Thoughts on taxing what we don't like

A blog in my county, http://orangepolitics.com/2009/11/what-undesirable-items-or-activities-should-we-tax, is developing a list of stuff to tax. Examples include leaf blowers, bottled water, disposable cameras, electric billboards, mobile billboards, clothes dryers, single beers to go, grass lawns, and sodas.

I've seen only a few mobile billboards and don't like them. Here's an example:
http://www.nmbmedia.com/

And here are more thoughts:

1. Taxing what we don’t like makes sense to me. We tax tobacco, so people smoke less. That one is pretty easy for me, but some folks object to excise or sumptuary taxes generally, on the theory that they are discriminatory and regressive. See, for example, Shugart, ed., Taxing Choice (Independent Institute 1997).

2. Even if we agree to tax what we don’t like, deciding what we don’t like gets tricky. We may disagree as directly and strongly as we do on theology or the absence thereof. For instance, there’s a Dutch politician who would “force women in Muslim head scarves to pay an extra tax (for ‘pollution of the public space’).” (New Yorker of 7 December 2009, page 40). What’s disagreeable to him is her religious duty. Less starkly, some believe in a progressive income tax, while the flat taxers don’t, and they won’t convince (and probably won’t persuade) each other. There, values compete, and individuals get to have opinions.

3. Sometimes, folks get the facts wrong, and at least part of the conflict is not between values: part of the conflict is about accuracy: I cannot understand, for example, Sarah Palin’s position at http://www.facebook.com/note.php?note_id=181952698434: “A tax on national defense? I hear liberal Congressional proposals and I, like most Americans, wonder if they’re serious.” Those proposals she mentions would impose a tax to pay for national defense, not a tax “on” national defense, so I see Ms. Palin’s position as a misinterpretation. But maybe I’m missing something.

4. Some folks oppose any and all taxes. That opposition, in my opinion, results from naïveté, except for a few cases of crypto-anarchism. But those folks vote, too.

5. As for the question who decides what’s detrimental, a Constitutional republic can, should, and does sort these issues out in a predictable way, and discussion, however futile it seems, offers hope. Subjective whims or reasoned analysis (all in the eye of the beholder) prevail or lose out eventually on the basis of the electoral mechanism, however flawed.

6. Even if we reach a conclusion on what we don’t like, a big if, practicality may intrude. How would we tax leaf blowers, for instance, at the local level? (A tax on manufacturers and importers at the Federal level would work.) At retail, If Chapel Hill taxes them and Durham doesn’t, we have a nonstarter. To tax use, would we invent a mechanism of surveillance to measure duration or decibels? That’s a nonstarter, too. Or might we charge for permits, visible from the street, that allow unlimited use? That hurts my head to think about.

7. There are two categories of things we don't like: what is legal now, and things we dislike so much we’ve banned them. In Theoryland, North Carolina could impose an extra tax on and free up folks who now cannot buy wine before noon on Sunday (or call it a convenience fee): that looks like more trouble than it’s worth, probably.

8. Back in the real world, too often, instead of taxing what we don’t like, we tax what we do like. At the Federal level, we impose a direct burden on jobs through the capped portion of the FICA tax on wages. But kind of like John Prine’s grandfather, who voted for Eisenhower ‘cause Lincoln won the war, we cling to that tax because it was the best deal FDR could get for Social Security.

These thoughts are cross-posted as part of a discussion at http://orangepolitics.com/2009/11/what-undesirable-items-or-activities-should-we-tax#comment-11175.

A joke

Congress reportedly will let the estate tax expire at midnight at year's end. Now that tax joke about keeping Granddad on life support to beat the USA out of millions of dollars will come true: http://www.cnbc.com/id/34479120 has "the heads of some wealthy families wondering if relatives gathered for the holidays truly wish them a happy and healthy new year."

New taxes are needed, but the estate tax is one old one that needs to stay. Foes of big Government make some sense, but on the estate tax, my Democrats have us looking like a pitiful, helpless giant.

