Tag Archives: Tax Foundation

TEL Event and TEL Podcast

If you couldn’t make it to GMU last week for the Tax and Expenditure panel, you are in luck: the tech team at Mercatus was good enough to capture it for posterity:

I thank our two guests: Assemblyman Micah Kellner of the NY-65th district and Nick Kasprak of the Tax Foundation.

Nick has created a very handy on-line tool. It does what my paper on state spending restraint did: it traces out what states would (theoreticall) have spent had they adopted TELs in certain time periods. Unlike my paper, however, Nick’s tool is interactive, it examines all states, and it allows users to see the different impact of different types of TELs. Check it out.

I learned a number of things from Assemblyman Kellner. Perhaps the most-interesting thing I learned: if you live in the 65th district of NY and if your family earns $250k or more, the state considers you poor enough to qualify for affordable housing rent control but rich enough to pay the “millionaire’s” tax. The assemblyman notes that in pricey NYC, a lot of people who live modest lifestyles actually fall into this category.

I presented the results of my  paper on tax and expenditure limits.

Also this week, the Tax Foundation’s Richard Morrison interviewed me about TELs in their weekly podcast.

Tax and Expenditure Limits: A Panel Discussion

More than half of all states operate under some sort of state tax and expenditure limit (or TEL). And with nearly every state facing the most-serious fiscal crisis of a generation, these sorts of limits are increasingly talked about as a solution. But do they work? Are there nuances? What do states need to know before implementing one? How would a TEL affect your state? 

Join us in two weeks for a panel discussion here at the Mercatus Center. We hope to address these issues and others. New York State Assemblymember Micah Kellner (D-65th) and Tax Foundation programmer and analyst, Nick Kasprak, will be speaking, as will I.

Mr. Kasprak and his colleagues have developed a really neat online tool to see the theoretical impact of TELs in each state. Check it out. 

Assemblyman Kellner will talk about the fiscal troubles in New York and the potential impact of a TEL there.

I’ll be discussing recent research on the effectiveness of TELs, including my own recent paper.

If you can’t make it to Arlington in person, the event will be livestreamed on the event page.

Rating State Business Tax Climates

Today the Tax Foundation released its annual State Business Tax Climate Index.

Good tax policy is not just about low rates. The Index’s author, Kail Padgitt, writes:

State lawmakers are always mindful of their states’ business tax climates but they are often tempted to lure business with lucrative tax incentives and subsidies instead of broad-based tax reform. This can be a dangerous proposition.

The public choice pressures that Dr. Padgitt is talking about encourage state policy makers to cut special tax deals for politically-important businesses and to keep rates high for those who are aren’t so well-connected. The Business Tax Climate report is a nice antidote to such thinking:

The goal of the index is to focus lawmakers’ attention on the importance of good tax fundamentals: enacting low tax rates and granting as few deductions, exemptions and credits as possible. This “broad base, low rate” approach is the antithesis of most efforts by state economic development departments who specialize in designing “packages” of short-term tax abatements, exemptions, and other give-aways for prospective employers who have announced that they would consider relocating. Those packages routinely include such large state and local exemptions that resident businesses must pay higher taxes to make up for the lost revenue.

The best climates: South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware, Utah and Indiana.

And the worst: New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina.

Assorted Links

Jeff Dircksen at the National Taxpayers Union writes about a new ranking of state governments:

There’s a new ranking that looks at how well states are run, or in some cases not so well run.  According to its web site, “24/7 Wall St. has completed one of the most comprehensive studies of state financial management ever performed by the mainstream media. It is based on evaluation principles used in the award-winning Best Run States In America ratings published by the Financial World Magazine during the 1990s. These studies were used by state governments to evaluate the efficiency of their own operations. The new 24/7 Wall St. study is meant to help businesses and individuals examine state operation with an unbiased eye.”

Take a look and see how your state does.  Spoiler alert:  Wyoming is the best and Kentucky is the worst.

On an unrelated note, Joe Henchman at the Tax Foundation cautions against the use of the Center on Budget and Policy Priorities’ state budget gap data (note: I used this data in my paper on budget gaps—in part because it was timely and because it is so commonly cited). Joe writes:

The number is probably accurate from their methodology, but is ultimately meaningless. Here’s why:

  • A state “budget deficit” is the revenue projected (usually by the Governor’s office) minus hoped-for spending according to some formula, in the initial budget plan. For instance, say a state raised and spent $10 billion this year, but wants to spend $20 billion next year, projecting $11 billion in revenues. Ultimately they settle on spending $11 billion. That state has “closed a $9 billion budget deficit” even though revenues and spending are up from the previous year.
  • The exact method of estimating next year’s spending varies by state, with some starting with last year’s budget while others throw in additional wish list programs. Adding up all the states’ numbers is adding apples and oranges.
  • States must balance their budgets so there really is no cumulative state budget deficit in the end, at least on paper.
  • It’s routine for states to want to spend more than they actually can, at least at first, and having a deficit in the initial plan happens even in flush times. Thus, CBPP’s numbers overestimate the scope of actual state budget deficits.
  • CBPP also presents the deficits as a percent of each state’s general fund. While the general fund is usually the largest and most important part of a state’s budget, in many states it can represent less than half of the total budget. This number thus exaggerates the seriousness of a budget deficit.
  • A budget deficit could exist because of overly ambitious spending plans that are whittled down to reality, overly optimistic revenue projections, fiscal irresponsibility, or structural imbalance. CBPP’s tale of the recession causing everything and federal aid being the only salvation doesn’t fit the facts. For instance, California’s deficit this year includes unpaid bills kicked over from last year, so it’s the same money being double-counted. This irresponsibility is glossed over in CBPP’s report.

