Topic: Tax and Budget Policy

Resistance Grows to State Tax Cartel

Idaho’s legislature has rejected the so-called streamlined sales tax proposal (or streamlined sales and use tax agreement). As reported by Euro2day.gr, lawmakers correctly viewed the scheme as an attack on sovereignty and a means of insulating governments from competitive pressure:

Anti-tax hawks in the state House have put a halt to Idaho’s plan to join a nationwide push aimed at eventually forcing Internet and catalog companies to collect sales taxes when they sell to out-of-state customers. Wednesday’s vote was 37-to-32 against the plan, with foes arguing it was unconstitutional and would lead to tax increases on Internet businesses that sell elsewhere. …So far, 18 states, including Wyoming, have signed agreements to simplify their tax systems in this push. Idaho won’t be the next one, after conservatives including Rep. Lenore Barrett, R-Challis, likened the Streamlined Sales Tax Project to “crawling into bed with other states.” “It’s a backdoor tax-increase waiting to happen,” Barrett said during House debate. “It would allow member states to collude and destroy tax competition.”

A similar battle is taking place in Hawaii, and Grover Norquist of Americans for Tax Reform has an article asking legislators in that state to resist this proposed cartel that will hurt consumers and enrich politicians:

The real motivation of SSUTA is to target businesses that are not physically located in the state and to export a state’s tax burden. SSUTA is a back-door tax increase. The implications of SSUTA go beyond the direct tax increase in coming years. Like any cartel, SSUTA would allow states to collude to destroy tax competition.  The incentive to keep tax rates moderate or foster competitiveness would be gone, and the pressures to raise taxes would lose their counter-balance.

Hubris Today

USA Today writes in an editorial:

That’s one reason the proposed XM-Sirius combination, announced this week, may be the rare merger that is good for consumers.

The rare merger that’s good for consumers? That’s rich coming from the flagship newspaper of Gannett, the rapacious media conglomerate that has swallowed up the major independent papers in Iowa, Mississippi, Kentucky, Tennessee, Arizona, Vermont, and other states.

Now, to be sure, USA Today did endorse the radio merger. And I don’t question the right of newspaper owners to sell their papers to Gannett. But USA Today ought to acknowledge that its parent company has been built on mergers (or takeovers) that in the eyes of critics reduced competition.

The rare merger that’s good for consumers? Mergers often benefit consumers; they can generate efficiencies and reduce costs. And the market is the best test [.pdf] of which mergers work and which don’t.

Giuliani

A new poll shows that Rudy Giuliani has pulled into the frontrunner position for the Republican nomination for President. Thus, it is worth looking at his fiscal performance as New York City Mayor (1994 through 2001).

A good source of data are the Comprehensive Annual Financial Reports issued by the city’s comptroller. See the CAFR for fiscal 2002, which contains 10 years of historical data.

Total NYC general fund expenditures.

1994: $31.3 billion

2001: $40.2 billion

representing a 3.6 percent average growth rate.

NYC Outstanding General Obligation Bonds.

1994: $22.9 billion

2001: $26.8 billion

representing a 2.3 percent average growth rate.

The data suggest that Giuliani exerted reasonable fiscal control, particularly in comparison to prior NYC mayors, or President Bush. For example, NYC debt more than doubled in the five years prior to Giuliani entering office. But more analysis needs to be done.  

Articles in the Financial Times and the Economist Defend Tax Competition

The Economist has an entire section on the “offshore” world in the latest issue. Among the key findings are that so-called offshore financial centers promote growth and discourage wasteful government:

…the most vexing problem that highly mobile financial flows pose for governments is that when they cross borders they may take tax revenues with them. …As companies become ever more multinational, they find it easier to shift their activities and profits across borders and into OFCs. …Financial liberalisation—the elimination of capital controls and the like—has made all of this easier. So has the internet, which allows money to be shifted around the world quickly, cheaply and anonymously. …tax, regulatory and other competition is healthy because it keeps bigger countries’ governments from getting bloated. Others argue that OFCs may be an inevitable concomitant of globalisation. “Even if today’s OFCs were somehow stamped out, something like them would pop up to take their place,” says Mihir Desai of Harvard Business School. Some academics have found signs that OFCs have unplanned positive effects, spurring growth and competitiveness in nearby onshore economies. …International organisations have launched various initiatives to try to get OFCs to tighten supervision, co-operate more with foreign governments to catch tax cheats and, at least in Europe, eliminate “harmful” tax practices. OFCs think such initiatives are designed to force them out of business. The countries that set these standards “are an oligopoly trying to keep out smaller competitors. They are both players and referees in the game. How can they be objective?”, asks Richard Hay, a lawyer in Britain who represents OFCs. …the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system.

