Dispatches from a Small Business
Archive for the ‘Taxes’ Category.
By the way, where does the government get the money to fund all these immensely useful programs? According to a Fox News poll earlier this year, 65 per cent of Americans understand that the government gets its money from taxpayers, but 24 per cent think the government has “plenty of its own money without using taxpayer dollars.†You can hardly blame them for getting that impression in an age in which there is almost nothing the state won’t pay for.
This is lifted from an email I got from America Outdoors
A little noticed provision in the recently passed health care reform bill will require every payment to corporations over $600 to be reported on a Form 1099 to the IRS, including payments for the purchase of merchandise and services. This provision takes effect in 2012.
The current law requires a Form 1099 to be submitted to the IRS when your business pays more than $600 for rent, interest, dividends, and non-employee services if the payments are made to entities other than corporations. Currently, payments made to a corporation and payments for merchandise are not required to be reported.
To file the required 1099, a business will have to obtain and keep track of a Taxpayer Information Number (TIN) from every vendor before submitting the 1099 to that business and the IRS. Under current tax law, one copy of the form is sent to the IRS, and another copy is sent to the person to whom the business made the payments.
Rep. Dan Lungren (CA-3) introduced “The Small Business Paperwork Mandate Elimination Act†(H.R. 5141). The legislation would repeal the expanded 1099 reporting requirement. Lungren correctly asserts that the burdens placed on small businesses by this reporting requirement would be overwhelming.
Call your U.S. Representative today and ask them to cosponsor H.R. 5141. The House switchboard number is 202-225-3121. Ask to be connected to your Representative’s office.
My small business has over a thousand vendors. I would have to hire someone full time for a month to do this. And it would be to zero purpose. The IRS would be so flooded with forms that there would be no way they could pull any useful information from the blizzard. This is yet another example of legislators operating with absolutely no idea how commerce actually works. We have coined a name for it within our firm — we call it arrogant ignorance.
Chris Edwards at Cato had more on this a while back.
I’m stunned that there wasn’t a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can’t afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.
In one of the largest Statehouse rallies ever, thousands of unionized government workers and social-service advocates rallied for an income-tax hike that could avert billions of dollars in crippling budget cuts.Three hundred busloads of people, mostly from AFSCME Council 31, SEIU, the Illinois Education Association and the Illinois Federation of Teachers, converged outside the Capitol while lawmakers were in session.
On several occasions during the late-morning rally, protesters turned away from the stage across from the Capitol to face the ornate seat of state government and chant, “Raise our taxes!” and “Save Our state!”
James King here in Arizona thinks the new “I didn’t pay enough” law here is dumb.
Feel like voluntarily ponyin’ up some of your hard-earned cash to help legislators dig themselves out of the budget crisis they created? Of course you don’t, but that didn’t stop legislators from taking time out of their day to pass a bill that asks taxpayers to do exactly that.
The “I-didn’t-pay-enough fund” is the creation of numb Skull Valley Representative Judy Burges. It asks taxpayers to voluntarily donate money to the state government to help chip away at the state’s $2.6 billion budget shortfall.
What he doesn’t readlize is that it is aimed directly at the folks that are protesting in the example above. Want to pay higher taxes, then send in a check! But don’t make the rest of us do so.
I was navigating around the Kentucky property tax forms site (one of the really tedious tasks for our company this year is to fill out zillions of personal property tax forms listing virtually every pencil we own in any number of counties and states).
While we run campgrounds, we do not run long-term trailer parks, but this requirement caught my eye as fairly onerous. Apparently trailer park owners must fill out this form and report on the detailed description, owner, and address of every trailer renting space on their land, so that the state can come after these folks easier for property taxes on their personal property.
For those who may shrug their shoulders, this is not materially different than the owner of an apartment complex reporting on all the large assets his tenants own, or walking through his parking lot taking down car descriptions and tag numbers so the DMV can make sure there are no violations by any of his tenants.
I don’t like when the government forces me to be their busybody.
