Topic: Tax and Budget Policy

Baseball Star Tries to Avoid New York’s Oppressive Tax Burden

Derek Jeter of the New York Yankees has been a Florida resident since 1994, doubtlessly attracted to the Sunshine State because it has no personal income tax. But since he spends at least 81 days in New York City for Yankee home games, New York already has the right to tax at least half of his baseball salary. But this is not enough for the greedy politicians in Albany. They are trying to make Jeter a permanent New York resident so they can grab a much bigger share of his income. Depending on state rules, the ultimate decision may rest on how many days each year Jeter actually spends in New York. But the legal wrangling misses a bigger point. If New York didn’t treat wealthy people like fatted calves, the politicians would not have to worry about the geese that lay the golden eggs flying across the border. FoxNews.com reports:

New York state tax officials want Jeter to fork over what could be hundreds of thousands — even millions of dollars— in back taxes and interest for the years 2001 to 2003, when the baseball shortstop claimed residency in Florida, despite his high-profile presence in New York’s sports and gossip pages during that time. … Jeter’s agent, Casey Close of Creative Artists Agency Sports, disputed tax officials’ claim that the baseball star lived in New York during the time in question. “As a Yankee, Derek has great affection for the people of New York and its amazing fans, but since the mid-1990s, he has made his home in Tampa, Florida,” Close said in an e-mail to FOXNews.com. … The ruling shows that Jeter has actually claimed Florida residency since 1994, though he first came up with the Yankees late in the 1995 season. State officials aren’t disputing those filings, even though Jeter became an increasingly prominent presence around town during that time period, often in the company of young starlets and other New York celebrities. But the team captain’s headline-grabbing purchase in 2001 of a $13 million apartment at the ultra-exclusive Trump World Towers on Manhattan’s East Side may have been too much for tax collectors to ignore.

The Flat Tax Club Should Get Another Member Tomorrow

It’s not quite time to play the theme song of the global flat tax revolution, but a Bulgarian news source indicates that the Parliament will approve a 10 percent flat tax tomorrow:

Bulgarian lawmakers from the ruling three-way coalition are expected to rubber stamp on Friday the introduction of the flat tax in the country starting from next year by amending the Taxation Act. In summer, the leaders of the coalition have agreed to scrap the existing progressive taxation system with three income brackets and introduce a flat income tax of 10% starting from 2008.

Depending on how the list is compiled, this will mean 22 flat tax jurisdictions, up from three just 15 years ago. The main country to adopt a flat tax this year (effective on January 1) is the Czech Republic. The top target next year is Poland. By 2050, France may join the club. By 2100, North Korea will be among the final dominoes to fall. Then maybe we can overcome the special-interest opposition in Congress.

Treating Successful Taxpayers Like Piñatas

New data from the Internal Revenue Service confirm that the so-called rich are paying a huge share of the tax burden. As Richard Rahn explains in the Washington Times, “The IRS just released the numbers for 2005, and they show the top 1 percent of taxpayers paid almost 40 percent of the nation’s total income tax bill, and that the top 5 percent paid 60 percent of the taxes.” This is normally considered an economic issue since people on the left argue that higher tax rates on the rich are a never-ending source of money for politicians, while people on the right explain that low tax rates encourage productive behavior and boost growth. But the disproportionate tax burden on successful taxpayers, combined with the fact that a huge share of the population does not pay any income tax, also is a moral or philosophical issue. As Walter Williams writes:

The fact that there are so many American earners who have little or no financial stake in our country poses a serious political problem. The Tax Foundation estimates that…”When all of the dependents of these income-producing households are counted, there are roughly 122 million Americans – 44 percent of the U.S. population – who are outside of the federal income tax system.” These people represent a natural constituency for big-spending politicians. In other words, if you have little or no financial stake in America, what do you care about the cost of massive federal spending programs?

