Category: taxes

Earmarks

Wikipedia (right now) defines “earmark” as

a congressional provision that directs approved funds to be spent on specific projects or that directs specific exemptions from taxes or mandated fees.

On the face of it, I don’t see that as such a bad thing.  If my Congressbeing has determined that the national interest requires a particular expenditure, it seems reasonable that she might want to make sure that a budget or appropriation item really will be used for that purpose.

The problem, of course, has been that earmarks are obscure, and invariably are for local projects in which the Federal government has no legitimate role.  Now, the earmarks are being disclosed, at least by House members, and our friends at Taxpayers for Common Sense have compiled a list. Not of earmarks, but of URL’s where earmarks can be found.

I figured they might be bad, and they are.  “My” Congressbeing, for instance, has a list of mainly municipal and nonprofit projects, at least some of which are economically justified and therefore should be funded out of the savings or other benefits which they produce. There  are also a few government contractors being taken care of, and a couple of CTA projects.  Because the latter is something I know a little bit about, I can say that the descriptions are quite deceptive, greatly exaggerating the result (e.g. “extension of the Yellow Line”) which will be obtained by a relatively modest ($1 million) expenditure.

And that list is hardly the worst.

Land Value vs. Land Rent

Altho Henry George’s proposal is “to abolish all taxation save that upon land values,” his objective really is to collect land rent for the community.  Of course land value is, ultimately, determined by anticipated land rent, but rent is more stable.

This is illustrated by a recent article in the Wall Street Journal (“Tax Break Divides Large, Small Builders,” Feb 11 ’09).   In an example cited as typical, Pulte Homes is reported to have sold, for $2 million, land they had “originally paid $28 million for.”  So if land value declined by over 92%, how much did land rent decline?

Probably quite a bit less than 92%, because the $28 million was based on Pulte’s guess as to what the future land rent would be.  The actual rent, the amount that someone would have paid to use the land at the time Pulte bought it,  was doubtless much less than their expectation of its future amount.

Some opponents of land value taxation cite cases of great declines in land prices to claim that LVT wouldn’t be a stable source of revenue.  But LVT moderates speculation, and land prices would be more stable if more of the land rent was collected for public use.

One illustration of this is that states where real estate tax is relatively high have experienced more stable prices for homes and lots.

The Parasite Protection Act

That’s one of the names Josh Vincent suggests for New Mexico’s SB333, which would reduce real estate taxes on vacant land and make up the shortfall by raising taxes on homeowners and everyone else who actually owns (or rents) land with a structure on it. I imagine some land speculators find themselves in financial difficulty, but they still have enough to influence a few legislators, and I guess this is intended to bail them out. Perhaps they just want to get legally what owners of Cook County vacant land get in practice.

Maybe I don’t know how to search, but I can’t find anything about this bill anywhere on the Internet.

I guess we could name it the “Housing Prevention Act.”

"Progressive" income tax discourages paid work

That’s no news, but this seems to be a paper that confirms it. Abstract says that the proportion of “potential” income realized as actual taxable income by high income households declined when tax rates increased, while that of low income households grew when their tax rates dropped.  That is, folks work more or less hard, depending on what proportion of their income they’ll get to keep.

This seems to be what the paper says, but it’s behind an ssrn screen so I can’t actually get a copy. Abstract from taxprofblog.

Philadelphia needs land tax, too

Henry George Foundation’s Josh Vincent had a nice op-ed in Thursday’s Philadelphia Bulletin, noting that there is a good case for cutting taxes on work and investment, and a good case for increasing the budget to pay for needed services.  His point is that this doesn’t have to be an either/or choice.  By taxing land adequately, taxes can be cut and service maintained or improved. No great revelation to Georgists, but it’s good to see it in a major newspaper.

Henry George pops up in all sorts of contexts…

Here’s a proposal to fund education in “developing” countries using the increased land value which results as the general level of education improves.  Nothing wrong with that, but why limit it to countries where governments are likely to be dishonest and the quality of assessment may be poor?  Why isn’t it equally applicable in, well, Canada, where these people seem to be, or Chicago, or anywhere else where funds for education are needed?

Maybe the rich do work harder…

…but part of what they work at seems to be under-reporting their taxable incomes.  A paper (pdf) from economists Andrew Johns and Joel Slemrod estimates that folks with “adjusted gross income” below $50,000 understate their incomes by less than 7%, whereas those “earning” $200,000 to $1,000,000 understate by 21% or 22%.  One reason is that the government monitors some types of income very strictly, whereas others are virtually unrecorded.  So they estimate that 99% of the “tax liability” on wage and salary income actually shows up on the tax forms, compared to only 88% for capital gains, 48% for rent and royalty income and 28% for farm income. The research is based on 2001 tax year data.

It’s a bizarre subject to study. Researchers cannot know what “true income” actually is, but can only estimate it by looking at what IRS agents found in a sample of returns selected for intense audit.  One intriguing assumption they make is that the IRS examiner’s ability to find hidden income is correlated with her pay grade.

Very high income taxpayers, over $2,000,000, are estimated to have a much lower propensity to underreport than their $200K to $1 million brethren.  Do they hide less?  Perhaps, but there remains “the plausible possibility that the misreporting of upper-income taxpayers is more sophisticated and thus harder to detect.”

All the estimates of under-reporting are looking at the tax laws as they actually exist, and do not consider the various special-interest loopholes to be anything other than part of the rules (pretending, of course, that someone actually understands the income tax code).

A surprising result follows from the “progressive” nature of the income tax:  Even tho low income taxpayers hide relatively little income, their underreporting actually reduces their taxes by a much greater percentage than does that of the high income folks. [This is because, if your income is low, only a small part of it is actually subject to income tax.]

Taxing your genes

might be the logical application of the “ability-to-pay” principle in a technologically advanced society.

[W]e consider how progress in genetics – specifically, the proliferation of knowledge about the human genome – may influence the feasibility and  desirability of a tax that is based on individual human endowments, or, to use the economist’s preferred term, a tax based on ability.

Too scary for me to read right now, but you can find the paper here.  I hope it turns out to be an Onion satire, but I’m afraid it probably isn’t.

From the U of Michigan Office of Tax Policy Research.

Can you measure what doesn't happen?

If global warming is a problem, and if it can be restrained by reducing emissions of greenhouse gases, then Georgists suggest a tax on emissions would be the way to go.  Proceeds of this tax can be used to reduce taxes on productive activity, benefitting everyone who works.

The alternative “cap and trade” approach gives existing polluters a tradeable right to pollute, tho not quite so much as they have been doing.  These emitters can either clean up their operations, or buy credits from others who have reduced net emissions.

And that’s where the problem comes up, how do you measure emissions which didn’t occur?  Today’s WSJ describes how some landfill operators can get credit for capturing methane emissions from their facilities.  The fact that they might already be harvesting the methane and selling it is irrelevant, so WSJ considers that a “double-dip.”  The article notes that not all landfills are eligible, only those small enough that they aren’t legally required to capture methane.

Describing the experience of one Pennsylvania landfill operator, WSJ notes “its first carbon-credit sale, netting $26,600 after paying $11,900 in fees and commissions…”  31% of the revenue goes to the traders.  There’s the free market in action.

What LVT is and why it is such a good thing

A “not so concise explanation of Land Value Tax and some brief responses to some of its most common objections” at Jock’s Place

A good balance between failing to adequately describe it and going beyond the readers’ attention span.  British, but comprehensible.