I think a majority of small business owners and entrepreneurs are skeptical about government and taxes for a variety of reasons. Large companies tend to shelter their workers from the vagaries of changing and hostile government regulation, but there is no such shield for people who own their own business. At tax time this year, I had two thoughts about small business owners and taxes:
1. We see the cost of taxes directly. This year my taxes were X higher than I expected, where X is a pretty large five figure number (pretty large for me, at least). To pay off X, I took the money directly out of an order we were placing for capital investment and new equipment, reducing the order by X. At our company this year, there was a one-to-one scavenging of capital investment by taxes.
2. Unlike most workers, entrepreneurs actually write checks for their tax bill rather than have it deducted stealthily from their paycheck. I have always thought that this was the true purpose of withholding — not compliance, but to try to hide people’s tax bill from them. If everyone wrote a check (or four quarterly checks) each year for their tax bill (as I do), there would almost certainly have been a tax revolt years ago.
California has a ballot initiative to raise taxes on wine, perhaps the state’s highest profile export after movies, by 12,600%. The South Bend Seven find the real howler though — apparently 15% of this tax increase or over a billion dollars a year will be directed to naturopathy programs. Apperently a bid by astrologists to get a share of the tax increase narrowly failed.
The CBO, which Democrats frequently tell us to pay close attention to only when it is giving them the answers they want, is not particularly sanguine about the US budget deficit:
President Obama’s fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation’s economic output by 2020, the Congressional Budget Office reported Thursday.
In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president’s budget would generate a combined $9.75 trillion in deficits over the next decade.
Bruce McQuain, as always, has some good analysis.
States, apparently, are not in much better shape:
Pension plans for state government employees today report they are underfunded by $450 billion, according to a recent report from the Pew Charitable Trusts. But this vastly underestimates the true shortfall, because public pension accounting wrongly assumes that plans can earn high investment returns without risk. My research indicates that overall underfunding tops $3 trillion.
The problem is fundamental: According to accounting rules adopted by the states, a public sector pension plan may call itself “fully funded” even if there is a better-than-even chance it will be unable to meet its obligations. When that happens, the taxpayer is on the hook. Yet public pension plans ignore market risk even as they shift into risky foreign investments, hedge funds and private equity….
In a recent AEI working paper I’ve shown that the typical state employee public pension plan has only a 16% chance of solvency. More public pensions have a zero probability of solvency than have a probability in excess of 50%. When public pension assets fall short, taxpayers are legally obligated to make up the difference. The market value of this contingent liability exceeds $3 trillion.
Productive people in this country are about to get plastered with huge new taxes. Hang on.
From the new bill signed by Obama today:
Under the new law, businesses that hire anyone unemployed for at least 60 days would be exempt from paying the 6.2 percent Social Security payroll tax through December. Employers also would get an additional $1,000 credit if new workers remain on the job a full year.
This is absurdly game-able. How do I know? Because as I read this here (I have not read the legislation) this is a ridiculous windfall for our company. As a seasonal business, my current payroll is about 40 people. Over the next two months, I will hire nearly 400 workers for the summer, most of whom have not been working over the winter as they are retired and just work a few months of the year. Am I really not going to have to pay Social Security taxes on all these people?
And how is anyone going to administer this? Are my payroll company and I going to have to figure out the employment status of all of our hires for the last 60 days to figure out what taxes to collect? Does anyone in Congress even think about this stuff when they pass this garbage?
Update: ADP has more
Update #2: Here is my prediction, if they forgot about seasonal hiring (again, I have not read the letter of the law yet). This will be like the cash for clunkers program – in a month or two they will announce that they have used up the money they had allocated for the whole year.
From the TaxProf:
President Obama today issued a presidential memorandum directing the Office of Management and Budget, the Treasury Department, and other federal agencies to block contractors who are delinquent on their taxes from receiving new government contracts. The memorandum also directs the IRS to review the accuracy of companies’ tax delinquency claims and asks Congress to enact enforecement tools.
