Monday, December 28, 2009

The Worst Tax Ideas Of the Decade

Howard Glickman has come up with the top 10 worst tax ideas of the past year, but I think he hasn't gone nearly far enough.

In addition to the homeowner tax credit (both the old one that was meant for first time homebuyers and then the expanded one that let people who wanted to trade up get a credit even though they were going to be buying a home anyways), the estate tax mess (disappears for 2010 only to rise like a zombie to its pre Bush tax cut levels in 2011), there are a few other tax proposals of dubious merit and which would result in taxing obligations and unintended consequences from the past decade. They include:
  1. Congestion pricing. Spurred by Mayor Mike Bloomberg, the idea is to tax anyone coming into New York City by car or truck, even though congestion already provides a deterrent to do precisely that - and is far more effective than anyone cares to admit since on a per capita basis, the City uses less energy than elsewhere in the country because so many people walk or use mass transit rather than relying on cars for personal transportation.
  2. Property tax relief by raising other taxes. This is a symptom of New Jersey, but applies elsewhere. Simply have a governor claim that you'll provide property tax relief by increasing the sales tax to issue rebates for a portion of property taxes imposed. Then admit that the whole mess is unaffordable and chop the rebate only to leave the sales tax hike in place. This way, you get tax hikes and no tax relief in one hard to swallow package.
  3. New Jersey's cosmetic procedures tax. Long before the feds contemplated the Botax, New Jersey imposed a cosmetic procedures tax that has failed to live up to revenue projections. It's produced less than $15 million annually, and expanded to a national basis it would provide little in the way of revenues needed to fund the massive health care overhaul.
  4. IRS tax and penalty provisions in health care bills. Speaking of the health care bills, they are heavily dependent on the IRS tax and penalty provisions to impose change on the health care delivery system. This includes eliminating OTC drugs from HSA/FSA allowed expenses, which is a back door tax. It also includes imposing penalties on those who opt not to buy insurance under the new scheme. There's also no way that this legislation will be deficit neutral unless taxes and fees rise precipitously to cover the rising costs.
  5. Tax credits (and then imposing fees that negate benefits). Instead of lowering taxes and fees across the board to stimulus business, targeted taxes, such as film and television tax credits provide incentives for some businesses to conduct business in various locations, but imposing administrative fees like New York City is doing, is going to deter those same film companies from doing location shoots that spend money in the City. It adds to the bureaucracy and the compliance costs.
  6. Legislating fiscal irresponsibility. Like California, New Jersey is in dire fiscal shape, but the answer proposed by outgoing Gov. Jon Corzine was to allow municipalities to avoid paying their pension obligations. It means that those municipalities and the state would be able to avoid making tough decisions - cutting the size of the state budget and eliminating structural deficits. It meant that politicians could avoid the consequences of their decisions to increase the size of the public workforce and the size of state government, rather than trying to control the costs and plan for a recession. 
  7. Taxing the rich. Glickman includes this on his list, but in New York it takes on special significance. Wall Street is one of the biggest contributors in revenues to the City and State. When Wall Street melts down, so too does the state and city budget. These are the very rich folks that Democrats repeatedly hope to tax to fulfill their obligations (as the Democrats see it). So, when their revenues drop, who pays? Well, everyone else since the money simply stops rolling in and more Americans pay no taxes now than ever before.
How could I have forgotten about the various cap and trade carbon emissions reduction schemes, which increase the costs of energy -and therefore on all goods and services without actually reducing emissions. It's a feel good policy that throws lots of money around and is ripe for manipulation without actual results.

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