taxes

Killing that goose

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From Cato:

"Businesses — and hence, jobs — over time tend to migrate, other things being equal, from high-tax to lower-tax jurisdictions — and this is true both among states and countries. Many politicians — particularly those from California, Illinois and New York — seem unable to grasp this simple economic concept."

This was certainly true last year when NYS legislators only as a last resort dropped a proposal which would have forced hedge fund managers who work in New York but live out of state to pay higher taxes on their share of profits.

In fact, Connecticut's governor, Jodi Rell, had added ammunition to the concerns of NYC Mayor Michael Bloomberg and others by using the proposal as a recruitment tool, launching what was generally described as "the hedge fund border wars." But the NYS legislators did, in the end, figure out that the tax they were proposing would kill not only NYS business and jobs but ultimately NYS tax receipts.

Same concept, larger scale, thanks to a corporate tax rate that's the highest in the world:

Tax holiday may 'repatriate $1 trillion from offshore havens

By Bloomberg News, Thursday, December 30, 2010

At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.

The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35 percent when it's brought home, or "repatriated." Executives including John T. Chambers of Cisco Systems Inc. contend a tax break would return a flood of cash and boost the economy.

This has been tried before successfully:

In 2004, a tax holiday allowed multinationals to return profits to the United States at a tax rate of 5.25 percent. They brought home $362 billion, with $312 billion qualifying for the relief, according to the Internal Revenue Service.

So applying a 5% tax rate, say, to the $1 trillion that's currently sitting offshore would in theory yield a $50 billion "take" (as opposed to no take at all as it stands now). But in practice it might not prove to be quite that lucrative:

"Sophisticated U.S. companies are routinely repatriating hundreds of billions of dollars in foreign earnings and paying trivially small U.S. taxes on those repatriations," said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles....

They're aided by a cadre of attorneys, accountants and investment bankers in the tax-planning industry.

"Some of the best minds in the country are spent all day, every day, wheedling nickels and dimes out of the tax system," said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, and director of the international tax program at New York University's school of law.

So yet another cost of the high corporate tax rate and the complexity of the tax code in general is the misallocation of intellectual resources that results.  But I digress.

Another negative impact of the high corporate tax rate: John P. Kennedy, a partner at Deloitte Tax LLP, speaking at a conference in Philadelphia

...warned that booking large portions of income overseas can mean "you are going to strand so much cash offshore that your business chokes." That's because the foreign profits cannot be used for such purposes as building domestic factories without triggering federal tax.

Obviously, in the end, a tax holiday

..."is a short-term fix to a long-term problem, which is the uncompetitive U.S. tax structure," said Cisco spokeswoman Jennifer Greeson Dunn.

Nevertheless, a tax holiday would generate a sizable infusion of cash to the economy, both in terms of "repatriating" funds for investment purposes and in terms of tax receipts.  

As for the long-term picture, folks from Aesop to Ayn Rand have recognized that killing the goose that lays the golden eggs is suicidal, both personally and societally.  High tax rates kill business, which in turn eliminates jobs, ultimately leading to lower, rather than higher, tax receipts.  Why can't the powers-that-be see this? I think I know the answer, but that's another post.

on a tip from Tom.

Compare & contrast

The three states in the worst shape financially are California, Illinois, and...New York.  From today's Ithaca Journal USA Today page:
Illinois enacts tax increases to cut $15 billion deficit
CHICAGO — Debate is raging across Illinois about tax increases passed this week by a lame-duck General Assembly: Are they job killers that will drive employers away or a vital step toward erasing a $15 billion budget shortfall?

The latter, says Ron Howell, executive director of Recovery Resources, a non-profit substance-abuse treatment center in Quincy struggling with a 30% cut in state funding and a 90-day lag time for state reimbursements.

"The bigger the (state budget) hole gets, the bigger the problem becomes," he says.

In Danville, though, owner Bob Watson of Watson Tire and Automotive Service says he might scratch his plan to hire another worker and may even consider a move 5 miles away to Indiana.

"I have to live on what I make," he says, "and so should the government."

Gov. Pat Quinn, a Democrat, signed the legislation Thursday. The measure could add $6.8 billion a year to revenue by temporarily raising income taxes from 3% to 5% and increasing the corporate tax rate from 4.8% to 7%.

Quinn says the increases are necessary to stop the state from "careening towards bankruptcy."....

Interestingly, the New York Times reported that same story this way:

Illinois Legislators Approve 66% Tax Increase

By MONICA DAVEY

Published: January 12, 2011 

CHICAGO — With only hours left before new state lawmakers were to take over, Illinois’s State Legislature narrowly approved early on Wednesday an increase of about 66 percent in the state’s income tax rate.

The vast size of the increase, the rarity of such increases here — the last one came two decades ago — and the hour of the vote (in the wee hours of Wednesday) all reflected the urgency and depth of this state’s fiscal crisis.

Even grudging supporters of the tax increase, which won no Republican support in a state capital controlled by Democrats, voiced a desperate sense of regret over the circumstances in which Illinois finds itself. State Representative Elaine Nekritz, a Democrat who voted for the increase, described her decision as an alternative “between bad and worse.” Another Democrat cautioned his colleagues: “We don’t have a better choice today.”...

Creates a very different impression from the first version, doesn't it?  

A couple of things come to mind: first, particularly where numbers, percentages, etc., are concerned, beware of spin and use common sense. The other side is banking on our "innumeracy" to cloud the issues.