Jonah Goldberg also is concerned about this development. In his Townhall.com column, he explicitly warns that the nation’s social capital will be eroded if a large share of the population learn that the tax system is nothing more than a way to confiscate other people’s money:

…our politics seem to be suffering from a “rich people curse.” We treat the rich like a constantly regenerating pinata, as if they will never change their behavior no matter how many times they get whacked by taxes. And we think everyone can live well off the treats that will fall to the ground forever. … Democrats keep telling the bottom 95 percent of taxpayers that
America’s problems would be solved if only the rich people would pay “their fair share” of income taxes. Not only is this patently untrue and a siren song toward a welfare state, it amounts to covetousness as fiscal policy. … it’s unhealthy for a democracy when the majority of citizens don’t see government as a service they’re reluctantly paying for but as an extortionist that cuts them in for a share of the loot.

These concerns may be somewhat overstated because there is still considerable income mobility in the United States, so many people who today are not paying tax presumably envision that they will be swept in the tax net in the future. But there probably is a tipping point, a level of taxation and redistribution that results in a permanent economic sclerosis. Indeed, some speculate that nations such as Italy are now incapable of reform because the electorate is dominated by people who have concluded that they have a right to live off the income of others.

Earmark Hall of Shame

The New York Times reports:

Buried deep in the largest domestic spending bill of the year is money for a library and museum honoring first ladies. The $130,000 was requested by the local congressman, Representative Ralph Regula, Republican of Ohio. The library was founded by his wife, Mary A. Regula. The director of the library is his daughter, Martha A. Regula.

Other “namesake projects” in the bill include the Charles B. Rangel Center for Public Service at City College of New York, named for the chairman of the House Ways and Means Committee; the Thad Cochran Research Center at the University of Mississippi, named for the senior Republican on the Senate Appropriations Committee; and the Thomas Daschle Center for Public Service at South Dakota State University, honoring the former Senate Democratic leader.

The bill also includes “Harkin grants” to build schools and promote healthy lifestyles in Iowa, where Senator Tom Harkin, a Democrat, is running for re-election.

The federal government is taking $2.9 trillion of our hard-earned money this year. That will include the need to borrow $155 billion because even the record $2.8 trillion tax haul isn’t sufficient to cover all of America’s vital needs. Like the National First Ladies Museum and the Charles B. Rangel Center for Public Service. Really, have they no shame? Politicians tax Americans to build monuments to themselves, or to provide jobs for their families.

Projects that are actually needed–federal courthouses, perhaps, or highways–might appropriately be named for great Americans of the past. But naming monuments for living politicians is a bit too reminiscent of North Korea or Turkmenistan. Perhaps if we’re going to name public works projects for living people, they should all be named for the people who actually pay for those projects–the taxpayers. So we could name them Taxpayers’ Highway, Taxpayers’ Federal Courthouse, Taxpayers Airport.

But at least those are useful projects. The earmarks mentioned above are for fripperies and indulgences and monuments to the ego of politicians. Members of Congress should be ashamed to spend the money taxed away from working people on these tributes to themselves.

Bush’s Budget Messaging

President Bush is in full swing with his new get-tough approach to the budget, and that’s great. But his team needs to work out the inconsistencies in his message. Here are some bites from the president’s speech today in Indiana:

“The majority [in Congress] was elected on a pledge of fiscal responsibility, but so far it’s acting like a teenager with a new credit card … To them, every bill on the floor is an opportunity for a tax hike. Congress has proposed tax increases in the farm bill, the energy bill, the small business bill, and the children’s health bill. If you find a bill that doesn’t have a tax increase, just wait a while – they’ll put one in there.”

The Democrats are matching their big spending with big tax hikes, while Bush just wants to spend and pass the tab onto the next generation. So isn’t Bush more like the teenager with the credit card?

