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Tobacco Tax Craziness
Posted By:  - 03/11/11

Once again, it’s budget season in state capitols across the country. And, once again, we see some lawmakers and interest groups pushing proposals to raise tax rates on cigarettes and other tobacco products under the guise of a “cure all” for the state’s fiscal woes, despite their well-known problems that argue against enactment.

Right now, we are being told that these sin tax hikes are a “Win, Win, Win” for the states. It seems as though every day these days, we see new poll results – typically funded by proponents of the tax hikes – informing us that “the vast majority” of taxpayers support higher cigarette and tobacco taxes, as opposed to budget cuts, to save the state.

Unfortunately, governors and lawmakers across the country have their blinders on, and are taking up these proposals. In Connecticut, Governor Dan Malloy has proposed a 40 cent per pack cigarette tax increase as part of his budget. Georgia’s tax reform commission proposed a 37 cent per pack tax hike; some want a $1 per pack increase! A senior lawmaker in Idaho wants to raise the state’s cigarette tax $1.25 per pack. Even Oklahoma is trying to get in on the tax hike game by considering a bill that would give economic development power to local government, which includes regulation of tobacco through new fees. West Virginia also has been trying, but thus far failing, to move a major tax hike through its legislature. Now, tax hike advocates are pushing opinion polls and proposals to raise taxes in North Carolina, Nebraska, and Montana, in some cases substantially. But that’s not all: there are now rumors that Illinois could try again to raise its cigarette tax (I guess raising Illinoisans’ income tax by 67% just isn’t enough when you fail to reduce spending).

But all of these proponents of cigarette and tobacco tax hikes are consciously ignoring the well-known problems associated with these sin taxes. Since the poor are more likely to smoke, tobacco taxes tend be paid most by the poor rather than the rich, Mercedes-driving country club members who work on Wall Street that seem to be the target of every tax hike since the dawn of time. Higher tobacco taxes are also costly to retailers, especially convenience stores, who count on cigarettes, chewing tobacco, and other products for as much as a third of their sales. What’s worse, several states that raised their tobacco taxes have reported shortfalls. I’m not sure how anyone thinks a state would “win” by raising a tax that drives business and tax revenue out of the state. But perhaps the most alarming development is that these problems are not new discoveres. In fact, we here at NTU (and countless others in the fiscal policy world) have been highlighting these problems for years. Yet, here we are again, making the same arguments because tax hike proponents and lawmakers cannot (or perhaps do not) wish to acknowledge reality.

Albert Einstein has been quoted as saying that the definition of insanity is doing the same thing over and over again, and expecting a different result. Given these organizations’ and lawmakers continued desire to raise taxes on cigarettes and tobacco products despite the well known problems with these types of taxes, it shouldn’t come as a surprise why the public thinks most politicians are crazy.

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Join us for a Tele-Townhall with Paul Ryan!
Posted By: Andrew Moylan - 03/07/11

 

In the time it takes you to read this blog post, the federal government will have racked up an additional $10 million in debt that will be passed along in higher burdens on our children and grandchildren. Learn about what conservatives in Congress are doing it to stop it by joining us for a tele-townhall event with Representative Paul Ryan (R-WI), Chairman of the House Budget Committee and the innovative fiscal conservative behind the “Roadmap for America’s Future.” NTU President Duane Parde will be hosting the 30 minute call with Dick Armey, Chairman of FreedomWorks, and you’re invited to hear the latest breaking news and ask questions! Join us and thousands of other activists on the call at 6pm Eastern time Wednesday, March 9th by dialing 1-888-886-6603, extension 16307#.

Our national debt has reached a staggering $14 trillion, and our deficit alone from this year is as big as the entire budget of 1998. Congress has been working on a spending bill for the rest of 2011, but even modest spending reductions amounting to less than four cents out of every dollar of overspending have been rejected by Washington liberals. In the coming weeks we’ll begin debate on the budget for 2012, so it has never been more important for you to make your voice heard on Capitol Hill.

Our tele-townhall will be a great chance for you to hear from a Representative Paul Ryan, who as the head of the House Budget Committee is right on the front lines of the battle to reduce spending and create a sustainable budget. Join us and learn about not only the dangers our debt poses, but also what conservatives in Congress plan on doing to stop it. At 6pm Eastern time Wednesday, March 9th, dial 1-888-886-6603, extension 16307# to join this important call.