This administration continues to follow the consistent principle that taxes should be applied ruthlessly to out-of-favor and unsympathetic groups, and forgiven or exempted for friends of the Administration. Does anyone else find it odd that our first black President is doing so much to undermine the equal protection clause of the 14th Amendment?
Every year, the government forced nearly every working American to give it an interest-free loan. Each person pays his taxes (via legally required withholding) as much as 16 months early, with not a cent of interest from the government for this loan of funds. Several states have been toying of late (and California actually implemented) schemes in which the required withholding rates are jacked far above any conceivable level of tax liability. These are desperate financing approaches from entities who are no longer able to borrow (or afford the interest of) money at arms length, and so much use the coercive power of the government to force its citizens to fork over interest free loans.
Apparently, the Obama administration is looking at such a scheme, but on steriods:
The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.
Whatever their stated justification (I am sure it is somehow for the children), I think Dale Franks gets at the actual motivation:
There literally isn’t enough money in the world to float the T-notes the Treasury must issue in order to prop up our unsustainable spending path. There are, however, about $3.6 trillion in funds just sitting in 401(k) accounts. If the government can urge–or force–you to convert your 401(k) into T-note funded annuities, the Treasury can continue to issue those notes to float the government’s deficit. Essentially, you’ll be converting your retirement funds into an IOU from the government…just like your social security account has already done.
This will allow the Treasury to keep borrowing money–from your retirement–in order to keep issuing more debt that they may or may not be able to pay back to you
The Florida sales tax auditor has been in my office for 2 days and shows no sign of leaving. Most of the audit is as expected and I ceased long ago getting ticked off about it; but the new focus on use tax – ie, not just did you collect and pay sales tax on your retail sales but did you pay proper sales tax on every purchase, is really annoying. We are going to have to be pulling invoices and xeroxing for weeks. Somehow, if as a retailer I don’t collect enough sales taxes, I am liable for the shortage. But if someone else sells me something and there is not enough sales tax collected, I am again apparently liable for the difference. The latter makes no sense to me. Apparently I owe taxes in this non-symmetric way based on the deep philosophic principle that he is sitting in my office, not theirs.
Update: Now he suddenly thinks that I am getting over because there is no sales tax shown on my liability insurance premiums. AAArrrrggghhh. Two entire days lost.
The Senate health care bill relies for much of its funding on a tax on so-called “Cadillac” health care plans. But what happens when employees and employers inevitably change their behavior in the face of different incentives?
History teaches us that tax policy has a huge effect on behavior. Witness the fact in health care the non-nonsensical fact so many people rely on their employer for health care. As we see today, this is a really bad idea, but it was hatched because tax law provided incentives for paying compensation in the form of health insurance premiums, since these are not subject to either income or payroll taxes.
Already, employers are offering employees what are effectively buy-outs of health care — higher pay in return for reduced health care benefits. For employers, the upside risk on health care costs now outweigh the tax advantages of health insurance as a compensation tool. Given this trend, what do you think will happen when employees suddenly have the same incentive, to roll back health care coverage to get under whatever bar is set for an insurance package Congress thinks is too rich (hint: wherever the bar is set, it will be below the health insurance Congress provides itself). Employers and employees are now going to have a shared incentive to back off on health care benefits in exchange for more cash. Think of the sharp minds on both sides of a UAW contract negotiation – does anyone really think that these guys won’t figure out a win-win to avoid paying the surtax?
Three to five years from now, even before the system goes bankrupt from inevitably expanding costs (you didn’t really buy that stuff about the operator of Amtrak and the Post Office improving the industry’s efficiency, did you?), we are going to be talking about the gross shortfall in tax revenues to support these programs, all because people change their behavior in the face of changing incentives.
Politicians claim to be looking out for the poor when they exempt food purchases from sales taxes. The logic is that sales taxes on food are particularly regressive and hard on the poor. Which is all fine and good, until bureaucrats’ jobs are on the line, and then regressive taxes sound find and good.