Why we're in trouble

A national figure can't think straight, and thinks a tax "for" something means a tax "on" something:

"Really? A tax on national defense? I hear liberal Congressional proposals and I, like most Americans, wonder if they’re serious. We’re going to put a price tag on security?

"...


"Scary. Nonsensical. Unacceptable."

That quoted material comes from Sarah Palin, http://www.facebook.com/note.php?note_id=181952698434

We're going to get national security for free, she thinks? Help!

A call for higher taxes

"So what do we do? The standard answer is that we need better leaders. The real answer is that we need better citizens. We need citizens who will convey to their leaders that they are ready to sacrifice, even pay, yes, higher taxes, and will not punish politicians who ask them to do the hard things. Otherwise, folks, we’re in trouble."
Tom Friedman at http://www.nytimes.com/2009/11/22/opinion/22friedman.html

Open letter to Foes of a Tax on marijuana

Dear Fellow Citizens:

Maybe it's time to think about taxing marijuana, andeventually, after States and localities find experiments that work, cut the Federal deficit.

(Or we can let the deficit roll on until it rolls us over as it has done in Argentina and Germany. We can take the view: why fix anything because we can't fix everything? But it would be more fun to fix something, and it’s our duty as citizens. Other citizens can fix those other problems.)

Your position is strong but fading. You still outnumber the Pros, who want to legalize of marijuana, but for how long, and with what defeats to come? You might consider putting a tax on now while you can – and before medical marijuana results in subsidies that you know would be crazy. You can raise some revenue, and, if you object to marijuana use, you can raise the price consumers pay.

You can make a deal with most Pros. Now a few Pros don’t want to finance any government. Many distrust Government, as the Founding Fathers taught, and as well all should. But even they understand, if you press them, that all civilizations have taxes. The question is, how much can you get them to pay? The losers will be the marijuana supply chain, prison unions, and some violent criminals.

Marijuana compendium

http://cantaxreg.com/

is a helpful source of reference information about marijuana issues, including more on taxation than I've seen elsewhere.

Bullets

Tax them, too.

For a rationale, go to http://www.script-o-rama.com/movie_scripts/c/chris-rock-bigger-and-blacker-script.html
and search for the word bullets.

Change we can believe in?

The Administration continues the giveaways for corporations that operate outside the United States. The Government's surrender just now on a handful of simple loophole closers (like stopping their interest deduction here for foreign income, income that the People of the United States will not tax from assets we can’t touch) keeps me holding deposits in Australian dollars and Canadian dollars.

Here’s a site on the plan:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1400624
and a site on the surrender:
http://www.huffingtonpost.com/2009/10/13/tax-dodger-crackdown-shel_n_318841.html

No nude asses

The title "Some New Taxes" provides an antithesis to old George H. W. Bush’s statement, “Read my lips! No new taxes!”

The funny thing is that the consonant T is just the unvoiced version of the consonant D, with no lip involvement, and the unvoiced plosive K (in X) doesn’t involve the lips, either. http://en.wikipedia.org/wiki/Voice_%28phonetics%29

So look in the mirror and read your lips as you say “No new taxes!” and “No nude asses!” What would Freud say?

Taxing marijuana: Preliminary option

Tax marijuana at a rate between $2,500 and $15,000 per ounce, for instance, of THC, an intoxicant in the plant. Charge fees for the production and sale of marijuana by license. Consider allowing each citizen to possess some marijuana without tax.

Have chemists hired by the Government perform measurements in venues as open to the public in person and via electronics as any court and assess the tax at the moment in public of the placement of the goods under bond and seal.


Present law

. . . is a patchwork of rules that fail to collect revenue.


Reason for change

We need the money.


Explanation of Provision

The tax would apply on the basis of potency, like alcohol, rather than weight, like cigarettes, because intoxication is the sin we may want to tax.

Any threshold of possession would apply on the basis of weight, without regard to potency, so enforcers of the law could measure quantities and charge violators on the spot.

