponsors introduced a bill to promote the collection of taxes on Internet sales. I can’t recall seeing a bill so universally condemned in the libertarian, free-market, anti-tax, and pro-innovation communities. The National Taxpayers Union issued a press release, a “myths & facts” one-pager, and wrote it up on their blog for good measure. Here’s the Heartland Institute’s press release. The Competitive Enterprise Institute calls it a raw deal. R Street seems to hate this bill with a burning passion. Our sweethearts at NetChoice went with a Valentine’s theme.

[Update: The Center for Freedom and Prosperity also does not like this bill.]

[Update 2: Americans for Tax Reform does not like Internet sales taxes.]

I think differently from these groups. Oh no, I don’t think it’s a good idea to let state and local tax authorities impose complex taxes on businesses around the country just because they sell online. Doing so would cause Internet sales taxes to soar because tax authorities would be able to impose taxes on people who can’t vote them out of office.

But I think it’s important not to forget the consequences for privacy if Congress were to approve interstate tax collection like this.

Dig down into the bill and you start to see what it takes for states and localities to tax products sent into their states by remote sellers.

For purposes of [collecting taxes], the location to which a remote sale is sourced refers to the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no delivery location is specified, the remote sale is sourced to the customer’s address that is either known to the seller or, if not known, obtained by the seller during the consummation of the transaction, including the address of the customer’s payment instrument if no other address is available.

That means that sellers all over the country would have to turn the addresses of the people they sell to over to state tax authorities. You could design a system to minimize the privacy problems here, but not eliminate them—especially when the time comes for the officials in one state to audit the sales in another.

Cain 9-9-9: Huge Tax Haul from VAT

The Herman Cain campaign released details of the revenue expected to be collected from his 9-9-9 tax plan. Here are the estimates for 2010:

  • $701 billion from the 9 percent personal income tax.
  • $753 billion from the 9 percent retail sales tax.
  • $863 billion from the 9 percent business VAT.

Yikes! By far the largest tax haul under the Cain plan would be from the business VAT—a tax which would be hidden from most voters.

By the way, the Cain business tax is not a tax on “corporate income,” as some media stories are identifying it. The new revenue data makes it clear that it is a tax on all value added by all businesses in the nation—corporate, partnership, and proprietorship.

Sorry Mr. Cain, I think your tax plan gives the federal government far too much room to grow in coming decades as entitlement cost pressures increase. I’d suggest dropping 9-9-9 and going with my 15-15-15 tax plan. After that, you could move on to proposing a detailed plan for spending cuts, as candidate Ron Paul has delivered.

Actually, Texans Save $600 Million a Year

A Texas tax official estimates in this story that Texas loses an estimated $600 million in Internet sales taxes every year. Its part of a long-running debate about whether state governments should be able to collect taxes from out-of-state retailers who send goods into their jurisdictions.

What happens with the $600 million depends on what you mean by “Texas.” If you mean the government of the state of Texas in Austin, why, yes, the government appears not to collect that amount, which it wants to. If by “Texas” you mean the people who live, work, and raise their families throughout the state–Texans–they actually save $600 million a year. They get to do what they want with it. After all, it’s their money.

The Texas tax collector is complaining because the last thing state taxing agents want to do is collect money in the form of use taxes, which means something like going door to door to collect money from voters based on what they bought from out of state. Revenuers intensely prefer to hide the process, collecting their residents’ money from out-of-state companies.

Amazon.com is Texas’ target–it’s the great white whale for tax-hungry jurisdictions nationwide. With no retail outlets and few offices or fulfillment centers around the country, it’s not subject to tax jurisdiction in lots of places that would like to tap it for revenue. Having a fulfillment center in Texas may make Amazon liable for $600 million of its customers’ money, so it’s doing the sensible thing: getting out.

And thank heavens it can! Amazon is a cog in the extremely virtuous process of tax competition. Its ability to move operations means that it can escape states with burdensome taxes and tax collections oblibations, like Texas. Tax competition among states puts downward pressure on taxes, which in turn puts upward pressure on the wealth and well-being of state residents.

The pro-tax folks have been working for years to eliminate tax competition. The “Streamlined Sales Tax Project” continues work it began in 2000 to pave the way for nationwide sales taxation. “Streamlining” sounds so good, doesn’t it? But the result would be uniform–and uniformly high–sales taxes that every state might impose on every retailer that sends goods across state lines.

The Web site of the pro-tax coalition sounds good, too: the “Alliance for Main Street Fairness,” at the URL standwithmainstreet.com. Who wouldn’t want to “stand with Main Street”? Lovers of limited government, for one.

“Fairness” here means uniform high sales taxes and interstate tax collection obligations. The site doesn’t say who’s behind it, but the campaign to impose taxes on Amazon and other remote sellers is almost certainly a project of big national chain retailers. Rather than fight to lower taxes nationwide, they think they should just saddle their online competitors with tax collection obligations.

As long as the Streamlined Sales Tax Project continues to fail, tax competition in this area survives, and retailers like Amazon can provide lower costs to all of us–including that $600 million in savings enjoyed by Texans each year.

Nine Key Ballot Initiatives to Watch

While everyone is focused on the battle to see which party will control the House and/or Senate, there are several issues that voters will directly decide that deserve close attention. Here are nine initiatives that I’ll be watching next Tuesday.

1. Imposing an income tax in the state of Washington - This is the one I’ll be following very closely. I have a hard time thinking that voters would be dumb enough to impose an income tax, but the Pacific Northwest is a bit crazy on these issues. Oregon voters, for instance, approved higher tax rates earlier this year.

2. Stopping eminent domain abuse in Nevada - This initiative is very simple. It stops the state from seizing private property if the intent is to transfer it to a private party (thus shutting the door that was opened by the Supreme Court’s reprehensible Kelo decision).

3. Marijuana legalization in California - Proponents of a more sensible approach to victimless crimes will closely watch this initiative to see whether Golden State voters will say yes to pot legalization, subject to local regulation. (David Boaz and Juan Carlos Hidalgo already have commented on the implications of this vote)

4. Strengthen rights of gun owners in Kansas - If approved, this initiative would remove any ambiguity about whether individuals have the right to keep and bear arms.

5. Protecting health care freedom in Arizona - For all intents and purposes, this is a referendum on Obamacare. I’m hoping that it will pass overwhelmingly, thus giving a boost to the repeal campaign. There’s apparently a similar initiative in Oklahoma, but it hasn’t gotten as much attention.

6. Reducing benefits for bureaucrats in San Francisco - If one of the craziest, left-wing cities in America decides to require bureaucrats to make meaningful contributions to support their bloated pension and health benefits, that’s a sign that the gravy train may be in jeopardy for bureaucrats all across the nation.

7. Making it easier to increase government spending in California - The big spenders want to get rid of the two-thirds requirement in the state legislature to approve a budget. This would pave the way for even bigger government in a state that already is close to bankruptcy.

8. Reducing the sales tax in Massachusetts - The entire political establishment is fighting this proposal to roll back the sales tax from 6.25 percent to 3 percent, and pro-spending lobbies are pouring big money into a campaign against the initiative, so you know it must be a good idea.

9. Controlling benefits for bureaucrats in Louisiana - The initiative would require a two-thirds vote to approve any expansion of taxpayer-financed benefits for government employees.