Obama continues to deny that the health insurance mandate which is backed with a penalty to be collected by the IRS is a “tax.” He says “For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.†Three responses:
Competition is a “discovery procedure,” Nobel-prize-winning economist F. A. Hayek taught. Through the competitive market process, we producers and consumers constantly learn things that force us to adjust our behavior if we are to succeed. Central planners fail for two reasons:
First, knowledge about supply, demand, individual preferences and resource availability is scattered — much of it never articulated — throughout society. It is not concentrated in a database where a group of planners can access it.
Second, this “data” is dynamic: It changes without notice. No matter how honorable the central planners’ intentions, they will fail because they cannot know the needs and wishes of 300 million different people. And if they somehow did know their needs, they wouldn’t know them tomorrow.
From the Tax Foundation via Bruce McQuain, I don’t think this needs any comment:
My vote: mandatory income tax withholding. Taxpayers never see most of the money they pay the Feds. They don’t have the shock of seeing the amount of money going to the government in one big check. Since most formulas lead to over-withholding, people are actually eager to file their tax returns to get refunded the money that was withheld in excess of liability (e.g. interest-free loan to government). Employers, who live in fear of violating one of a hundred thousand different labor rules, are more than willing to withhold whatever the government asks – they certainly aren’t going to stand in front of the tanks to protect their employees’ money.
California is taking this law to the next logical level of abuse: Increasing the interest-free loan that citizens must give the state. If free credit markets won’t lend you money at a rate you can afford, force your citizens to lend it for free:
Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners — holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.
Technically, it’s not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers’ annual tax bills won’t change.
Think of it as a forced, interest-free loan: You’ll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.
I am starting to feel a sort of anti-irredentism for California.
Forcing people to pay money or pay a fine on their tax return to buy a product they currently don’t buy is a tax. Particularly when that product will likely be over-priced to the young and healthy not buying it today to subsidize the older folks.
I have been trying to find a word to describe the legislative style we have seen prominently over the last 9 months (though it was used long before this administration — the Patriot Act comes to mind). Unable to think of any other name, an in homage to “murder-death-kill” in “Demolition Man,” I am going to call it Crisis-Emergency-Rush.
TARP was a Crisis-Emergency-Rush. As was the Stimulus bill, Waxman-Markey, and now Health Care. (The last two are particularly hilarious when one needs to evaluate the need to rush. Waxman-Markey is implemented over decades, and the health care bills as currently written don’t really begin to take effect until 2013).
So here is my prediction for the next Crisis-Emergency-Rush: Raising taxes. Obama already has his boys out sending trial balloons about new taxes, even beyond those required in Waxman-Markey and to fund the health care bill. Having spent over a trillion dollars on useless spending to support favored political constituencies, Obama will now declare a fiscal crisis that can only be solved by increased taxes on his non-favored constituencies.
Let’s put another tax on employment, making it more costly for companies to hire people. That’s the ticket out of the recession!
Employers who do not provide health insurance to workers would generally have to pay a fee or penalty to the government. The fee would be equal to 8 percent of wages for an employer with an annual payroll of more than $400,000.
Disclosure: This has a personal impact on me and my business. Wages in our company are 50% of revenues, we earn a 6-8% profit as a percentage of sales, and this will increase our wages by 8%. You do the math. The good news, I guess, is that this will gaurantee that I will not be subject to the new surcharge on high incomes.
The entire Pacific coast is vying to become the next rust belt. Only the nice climate and beautiful scenery will keep anyone there.
The Labor Department reported yesterday that Oregon’s unemployment rate soared to 12.4% in May, the nation’s second highest after Michigan’s 14.1%. What to do? If you’re the geniuses in the state legislature in Salem, you naturally raise taxes.
Last week the legislature approved a $2 billion tax hike on personal income and small businesses that haven’t already left the state. The highest tax rate on income above $500,000 would climb to 11% — up from an already high 9%. Oregon will soon boast the second highest income tax rate in the nation, moving ahead of California (10.55%), and only slightly behind New York City (12.6%). Corporations will pay a 7.9% tax on gross receipts, up from 6.6%.