The rate comes from http://www.mass.gov/legis/bills/house/186/ht02/ht02929.htm.

The provision about bonding in public aims to mollify citizens who distrust Government. It's a placeholder, if that, for transparency.

Taxing marijuana: starting point

The Opinionator feature in the New York Times today, http://opinionator.blogs.nytimes.com/2009/07/20/drill-baby-drill-and-legalize-baby-leglalize/, points to a piece, http://gregor.us/uncategorized/marijuana-first-then-the-oil/, advocating the taxation of marijuana. It may be time to think that idea through.

(Bills in at least two States would tax marijuana. In California, Assembly bill 390, http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0351-0400/ab_390_bill_20090223_introduced.pdf, would impose a tax of $50 an ounce. In Massachusetts, companion bills, http://www.mass.gov/legis/bills/house/186/ht02/ht02929.htm

and http://www.mass.gov/legis/bills/senate/186/st01/st01801.htm, would tax on the basis of potency, with rates ranging from $150 to $250 per ounce. Both bills would allow non-legislative authorities to adjust the rate (that power to adjust looks to me like a new and fresh idea): Massachusetts in either direction, California only down. More about these bills later, maybe.)

Figuring out a rate for marijuana starts but does not end with the competing interests of (1) keeping the rate low enough to deter bootlegging thugs like that no good Marlo Stanfield on “The Wire” on the one hand and (2) maximizing revenue on the other.

First, deterring bootleggers doesn’t necessarily mean totally eliminating them. Bootlegging to avoid Federal alcohol or tobacco taxes is not one of our major problems today, so an acceptable target might be to reduce marijuana bootlegging to that order of magnitude. I wonder if the public would tolerate the level of bootlegging involved with those trucks full of cigarettes headed from low tax States to high tax States. See http://politicalcalculations.blogspot.com/2007/10/business-of-bootlegging.html

Second, maximizing revenue would follow from knowing the elasticity of demand, I guess, but only if you plug bootlegging into that analysis: elasticity analysis will tell how much consumers would buy at what prices, but not whether they would buy from a taxed source or from a bootlegger. Buying from a bootlegger would involve nonfinancial risks or costs: the danger of illegality and the risk of buying something that lacks any imprimatur of genuineness or purity. In any event, “knowing” is a euphemism for what one can understand about the elasticity here – estimating is more accurate.

Beyond those two competing interests, there’s a third consideration, that of the street price. Meanwhile, consumers of marijuana (bless their hearts) would generally be happy enough to get legalization and would not be seeking a price cut. The opponents of legalization (bless their hearts, too) think marijuana is bad for society and would resist a price cut. It’s hard to see the opponents retreating on to taxation and legalization if they foresee cheaper marijuana – and they are in the majority now, at least in Legislatures. So if the revenue-maximizing rate resulted in a lower cost to the consumer than in today’s black market (because the criminal element got no take), it’s hard to imagine that outcome working politically. Any middle ground might well keep the street price at least at current levels.

Financial collapse, VAT issues, and golf

A friend and I agreed yesterday that The Greatest Nation on God’s Green Earth faces a choice between significant new taxes and financial collapse. Neither of us can imagine the public sitting still for new taxes (I blame the education system, which doesn’t teach financial literacy), but we don’t know how to prepare for collapse: will it take the form of hyperinflation (one should buy land, commodities, and stocks) or depression (sell everything and hold cash)?

Rather than dwelling on doom, though, I’m reading Turnier, Designing an Efficient Value Added Tax, 39 Tax L. Rev. 435 (1984) (not available online – sorry – but plenty of VAT material is googleable), because if we are to avoid collapse, a Value Added Tax ought to be on its way. In that happy eventuality, Congress would help out “politically favored businesses,” id. at 443. It’s instructive just now to watch the North Carolina Legislature sort through the claims of providers of services that it might tax.

