Political Humor - Creative Taxation
Political Humor – Creative Taxation
Whenever Democrats achieve power, one can bet the bank account that the bank account will be getting smaller. Still, it is entertaining to listen to Democrats who campaign as fiscal conservatives and then try to mask tax increases as things like ‘user fees.’ By whatever name, in the end, Democrats always try to get more of the money you earn.
Taxation is the method by which government appropriates or legally extorts personal wealth that it doesn’t earn. Ostensibly, government rationale holds that since it is the protector of the economic system that allows creation of individual wealth. Governmental units are entitled to some of this revenue to provide the things necessary for the continued existence of that economic system. Unfortunately, politicians are creative people and discovered some generations ago that government revenue was also useful for buying the votes necessary to keep them in positions of power. So using government to extort money from one group via taxation and provide benefits to another was elevated to the art form that we now call centralized government.
Centralized government continually looks for ways to buy more votes for incumbent politicians and of course more vote buying requires more revenue. Voter backlash against over-taxation though, has begun to resurface. California’s Proposition 13 which rolled back California property taxes by 57% back in the 1970s, and Colorado’s Taxpayer Bill of Rights (TABOR) Amendment which restricted the amount of revenue that the state could appropriate from its citizens, changed the game for liberals. Democrats then had to be much more creative about their extortion efforts.
Government intervention in the economic system frequently produces unintended consequences. When tax writers look at the economic system, they apply a simple but error filled formula to their revenue calculations. They look at the activity they are going to tax and multiply their tax rate by the current level of economic activity relative to that item. Unfortunately for the budget officers, each citizen is free to modify his behavior. When costs for certain goods increase because of taxation, consumption decreases. This frequently leaves budget officials with less revenue than they were expecting and almost as frequently, leaves them with less revenue than they had prior to initiating the tax. Additionally, decreased consumption because of taxation yields lost jobs and therefore lower income tax revenues. In short, raising tax rates frequently produces less revenue for the government. And as JFK and Ronald Reagan proved, the opposite is true as well; lowering tax rates frequently increases government revenue.
Beating their collective noggins on the brick wall of reality, today’s Democrats keep trying to find a taxation model that doesn’t produce this result. Liberals must be given credit for perseverance however. There are some very creative tax ideas either proposed or enacted right now. Here is a top ten list of the more interesting among them:
10. Gasoline – While always being a significant portion of the consumer’s cost, the Obama administration seems intent on influencing consumption by raising tax rates on gas and fuel oil. The theory goes that restricting domestic production of gasoline and fuel oil through environmental regulation, the supply will remain short which will keep consumption down and costs elevated. Since everyone has to purchase at least some gasoline and fuel oil, they will be compelled to pay the higher tax rates. The theory blows up when the elderly upstate New York resident who won’t be able to afford the fuel oil to heat her home contacts Senator Shumer about her problem. Team Obama will then have to intervene with some of the tax dollars it collected from gas and fuel taxes to pay out as subsidies. The ultimate objective here may be to compel people to drive less, live colder and ride to work like Pee Wee Herman.
9. Cola and Chips – Some governmental agencies believe that taxing colas and snack foods will not decrease consumption as folks just like this stuff too much to give it up. Unfortunately, people will not give it up completely, but increased costs will force down consumption. Kids will start snacking on carrot sticks and tofu and start acting like human beings. (Society can’t tolerate that.) The government will have to then tax the health food industry.
8. Cigarettes – Vice taxes are always a hit with taxpayers – except for the vice-practicing taxpayers. Politicians love to assign others responsibility for paying for certain programs. The state of Colorado recently instituted a one dollar tax per package of smokes - ostensibly to raise money for treatment of smoking disease. When the tax went into effect huge numbers of people quit smoking. If the objective was to compel citizens to quit smoking, the plan worked perfectly. Unfortunately, the objective was to generate revenue. The state government now has the same medical bills for smoking disease, but a greatly decreased revenue stream from taxes on cigarette sales. The Democrat state legislature is now trying to figure out something else to tax.
7. Bonuses – The federal government’s experience with AIG allowed liberal politicians to start looking at taxing bonus payments at a much higher rate than regular income. What they will get is reduced revenue because companies will use bonus money to compensate workers and executives in different ways that may avoid the tax bill. In fact, many of these firms will be moving off shore to avoid excessive taxation altogether and will take their jobs with them.
6. Liquor – Another vice tax, government officials believe that taxing liquor is a good way to raise revenue. What it does raise is the volume of bootlegging taking place. Like bringing cigarettes in from lower tax areas and consuming them in a high tax state, liquor will just go through more circuitous channels to avoid additional taxes whenever possible. Smokey and the Bandit may return to the US highways soon.
5. Prostitution – Nevada officials began looking at taxing the oldest profession to add to their revenue pool. As prostitution is currently legal in Nevada, it wouldn’t be a stretch to suddenly practice it on an ‘illegal’ basis to avoid recording the income. Unless Nevada is willing to hire an army of Prostitution Tax Agents (PTAs), the Carson City accountants probably shouldn’t start spending this money prior to its arrival. Enforcement costs though would probably exceed the revenue generated. Actually, the state of Nevada could at least take a bite out of its unemployment rate by hiring a bunch of PTAs to keep tabs on the working girls.
4. Marijuana Sales – As part of resolving the catastrophic California budget mess, politicians there are looking to tax legal marijuana sales. This enters the realm of absurdity as making a substance more legal and available for the purpose of taxing it defies logic. Money that consumers currently spend on other goods and services would be spent on marijuana consumption – including the state tax. This will reduce revenue from legitimate businesses and drive more business to marijuana growers and suppliers. How this fits into a healthy economy is anyone’s guess.
3. Communications Equipment – Any politician with a teenage daughter understands the level of use a cell phone gets. With text messaging and wireless communications, the more creative liberals are exploring the idea of increasing tax rates on popular electronic services. Any voter with a teenager at home could then expect an increase to his cell phone bill each month based on the level of electronic activity. On the consumer level, this would justify taking away the cell phone after the dinner hour. As families manage their costs, usage of the taxed service would decline. Like the Colorado cigarette tax, this might actually be a good thing, but wouldn’t bring in the extra revenue governments want. The lefties will be back at the trough looking for something else to tax.
2. Penalties – Increasing penalties on late tax payments has also arisen as a new revenue opportunity. Penalties were originally assessed to inspire taxpayers to be on time. Taxpayers that are in fact on time in their payments experience no penalty. An increased late payment penalty would only reinforce the need to file and pay on time. That may in itself be a good thing, but the policy won’t generate more revenue as taxpayers will be more inspired to get the bill paid and filed on time.
1. VAT - Team Obama has rolled out its favorite tax play this week. Something called the Value Added Tax would simply be a tax on everything. The allure of the VAT would be that the current income tax system would completely go away. A VAT would also allow the government to bury tax levels in the activity businesses pay. As voters tend to ignore the fact that what they pay for goods and services contains all manner of federal, state, local and employment taxes embedded in the cost of production, voters could easily be hoodwinked into paying greater and greater levels of taxation. (It is important to remember that all taxes are paid by consumers anyway – regardless of what liberals want to believe.) Look for the CPA and American Bar Association lobbies to rise up against this idea.