To be fair, Oregon does not really have a sales tax, so it is hard to compare apples and oranges on taxes. But missing from the article is another factor in their unemployment, and the reason our company ultimately had to leave the state: Oregon has the second highest minimum wage in the country (just behind Washington State and just ahead of California), and it is getting higher every year as it is automatically indexed to something or other that seems to be rising faster than inflation.
From the CBO via the Washington Post:
Now comes the CBO with yet more news of the sort that neither Capitol Hill nor the White House is likely to welcome: its freshly released report on the federal government’s long-term financial situation. To put it bluntly, the fiscal policy of the United States is unsustainable. Debt is growing faster than gross domestic product. Under the CBO’s most realistic scenario, the publicly held debt of the U.S. government will reach 82 percent of GDP by 2019 — roughly double what it was in 2008. By 2026, spiraling interest payments would push the debt above its all-time peak (set just after World War II) of 113 percent of GDP. It would reach 200 percent of GDP in 2038.
This huge mass of debt, which would stifle economic growth and reduce the American standard of living, can be avoided only through spending cuts, tax increases or some combination of the two. And the longer government waits to get its financial house in order, the more it will cost to do so, the CBO says.
Unfortunately, the answer to the question of when Obama will take ownership of the debt crisis he is causing is likely “never.” The most likely scenario is that Obama demands that we taxpayers, many of us who opposed his actions that led to this run-up of debt, take ownership for this debt via substantially higher taxes.
Having lobbied hard for the stimulus bill with the expectation they could get some extra local spending without the political cost of having to tax the locals more to pay for it, Americas mayors find they in turn got played:
President Barack Obama is facing complaints from big-city mayors and county politicians that parts of the economic stimulus package are shortchanging their constituents.
Vice President Joe Biden has been holding private conference calls on the stimulus with elected officials from around the country, some of whom have been telling him that metropolitan regions are losing out to rural areas in the competition for stimulus money.
That argument tracks a report released by the U.S. Conference of Mayors that concluded that cities have gotten a disproportionately small share of stimulus money set aside for road and other transportation improvements.
I thought the following was particularly hilarious. It appears that the mayors have abandoned progressive tax policy in favor of a more classical notion of fairness:
The mayors commissioned a report looking at a pot of $18 billion set aside for transportation. When the report was released this month, the 85 most populous metropolitan areas had received $8.8 billion – or 48 percent of the total. Yet those same areas account for 63 percent of the U.S. population and 73 percent of the gross domestic product, the report said.
Chicago would need to get another $250 million in stimulus transportation funds to reach a level that reflects its contribution to the Illinois economy, the report calculated. In Ohio, Cleveland and Cincinnati account for 40 percent of the total economy yet received less than 5 percent of the transportation stimulus funds earmarked for the state.
I am sure the richest 10% who pay the vast majority of the taxes will be happy to know that the mayors are now advocating that stimulus money be spent in proportion to how people contribute to the economy. Yeah, you can hold your breath for that. It turns out that progressive redistribution is only a good thing if you are on the recieving end.
Via Matt Welch, in response to a Paul Krugman editorial lamenting that California’s fiscal problems are all due to prop 13.
Here is where the traditional liberal argument loses me. The California budget “emergency” isn’t a tax problem, it’s a spending problem. State spending in the past two decades, as this Reason Foundation report [PDF] spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent. If the budget growth rate had been limited to the population-inflation growth rate, the state would be sitting on a $15 billion surplus right now. Surely enough to dip into during a real emergency. What’s more, despite this alleged tax straightjacket, Californians manage to still pay 21.9 percent in state and local taxes, compared to 14.5 percent for Texas.
One of the seldom discussed problems with government regulation is that typical regulation is aimed at the “mean” — the mean worker, the mean industry participant, the mean driver, whatever. The problem is that there are 300 million of us with vastly different lives and different preferences. One-size-fits-all regulations are often a poor fit for many of those regulated.