Secondly, this probably isn't going to end well for Illinois (from John Kass's column in the Chicago Trib, via Pundit & Pundette):

They forgot to earmark some extra funds for that great, big wall.

You know, that wall they're going to need, 60 feet high, the one with razor wire on top and guard towers, equipped with police dogs and surrounded by an acid-filled moat.
 

The wall they're going to have to build around the entire state, to keep desperate taxpayers from fleeing to Indiana,Wisconsin and other places that want jobs and businesses and people who work hard for a living.

Something to keep in mind, NYS leaders.

And as for "Pundit and Pundette": we only wish we'd thought of it first.

Lifton Drags Feet on Tax Cap

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State Assemblywoman Barbara Lifton doesn't seem to be on board with Gov. Cuomo's property tax increase cap (Property tax cap faces fight in State Assembly).

Lifton, D-Ithaca said:

"A lot of people are very concerned about it. They know a straight cap will be extremely harmful to public schools."

The "lot of people" includes teachers' unions, who have supported Lifton.

Cuomo said Friday: 

"The enormous burden of unfunded and underfunded mandates is breaking the backs of taxpayers, counties and municipalities across the state. These mandates are throwing budgets out of balance and sending local property taxes through the roof."

County Takes Another Commercial Property Off Tax Rolls

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At the end of December, The Tompkins County Legislature voted 11-3 to take the Carpet Bazzar building on State Street in Ithaca off of the tax rolls and relocate the County Office for the Aging to it.  

Tompkins County will pay $720K over 15 years for the building and, of course, will need to renovate the building for the new purpose.

Legislators Carol Chock, Frank Proto, and Leslyn McBean-Clairborne voted against the purchase.

Seward on State Government Overhaul

State Senator James Seward had a guest column in the Observer-Dispatch yesterday.  Some quotes:
Homeowners in New York state pay the nation’s highest property taxes. Last year, despite my objection, the legislature made matters worse by enacting the largest income tax hike in state history, hiking health insurance taxes and raising fees on everything imaginable. It is time lawmakers end this disturbing pattern. Adopting a real cap on school property taxes and restoring the STAR tax rebate checks would be a start toward providing true relief for overwhelmed homeowners. Further, rolling back some of the extreme new taxes and fees adopted over the past two years would be an appropriate thank you for all New Yorkers.
While cutting state spending and reducing taxes will provide a solid foundation for overall recovery, the only way to truly revamp New York is through economic revitalization. Commerce-crushing policies enacted over the last two years need to be rescinded and replaced by new guidelines that show government’s willingness to partner with the business community and change our negative economic culture.
Seward called for the state to "consolidate redundant or underutilized state agencies."  It would be great to get a list of which agencies are in these categories.
 
He also called for a full assault on Medicaid fraud and other abuse.  Why does this come up over and over?  Again, can we just get a list so we can rattle people's cages about this?  Instead of a "full assault", how about we deal with, say, one issue of financial abuse so we can get some traction?  Then we'll come back for the next, rinse and repeat.
 
Also on his list: a state spending cap "to transform a culture of undisciplined state budgeting".  This is a great idea, but how do we get enough votes to make it happen?
 

Deep in the heart of taxes

Here's a good piece in the NY Post (by a Texas resident) that's ostensibly about (not) living in NYC, but has a lot to say about (not) living or doing business in NYS in general.  For example:

Texas creates jobs like a fiend, in part because businesses large and small have no worry of obstacles such as plaintiff-friendly courts, consumer-friendly regulators or oversight-friendly lawmakers. Pro-business isn’t just a mantra; they put it in the water.

Read it all (h/t Hot Air).  Yo, people in Albany!  Listen up.

And in a related story...

This piece is connected to so many topics, I can't even think of all the ways this post should be tagged. From the Poughkeepsie Journal (h/t Thomas Lifson at American Thinker):

WICCOPEE — In a stunning reversal, the frequently lauded and taxpayer-funded SpectraWatt Inc. has told the state it will close its solar cell plant starting in March and lay off 117 workers.

....Created with nearly $100 million in private and public investments and announced in April 2009, SpectraWatt ramped up quickly, creating jobs in the midst of high unemployment. It began production by March this year and became one of the brightest new lights in the Hudson Valley economy. Now it has blinked, and may well go out.

....The company said, "This action is undertaken in response to deteriorating market conditions resulting from a harsher-than-usual European winter causing a large drop-off in demand for solar cells.....

Varnavision

The Varna Community Association (VCA) has a website where you can find a year’s worth of newsletters describing the many goings-on in the Varna area, and I was genuinely impressed with the energy and dedication of the folks who make all those things happen.  In addition to being simply informative, the newsletter also masterfully creates an image in the reader’s mind of Varna as de facto village. 

From the Dec. 2010/Jan. 2011 newsletter:

Your Input is Needed

DEVELOPING A MASTER PLAN FOR VARNA

WHEN: 7pm, Wednesday, December 1, 2010

WHAT: A meeting to learn about the proposed community development plan for the hamlet of Varna. Previous plans developed by residents of Varna will be reviewed, and issues will be prioritized. Your input is needed!

WHY: The Town Board has directed that a Master Plan be developed for the hamlet of Varna.

WHO: Mike Welti, Certified Community Planner, Director of Planning Services at Behan Planning and Design will lead the presentation and discussion. Mr. Welti is a consultant to the Town of Dryden.

WHERE: Varna Community Center

 

“Plans” come with price tags.  Who pays? Who benefits?

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