A column in the Financial Times takes an even stronger position. It notes that tax competition encourages more responsible behavior by lawmakers. It also explains that low taxes are not akin to subsidies, and points out that anti-tax-competition advocates will not be satisfied until all pro-growth tax policies are exterminated:

The European Commission seems to recognise no limits in its drive to impose tax harmonisation across Europe. Having issued a sanction against Luxembourg last July for its preferential tax regime on holding companies, Brussels is now trying to put pressure on a country outside the European Union by targeting Swiss cantons’ tax breaks and low business tax rates. Such a move, if it succeeds, will hurt not only the Swiss but all taxpayers in Europe. Tax competition gives you - the entrepreneur or citizen - the opportunity to escape fiscal pressure from your own government by moving to jurisdictions with more favourable tax regimes. It gives strong incentives for all governments to lower taxes, allowing taxpayers to keep more of their money and making markets less distorted. Such tax competition has existed for some time in Europe and is being intensified by globalisation. Luxembourg and Switzerland, for example, can be considered in a sense to be tax havens at Europe’s heart, benefiting not just European but world taxpayers. Those benefits are being undermined by Brussels’ campaign to condemn places with favourable tax regimes. …The Commission has a strange concept of free trade. It is easy to grasp how public subsidies to business - which involve confiscating resources from some parties and giving them to others - should be regarded as “state aid”. But how can the fact that certain taxes are not levied be placed on the same footing? …This harmonisation logic will inevitably lead EU bureaucrats to attack other regimes that benefit taxpayers, be they in the EU or outside. In Ireland, for example, the corporate tax rate is lower than in Swiss cantons and in Estonia undistributed corporate profits are simply not taxed. When can we expect pressure on Ireland to raise its rates or on Estonia to repeal a system that has contributed to its economic dynamism?

Europeans Want More Tax Harmonization — Which Means Higher Taxes

There already is a minimum fuel levy in the European Union, but governments are allowed to impose higher taxes (but never lower taxes, of course). This tax difference is causing some truckers to drive longer distances to buy fuel where diesel taxes are lower. The proposed response to this alleged problem is to reduce the difference in the tax among jurisdictions. Needless to say, the Euro-crats have decided that the solution is higher tax rates for all nations.

The EU Observer reports on the latest evidence that tax harmonization is always a scheme to increase government power:

EU tax commissioner László Kovács is set to table a proposal to harmonize the minimum level of excise duties at €359 per 1000 litres of diesel in 2012 and subsequently at €380 in 2014, a move which would see most EU states increasing their current rates.

According to Mr Kovács’ paper — seen by EUobserver — such a rise would stamp out so-called fuel tourism, as big trucks now make detours from their routes to tank in a state where it is the cheapest, generating more greenhouse gas emissions as well as losses to some EU states’ coffers. Germans, for example, are willing to drive two to four additional kilometres for each euro cent price differential compared to a neighbouring country in the case of gas oil. Fuel tourism cost Germany €1.9 billion in 2004.

…[O]ne Lithuanian diplomat [is now] saying the Brussels proposal should be scrapped as it would translate into an overall increase in prices and inflation. “It could freeze Lithuania’s euro hopes”, a diplomat told EUobserver, adding “taxes remain one’s competitive edge and countries with high rates have taken a voluntary risk”.

Fairly Ridiculous

A Maryland legislator has introduced an absurd bill that would allow the state to seize unused funds on gift cards. 

From WJLA-TV’s website:

Democratic Delegate Joseline Pena-Melnyk testified Thursday before a House committee that after four years, the state should take money on old gift cards as abandoned property. She argued that companies are unfairly keeping money paid for gift cards and gift certificates.

To Delegate Pena-Melynyk, “fairness” apparently means confiscating money from individuals and businesses and spending it on her priorities, in this case public education.

If I learned one thing during my 13 years in Maryland’s public education system, it’s that taking people’s stuff isn’t fair.