We hope you’ll join us as we get the latest information on the upcoming showdown over spending.

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Does NC really want a cigarette tax hike?
Posted By:  - 02/27/11

The Fay Observer reports that a new poll released by the North Carolina Alliance for Health shows Tar Heels appear to overwhelmingly support a $1 per pack tax increase on cigarettes to help close the state’s budget deficit. According to a news release from the Alliance:

 

“While 62 percent support increasing the tobacco tax as a budget balancing measure, support jumps to 66 percent when some of the revenue is used to fund public health measures. Strong majorities opposed other options such as reducing funding for education, Medicaid health services, closing state prisons or increasing other taxes.”

 

The Alliance also said the tax hike would generate $338.4 million in new revenue.

 

While these numbers may sound impressive, they overlook some relevant facts. First, cigarette taxes are notoriously unreliable sources of revenue. The projection that North Carolina will see a windfall of more than $300 million does not account for the losses of revenue that will surely result from higher taxes as smokers seek out cheaper alternatives from other lower-tax jurisdictions or smugglers. Second, there is no guarantee that the revenue raised will go to health care or any specific program. In many cases, state officials frequently divert tobacco tax revenues for uses other than their intended purpose. Third, history suggests that tobacco tax hikes are prelude to other tax increases. If the pollster had mentioned these facts, I’m fairly certain the poll would produce a different result. 

In my view, one poll is not a good indicator of the overall mood among the public. A poll is a snapshot of public opinion at the time. A much better indicator is election results. Last November, North Carolina voters choose Republican majorities in both houses of the State Legislature for the first time since Reconstruction. Most importantly, those majorities campaigned on a platform to forego from or reduce higher taxes. This stunning result would appear to suggest that Tar Heels are not keen on tax hikes.

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Fair Tax Act, Gun Control Bill Highlighted in Latest Tab
Posted By: Dan Barrett - 02/24/11

Tab Insert

After our entitlement reform panel at CPAC and releasing our report on the President’s FY 2012 budget, NTUF has a new Taxpayer’s Tab with four newly scored bills. We’ve got a lot of research going on at the Foundation so be sure to keep up-to-date with @NTUF and be even more sure to support NTUF so we can get you the information you’ve come to expect!

One of the issues that have surfaced in the 112th Congress is tax reform. Many legislators are calling for tax simplification while others support a different stance: system replacement. The Fair Tax is one of those system alternatives that has gained more attention in the last few years. NTUF scored the Fair Tax Act at an $11 billion annualized savings. Check out the full Fair Tax description and how NTUF estimated the savings in the latest Tab edition.

Scored bills in Issue 6 of the Taxpayer’s Tab include:

  • HR 301, New Manhattan Project for Energy Independence
  • HR 25/S 13, Fair Tax Act of 2011
  • HR 308/S 32, Large Capacity Ammunition Feeding Device Act
  • HR 365, National Blue Alert Act of 2011
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Wireless Taxes on the Rise
Posted By:  - 02/16/11

 

Most of us know that wireless phones are indispensible tools for businesses and individuals today. Unfortunately, it does not appear that most elected officials got the message to that effect.

 

A new report published in State Tax Notes shows that, after several years of relative stability, taxes and fees on wireless service are on the rise again. Wireless users now pay a combined federal, state, and local tax and fee burden of 16.3%, twice the rate of the average retail sales tax and the highest wireless rate in six years.

 

Nebraska, with a combined rate of 23.69%, continues to hold the dubious honor of “the nation’s highest wireless tax state,” followed by Washington (23%), New York (22.83%), Florida (21.62%), and Illinois (20.90%). The states with the lowest combined wireless tax rates are Oregon (6.86%), Nevada (7.13%), Idaho (7.25%), Montana (11.08%), and West Virginia (11.28%).

 

According to Scott Mackey, the economist who authored the report, most states have not increased wireless-specific rates, but rather have expanded sales taxes to more wireless services and goods. But at the same time, many local governments have aggressively imposed new and higher taxes and fees on wireless users. For example, the City of Baltimore and Montgomery County, both in Maryland, raised the per-line tax by 50 cents and $1.50, respectively, a burdensome cost for families who use multiple phone plans. Additionally, the City of Lincoln, Nebraska increased the business telecommunications license tax from 5.5 to 6 percent, which means that someone spending $48 per month on wireless service (the industry average) pays $11.35 just in taxes, fees, and surcharges before paying the cost of the service.