For one thing, providers jump at the chance to say taxing them would be regressive, and here’s an example:

“’The bulk of our business is the blue collar worker,’ said Del Ratcliffe, president of the North Carolina Golf Course Owners Association.” http://politics.mync.com/2009/07/nc-tax-overhaul-still-alive-in-budget-talks/. Here’s the Association’s flyer, making the same point and referring to “’average’ people”: http://site.golfkeepsusgoing.com/uploads/Recreation_Tax_Bullet_Points.pdf.

Reasonable people may disagree about what to tax: as Professor Turnier says, "a pluralistic democratic society such as ours (with a governing process which places a premium on compromise) can be expected to produce a tax system replete with special treatments and exemptions." Id. at 470. I think taxing golf would hit the wealthy less than taxing legal services and more than taxing tatooing. But regressivity isn't the only issue. I would tax legal services because we could, like Japan, do well with fewer lawyers, and I would tax tatooing because I'm a square. Golf, I don't know, but there are those pesky pesticides. http://www.pesticide.org/golfcourses.pdf.

NC: Repair, maintenance, and installation services

If I were a contractor in North Carolina, I might be tempted undercharge for parts and to overcharge for services to try to beat the sales tax system, for the State pretty much tries to tax sales, but not services. (I leave aside how FICA might apply.)

But a proposal, http://www.ncleg.net/Sessions/2009/Bills/Senate/PDF/S202v6.pdf, would tax:
“(33e) Repair, maintenance, and installation services. – The term includes the activities listed in this subdivision:
a. Repairing tangible personal property to restore it to proper working order.
b. Maintaining tangible personal property to keep the property in working order, to avoid breakdown, or to prevent unnecessary repairs.
c. Installing tangible personal property.”

This proposal could take away an incentive at the State level to turn A into B, so it works toward simplicity, I think.

Simplicity, in my view, with respect for those who condemn the Revenue Code for its number of pages, can sometimes also result from having many words make light work. People make fun of lawyers for listing terms that overlap or worse like “I sell, assign, transfer, and convey,” but we are trained for overbreadth as opposed to letting something slip through the cracks. Recently, to ease the pain of idleness, I took a look at what some other jurisdictions do. Here are my favorites:

Florida lists:
“adjusting, applying, installing, maintaining, remodeling, or repairing tangible personal property,”
http://dor.myflorida.com/dor/taxes/repair_services_sut.html

Ontario lists:
“install, assemble, dismantle, adjust, repair, or maintain items, or install, configure, modify or upgrade a taxable computer program,”
http://www.rev.gov.on.ca/english/guides/rst/601.html. Among examples listed are battery charging, garment alterations, and for the ice hockey fans, skate sharpening.

And getting down to the capillaries, Ontario taxes “potted plant maintenance, if the planters are moveable.” But not if they are built in, I guess, on the theory that built-in planters are real property rather than personal property. Meanwhile, our Governor’s proposal, reachable via http://www.news-record.com/blog/53964/entry/63759, would raise a whopping $232 million in 2010 from a line item called “Property and Some Personal Services.” I don’t know what that means, but I wonder if it extends to services involving real property – in which case it might cover even solidly anchored potted plants.

“Altering” personal property might be a useful catch-all (I saw this in some jurisdiction’s list, but failed to note where). A seamstress or tailor shouldn’t have to create separate categories for (1) expanding my pants’ waist from 34 to 36, which is not a repair, and (2) repairing a seam that split because I ate so much that the pants burst open.

But maybe that expansion ((1)) is covered by the NC proposal as a service “to prevent unnecessary repairs.” But I don’t know what to make of the word “unnecessary.” If I keep exercising, that repair won’t be necessary. Maybe that’s a thicket we could avoid by saying just “to prevent repairs.”

Sunsets in Governor Perdue's July 7, 2009, Proposal

A friend told me Governor Perdue just let out her tax plan, findable by clicking via http://www.news-record.com/blog/53964/entry/63759.