Take the Fair Labor Standards Act (which includes minimum wages, maximum work weeks, record-keeping requirements, etc). The Fair Labor Standards Act is written for factory workers who come in the door at 9AM, punch a time clock, work under the direct supervision of management, and punch out at 5PM.
Many of my workers are running isolated campgrounds. They work out of their home (their RV). While they have scheduled tasks, like cleaning the bathrooms, many of their hours come in spurts (e.g. someone comes to their RV and asks them a question). The nearest manager from the company might be hundreds of miles away, and there may not even be electricity to power a timeclock. All of this adds up to a hugely awkward compliance problem for many of the details of the FLSA. But comply we must.
Yesterday’s new proposed CAFE regulations on car fuel economy is another example. It appears that the average MPG requirement for new cars will increase from 27.5 today to 42MPG in 2016. The obvious question is — of all the actions we could take to reduce CO2 emissions, is this the least costly and/or most efficient?
Well, nobody knows, and I don’t think that anyone in the “science-based” Obama administration has even tried to put pen to paper on this question. And, even if they did, their answer would be largely irrelevant because they would likely, again, be regulating to the mean.
I am sure the folks passing this kind of stuff picture a mean commuter driving 25-30 miles each day each way to work. But what about me? I drive 2 (actually 1.9, but we will round up). That makes a 4 mile daily roundtrip commute. Assuming I drive a car at the CAFE standard, this new regulation will save me 0.05 gallons of gas per day, or ten cents per day at $2.00 gas prices.
Obviously, it makes zero economic sense for me to be regulated in this way. The fuel economy of my car for my daily commute is virtually irrelevant, because I chose to locate my house and my business within a few miles of each other. It is a terrible investment for me to pay, both in higher costs and lost features, for a car with higher MPG. Though my decision-making was not driven by gas consumption (it was driven by my time, which is way more valuable to me than a gallon of gas**) one could argue that I have already made a huge gas-use-reduction investment in terms of the location of my home, and thus a further investment in gas-use-reduction via my car is not necessary.
On Hidden Taxes
We can tease one other lesson from this regulation. In regulating CO2 in transportation, the Obama administration had another choice — a carbon tax. A carbon tax on fuel would easily cause CO2 emissions to be reduced over time from cars (in fact, it probably would do a better job, as history has shown that higher MPG standards actually lead to increased driving and thus have equivocal impacts on CO2 emissions).
Further, a carbon tax would have the advantage of putting 300 million people to work figuring out the most productive ways to reduce emissions. Those who drive most, or have the greatest ability to cut back on driving and shift transportation modes, are going to be the ones to preferentially reduce emissions.
So why not a carbon tax? Well, the politicians have all explained this pretty directly — because they do not want to pay the political cost of raising taxes, particularly on something like gas whose price gets so much media attention. Having demagogued oil companies as evil for so many years for raising gas prices, politicians were not able to bear the irony of themselves being responsible for higher gas prices.
So instead, they will force cars to be built more fuel efficiently, which will almost certainly raise the price of cars (as well as reduce choice and certain features). These higher costs and reductions in choice are most certainly a tax on consumers, but they are an indirect tax. They show up as rising prices and perhaps falling attractiveness of auto makers’ product lines, which consumers will blame on auto makers, not the Congress or Obama.
So Obama will continue to say he has never raised taxes on the middle class, when in fact he has just made their cars $1500 more expensive. Some day, we may live in a world where politicians are called to task for this kind of bait and switch, but my guess is that Obama gets away with it.
** Postscript: The one constant of all leftish regulation is that it puts about zero value on my personal time. Every regulation seems to be about my spending more of my time in exchange for conserving some other supposedly scarce resource. But I have never panicked that we are going to run out of oil or tungsten or iridium or whatever. But I do know that I am going to run out of time, just like everyone else. It is the only commodity I am positive is zero sum.