 

With states and cities in fiscal dire straits, there will be a strong temptation to raise wireless taxes and fees. This is a shame because as wireless taxes and fees increase, the cost of using those goods and services also increases, which could slow economic activity. Fortunately, as wireless consumers learn more about the tax burdens they must pay, they have become more outspoken against higher burdens to pay for reckless spending by government. Hopefully, this new report will encourage more consumers to speak out and elected officials will finally get the message. 

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Reflections on CPAC
Posted By:  - 02/12/11

Today is the third and final day of the 2011 Conservative Political Action Conference (CPAC), the largest annual gathering of conservatives and libertarians in the nation. After three days of staffing a well-visited booth, meeting with dedicated activists, and listening to dynamic speakers, I’m looking forward to some rest and relaxation, but also to what the future holds for the conservative movement.

This year’s CPAC had the highest number of attendees (11,000) in the history of the conference. CPAC speakers ranged from Rep. Paul Ryan of Wisconsin, the House Budget Committee Chair, to Governor Mitch Daniels of Indiana, a potential presidential candidate who gave, in my view, an outstanding keynote address, which you can read here. Also, CPAC 2011 featured a number of new participating organizations that focus on both activism and policy related to social, economic, and political issues at the federal, state, and local levels.

While attending CPAC, I had the opportunity to participate in a number of discussions about important tax and fiscal policy issues facing the United States. NTUF hosted a discussion about entitlement reform that featured experts such as Rep. Devin Nunes, Maya MacGuineas, Douglas Holtz-Eakin, Steven Moore, and Dan Mitchell. The bottom line of their presentation was that we need to start tackling the problem of runaway entitlement spending before it’s too late.

But budget reform should not be restricted to social programs. CPAC also featured a panel on how the nation can reduce defense spending to a more manageable level without jeopardizing readiness. As a former military aide to a fiscally conservative Member of Congress, I was pleased to hear all of the views presented and the many ideas for maintaining an affordable defense posture. The passion the attendees displayed at the panels, and in conversations with me at the NTU table, was striking.  It bodes well for conservatives if these activists carry their views home and remain outspoken and active in the political process.

For the last several weeks, there has been a lot of talk in the media about differences in the conservative movement over certain policies and suggestions that these differences spell certain doom the conservative movement.  After three days of observing conservatives of all stripes from across the country, I can unequivocally say that reports of destructive differences among conservatives are greatly exaggerated. In fact, I would argue that the conservative movement has never been stronger and ready to bring real solutions to the many serious problems facing the nation.

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Will New Hampshire finally cut its cigarette tax?
Posted By:  - 02/08/11

New Hampshire may finally realize what NTU and others have been saying for a while now: high cigarette taxes are not good public policy. The powerful NH House Committee on Ways and Means is considering a bill, HB 156, which would cut the cigarette tax by 10 cents and the wholesale tax on other tobacco products by 17 percent, reducing a regressive tax burden on the poor and small businesses. Earlier today, I squeezed into a packed committee room at the Legislative Office Building in Concord to testify in person in favor of this legislation. You can find my written letter to the committee here

As I stated in my testimony, "Since the poor are more likely to smoke, New Hampshire’s low-income families, especially those who live in the depressed North Country, have disproportionately felt the pinch of cigarette tax hikes over the years. A 2007 study by the Heritage Foundation showed that more than one-fourth of people who smoke live below the federal poverty line and another quarter of all smokers live within 100-200 percent of the poverty line. Reducing the cigarette tax will help alleviate the tax burden on these families, who struggling to get by in a tough economy."

Reducing the tax burden on cigarettes will not only help low-income families, but also help retailers, which will benefit the state in general. As I mentioned earlier today, "Sales of cigarettes and other tobacco products also comprise a substantial portion of business for small retailers. The National Association of Convenience Stores reports that cigarettes account for about one out of every three dollars of total sales nationwide at their establishments. Reversing some of the harmful tobacco tax hikes of recent years could help these businesses attract some of the consumer activity that may have migrated across state lines to stores in Maine and elsewhere."

Odds for passing the legislation looked good at the hearing today. The bill's sponsor is the chairman of the House Revenue Committee, which writes the state budget. Plus, the bill has attracted a number of consponsors. But only you can guarantee this bill passes by contacting your New Hampshire state legislators and urging them to support this long-overdue legislation. Click here to find your Representative.