Then there is the ongoing problem of lambasting the Dems for big spending, while demanding ever more for the war, yet without offering any substantial budget cuts for offsets. The president continues:

“When it comes to taxes and spending, they don’t have a very good record, but here’s a good way to start, is to make sure that Congress passes the war supplemental funds we need …”

I applaud the president’s record of opposing all tax hikes, and support his new interest in vetoing spending bills to save a few dimes here and there. But it just sounds silly to put statements like this in his speeches because nobody believes them:

“As we debate the [economic] decisions, you got to understand there are two very different philosophies being played out. My philosophy is that the American people know how to spend their money better than the government can. That’s the core of my philosophy…”

Trim the Fat — with a Nano-Knife

John Boehner, the leader of House Republicans, responds to a Washington Post editorial challenging him to identify what he would cut out of the budget to avoid “an irresponsible tax increase” to offset a reduction in the Alternative Minimum Tax. Seeking to restore the GOP’s fiscally conservative image, publicly challenged to offer a plan, employing all the resources of the House Republican Caucus, these are the budget cuts that Minority Leader Boehner came up with:

* $3.2 billion to revive outdated programs, such as one funding exchanges “with historic whaling and trading partners.”

* $1 million for the Clinton School of Public Service in Arkansas.

* $300,000 for an “Exploratorium” in San Francisco.

* $100,000 for an educational program conducted aboard a catamaran in California’s Monterey Bay.

So out of the $2.9 trillion federal budget, the leader of the House Republicans manages to come up with one $3.2 billion appropriation and three tiny earmarks that appear to be personal projects of Hillary Rodham Clinton and Nancy Pelosi.

Boehner is right when he goes on to say, “Moreover, the editorial missed the point. Congress doesn’t have a revenue problem. Revenue is at an all-time high after the 2001 and 2003 tax cuts, which have triggered economic growth that is ‘paying for’ an AMT patch many times over.” But he then notes, “Rather, Congress has a spending problem.”

Indeed. The Republican Congress of which Boehner has been a leader has increased spending by a trillion dollars in six years. And out of that massive gush of taxpayer dollars, Boehner can find only $3.2 billion in unnecessary spending. Which is perhaps why polls now show that voters trust Democrats more than Republicans on the issue of cutting government spending.

Defending Ron Paul’s Tax Plan

The Washington Post takes a swipe at Ron Paul, deriding his plan to abolish the income tax because revenues would fall to 1995 levels (rather than 2000 levels, as Dr. Paul mistakenly claimed in a recent Jay Leno appearance):

Expounding on his proposal for abolishing the income tax, Paul claims this would still leave the U.S. Treasury with roughly the revenues it had in 2000, in the final year of the Clinton administration. A post on the Paul campaign website explains that individual income taxes account for “approximately one third of federal revenue.” Unfortunately for the tax slashers, the one-time Libertarian candidate for president is wrong on both counts. According to the Congressional Budget Office, individual income taxes represent between 45 and 49 percent of federal tax revenues, depending on the year. For financial year 2007, total receipts from individual income tax were in the region of $1.1 trillion dollars. If you eliminated all that revenue, the federal budget would shrink to the size it was around 1995.

The Post’s criticism is akin to condemning a book because the typesetting was not centered on a few pages. The real issue is whether America would be a stronger and more prosperous nation if government was reduced to the levels envisioned by the Founding Fathers. America climbed from agricultural poverty to middle-class prosperity before the income tax was adopted, and federal government spending (with the exception of times of war) was a small percentage of GDP. The Post also fixates on whether the Paul campaign has identified $1.1 trillion of savings to match the forgone revenue from eliminating the income tax.

In attempt to figure out where the $1.1 trillion in annual savings is going to come from in a Paul administration, I talked yesterday afternoon to the candidate’s policy director, Joseph Becker. He pointed out that Paul has promised to bring troops home from Iraq and Afghanistan, eliminate foreign aid, eliminate agriculture subsidies, and get rid of the U.S. Education Department. A President Paul would, however, still have a military sufficient to defend the homeland.

Based on Paul’s rhetoric and record, this presumably is not a problem. The candidate almost certainly would favor the elimination (or transfer to the states) of the Departments of Agriculture, Energy, Education, Housing and Urban Development, Transportation, Labor, Commerce, and Health and Human Services. (What a joyous sentence to type!) Indeed, because he also would gradually turn entitlement programs into systems based on personal accounts (and shift welfare components back to the state and local levels), the long-term savings would significantly exceed the amount of money collected by the personal income tax. Ron Paul may not be a realistic candidate in today’s America, but that is an unfortunate reflection on voters (and the forces that have shaped voter attitudes), not the candidate’s platform.