There are many line items I can’t decipher, but I’ll start with sunsets: automatic termination of rules. The Governor would sunset a number of tax increases. Now I imagine we can find plenty of waste, fraud, abuse, corruption, and irritating bureaucracy here in North Carolina or wherever (and let’s attack all that), but I also understand that just having a road from my house to the grocery store and to the doctor’s office (not to mention having the police) is worth everything I pay in taxes many-fold, so I like sunsets on tax cuts, not on tax increases.

Sales tax sunset

Sunsetting the sales tax increase on October 1, 2010 saddens me. I doubt that our budget will magically come into balance by then, so I suppose the responsible Legislators willing to vote for unpopular taxes today will have to do it again next year. Sorry for the cliché, but this is like cutting the cat’s tail off an inch at a time.

Income tax sunset

Sunsetting the increase in the income tax for folks with huge incomes has the minor benefit of maybe keeping someone from moving away forever in rage or frustration. I can imagine that if the increase were permanent, someone might say, “That’s it. I’ve had it. I’m out of here,” sell out, and leave the Land of the Long Leaf Pine, for a three-quarters of a percent increase, the proverbial straw. But between now and December 31 of next year (2009 is included, I think, if the proposal follows a Senate [make that House] bill, http://www.ncga.state.nc.us/Sessions/2009/Bills/Senate/PDF/S202v6.pdf), will people sell out in this depressed real estate market? Maybe not, but we can probably figure on more folks following the path of a friend of mine who spends at least 183 days in income-tax-free Florida every year and carefully charges something on his credit card there every day to prove he’s not a North Carolina resident.

Automatic sunset

I guess you could solve this problem by saying, “If sales tax receipts in August 2010 equal or exceed $X, this temporary emergency sales tax increase expires on September 30, 2010.” Or something. The idea would be that sales tax receipts are a good measure of economic activity, and to set the $X to sunset the tax if the economy is recovering, but to continue the tax if not. A month’s sales tax receipts might not be enough (are we keeping that strange back-to-school sales tax holiday in August?). And August’s receipts might not be knowable in time for early October action. And that $X threshold creates an undesirable cliff, where one dollar (with rounding, a penny) creates an enormous difference. And there may be a better formula than sales tax receipts, though using sales tax receipts would give more certainty than “a [Federal] rule that would sunset some portion of a legislated tax cut if revenues fell below some x percent of GDP,” http://ntj.tax.org/wwtax%5Cntjrec.nsf/E01BF9150131151385256F3A006591D4/$FILE/Article%2003-Penner.pdf, since GDP (or the State’s actual budget position) takes more interpretation to measure than sales tax receipts take. And sales tax receipts or any formula might not give Legislators much cover. But it’s worth thinking about.

Evaluating and locating intangibles

Figuring out the source of income of a cross-border corporation (maybe multinational enterprise is the current lingo) is a task I have left to folks, including some of my best friends, with more patience than I have. The arm’s-length method was a joke, the last time I looked, so worldwide unitary apportionment is my only hope.

The traditional unitary formula weighs property, payroll, and sales equally. That equal weighting may have made sense before we had an information economy, but now, as Charles Kingson pointed out in the inaugural David A. Tillinghast Lecture on International Taxation, 51 Tax. L. Rev. 639, 658 (1996), the property element would force people to “evaluate and locate increasingly elusive intangibles.”

Not only do we have trouble both locating and evaluating intangibles, we may not want to. North Carolina, my State, is racing other States, Commonwealths, and probably the oddly named “State of Rhode Island and Providence Plantations,” http://www.nytimes.com/2009/07/05/opinion/05vowell.html?scp=1&sq=Plantation&st=cse, to the bottom by begging companies to bring in property and payroll. Like a developing country, we are looking for ways to give away our tax base to corporations -- this from the Democrats.

I don’t argue that single-factor apportionment using only sales measures income accurately, but neither does the current system. At some point, even if you know where income arises, measuring it gets so difficult that a VAT looks good.