The Republicans have lost the knack for being a minority party in opposition. Nowadays, they waste tremendous time and effort playing he-said-she-said with Nancy Pelosi or Jon Edwards, while blithely voting for more pork and trillions in new spending. Obama, after all, wouldn’t have his favorite and best tool (TARP) for building a Mussolini-style corporate state without Republican votes.
While it strikes me that a capable opposition would certainly know how to turn a knife in a political scandal, it also should be ready to introduce principled alternatives to key legislation. The best such proposals are ones that attempt to achieve the stated goals of the majority party better and faster than the majority’s own legislative efforts.
Which brings us to Jeff Flake, who is becoming a master of this. When Nancy Pelosi and Barack Obama spouted platitudes about openness in government (without really taking any steps to achieve it) Flake came along and introduced bill after bill challenging the Democrats put their money where their mouth is on earmarks and transparency. I have always been a big fan of Congressman Jeff Flake, who represents a district not far away from my home. Though we don’t agree on every issue, there are few, if any, politicians whose judgment I trust more.
Flake’s most recent initiative is one close to my heart. As readers know, I have good scientific reasons for believing the threat of CO2 emissions has been grossly overstated. However, if we are going to commit to reducing CO2, we might as well do it intelligently, and Flake’s proposal is very close to one I have been pushing for some time:
Conservative House members Jeff Flake (R-AZ) and Bob Inglis (R-SC), along with Rep. Dan Lipinski (D-IL), have introduced an alternative to the cap-and-trade proposal developed by House Democrats: HR 2380, the “Raise Wages, Cut Carbon” Act of 2009. Their proposal is for a carbon tax that will gradually increase over time, offset by a reduction in payroll taxes.
Of course I think this is brilliant, because it is my idea as well. But it is also a brilliant opposition strategy. Flake’s approach is far better than the cap-and-trade mess the Democrats have gotten themselves in — not just because it would work better, but because it actually hits key supposedly liberal objectives better than does the Democrat’s bill. Specifically:
- Fairness. Sure, everyone is correct that a carbon tax can be politicized, but I do not think it can be gamed nearly as much as cap-and-trade. For evidence, I turn to California. California has both a cap-and-trade legislation, rule-making for which has been thrown to the California Air Resources Board (CARB); and it has carbon-tax-like excise taxes, which we generally call sales taxes. Sure, there are some special case sales tax categories aimed a politically connected groups, but in general the sales tax system in California is simple and mostly fair. More importantly, it is a layup to administer. Contrast that to CARB, which has been slogging away in cap-and-trade related rule-making for years, and has everybody both pissed off and panicked. Should cow flatulence be counted? Should National Forests be able to sell offsets? How do you create any kind of fair offset accounting given the shenanigans in Europe? Should we allow Californians to have black cars? (seriously) This is a perfect A-B test, as the legislators are the same in both cases — sales taxes are simple and fair, cap-and-trade is a mess.
- Openness and transparency. It is clear that Obama’s stated commitment to openness and transparency was all so much BS. But why not nail him to that cross anyway? Few if any of the general public understand cap-and-trade. It is a tax, but it is inherently hidden from view, and passed through to consumers buried in rates in a way that offers politicians maximum deniability. Everyone understands a sales tax, or the gas tax. The system and its costs will be right out front (which is exactly what Democrats secretly DON’T want, which is what makes this a clever opposition tactic).
- Progressiveness. For all their talks about the common man and being progressives, the advocates of cap-and-trade are pushing what is possibly the most regressive tax increase of all time. Again, there is a kind of political money laundering that hides the tax, but it is a tax none-the-less, and will hit the poor the hardest when electricity and fuel prices inevitably increase. Flake’s proposal to take the proceeds of the tax and use them to reduce the payroll tax is a great one — offset one regressive tax with another, while at the same time putting in place incentives for job creation.
Postscript: My 2007 energy plan was as follows (assuming the need to do something about CO2)
- large federal carbon tax, offset by reduction in income and/or payroll taxes
- streamlined program for licensing new nuclear reactors
- get out of the way