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Taxes and Kids
Posted By:  - 01/28/11

Pay taxes?  Have kids?  Janet Novak discusses tax complexity, kids, and problems to watch out for at Forbes.com.

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California Targets Amazon.com at the Expense of Local Businesses
Posted By:  - 01/26/11

Online companies have seen their sales surge despite a two year economic slump. Amazon.com alone saw worldwide sales jump nearly 30 percent in 2008 to $19 billion and to $24 billion in 2009. This upward trend only continued in 2010.  Brick-and-mortar retailers did not fare as well. They, along with National Retail Federation and many state legislators have back lashed against this success claiming it is predicated on the fact that Amazon “skirts” state sales taxes. They claim Amazon under cuts in-state retailers and strips state coffers of revenue. In response, Legislatures across the country are trying to skirt Supreme Court rulings to levy taxes on companies operating outside their borders.

The most recent attempt comes from high-tax California. Assemblywoman Nancy Skinner recently re-introduced a bill (AB 153) that would require out-of-state companies with in-state advertizing affiliates to collect and remit sales taxes it supposedly owes the state. She estimates the state is being shortchanged between $250 and $500 million.

The kicker: Amazon is not doing anything wrong. According to the U.S Supreme Court ruling in Quill Corp. v. North Dakota, companies are only required to collect state sales taxes from their customers when they have a physical presence in the state (state-based factories, warehouses, employees, etc. conducting general operations). Amazon currently passes this “physical presence” nexus as it is headquartered in Seattle, Washington and has warehouses and facilities considered legal entities in Kansas, Kentucky, and North Dakota. Only residents in those states pay taxes on Amazon purchases.

Quill cited the commerce clause in its ruling, arguing that if enacted, retailers would need to track a myriad of state and local sales tax rates (about 8,000) which constantly change. Facing these new barriers to entry online companies simply end their in-state affiliate programs. For example, in July 2009 Rhode Island included an affiliate-nexus tax in its budget. Amazon.com severed formal ties with all Rhode Island businesses enrolled in the “Amazon Associates Program,” which refers buyers to Amazon.com, while giving business owners up to 15 percent of the profit. As a result, Rhode Island saw less tax revenue and less economic growth as local businesses dependent on advertizing revenue were forced to close up shop.

California will suffer the same fate if Skinner gets her way. Our colleagues at Americans for Tax Reform, Patrick Gleason and Kelly Cobb, spell out the disastrous effects this new tax will have on California’s budget, businesses, and taxpayers. They note that in 2009, 25,000 individuals and small businesses in California earned $1.6 billion from online advertising, paying $124 million in state income tax. The state will loose that money, not to mention revenue from lost payroll, business, property and sales taxes. Sacramento’s budget problems are sure to get worse.

 While Amazon contests the unconstitutional imposition of state sales taxes on their customers the company does support the goal of making tax laws "simple and harmonized" and does not oppose "a constitutionally permissible national system applied even-handedly.” Similarly the retail federation and 24 other states have been seeking federal approval of a formal compact that would simplify and harmonize sales tax administration among the states to get around constitutional hurdles to taxing interstate vendors.

However, this tax collusion is an affront to American federalism and tax competition. States are attempting to abandon true federalism and jurisdictional tax competition in exchange for the power to potentially recoup a small amount of tax revenue. The federalism of the Founders fostered friction and tension between competing units of government –“laboratories of democracy” if you will.  Proponents of so-called tax streamlining use colorful words like “cooperation” and “harmonization” as a guise to extend tax burdens.  

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On the GOP Response: Limited Government?
Posted By:  - 01/25/11

Paul Ryan, as the face of the Republican party, eloquently stated: "We believe, as our founders did, that 'the pursuit of happiness' depends upon individual liberty; and individual liberty requires limited government. Limited government also means effective government."

Man, these guys can really talk the talk. But I'm skeptical. For six years Republicans held the Presidency and both chambers of Congress. Six years of unified government! What ended up happening? Bush took office when government was consuming $1.86 trillion, 18.5 percent of GDP. When he left office the budget reached over $3.5 trillion, 24.9 percent of GDP! Mind you, all under Republican government -- the same folks who are promising to "limit" government and "cut" spending now. I would take their rhetoric with a grain of salt and hold their feet to the fiscal fire. Republicans won back the House and 20 state governments under the auspices of limited government.

Let's hope they put their money where their mouths are.  

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