Tax Cuts, or Hikes, Are a Sideshow

Washington State is considering implementing a personal income tax. Much like the federal debate over extending or expiring the Bush tax cuts, this debate is a sideshow to the real issue. In our recent Capitol Hill Campus course, Dr. Bruce Yandle laid out these two charts which point to the real problem in state and federal budgets; spending.

First, this chart tracks the top marginal tax rates versus federal revenue as a percent of GDP.

The government’s take of the economy has remained relatively constant since 1960, despite wild fluctuations in how we “soak the rich”. Washington’s proposed tax would only affect those house-holds making more than $200,000, so one should expect this pattern, or lack thereof, to hold for Washington’s gross state product.

The second part of the story is this; as government spending increases, there is a measurable decline in the economy.

With only one outlier in fifty-four years of data, this strong correlation indicates that spending cuts pay for themselves with a growing economy. In turn, that should produce more overall revenue with reasonable tax rates. If you live beyond your means, the problem isn’t your income, it’s your spending habit. Sometimes it’s better to take a small slice of the pie, but make the pie itself bigger.

Tax Foundation attorney Joe Henchman put the incentive mechanics this way:

Yes, such taxes will generally raise revenue in the short term without a sudden exodus of wealthy people fleeing to the state next door… . But over the medium term, the taxes will negatively impact location decisions. People expanding old businesses or creating new ones will incorporate the higher cost of doing business into their decision-making, and steer clear of the state.

States and the federal government need to break this destructive cycle.

Razzle Dazzle in a Recession

New York faces one of the largest state budget shortfalls in the country, but so far legislators are not looking to TV and film tax incentives as a place to cut spending.

Business Week explains:

As television and film studios line up for a 20-percent boost in their tax credit — one of the few windfalls proposed during New York’s fiscal crisis — the return on what is now a $350 million tax credit remains out of focus.

State Comptroller Thomas DiNapoli issued a report Tuesday showing the film and TV industry, which includes production of television’s “Gossip Girl” and “Law & Order” and several films, paid a total of $3.3 billion in wages to 36,000 people in 2008, the latest data available.

[…]

The proposed increase comes as the state faces a current deficit now estimated at $2.1 billion, and a $9.2 billion gap projected in the budget due April 1.

But Matt Anderson, Paterson’s budget spokesman, said the film industry supports billions of dollars in economic activity and tens of thousands of jobs. He said the tax credit sustains long-term investments, permanent production facilities and jobs.

The trend of such subsidies from states is growing, but a Tax Foundation report explains that these tax incentives are not an answer to state budget problems or to economic growth. Unlike competition between firms, this competition between states to attract TV and film is unproductive. While billed to create jobs, such policies actually increase citizens’ tax burden and favor film and television over businesses that could be productive without subsidization.

Policymakers who support film and television tax breaks miss the unseen in these rules. Subsidizing specific industries through tax incentives distorts the states’ economies and diverts resources from their most productive uses.

Local Governments Taxing Online Travel Services?

A new study from the Tax Foundation looks at how local governments are attempting to change the way they calculate hotel occupancy taxes, from the amount paid to the hotel to the amount paid by the consumer to online travel services like Expedia and Priceline:

Local governments’ efforts to collect discriminatory taxes from online travel services amount to a revenue grab from out-of-staters and ultimately harm interstate commerce, according to a new Tax Foundation report.

City officials in 22 states have, with limited success, sought to reinterpret hotel occupancy taxes to apply to amounts paid by consumers for online travel booking services (such as Expedia, Orbitz and Priceline).

“Hotel taxes are attractive to local politicians because they are a way to shift the tax burden to ‘outsiders,'” said Joseph Henchman, the Tax Foundation’s Tax Counsel and Director of State Projects, who authored the report. “But because every U.S. city has a hotel tax, we’re all somebody else’s ‘outsider.’ And that means everyone is paying high hotel taxes everywhere.” Continue reading

Fixing Education First

Eileen Norcross has an op-ed in the Asbury Park Press arguing that Governor-elect Christie must deal with New Jersey’s education system before it will be possible to deal with the budget deficit, property taxes, income taxes, and outmigration:

School funding is a mess not because of decisions by the Legislature, but edicts from the state’s Supreme Court. For more than 30 years, the courts have controlled the schools through the Abbott decisions (which number 20 separate rulings over 24 years).

To wit, 31 court-designated Abbott districts must spend the same amount per student as the highest-spending district in the state. While other state courts have ruled on state funding formulas for education, none have effectively taken over the Legislature’s policymaking functions as the New Jersey courts have. Continue reading

Property Taxes and Household Income

People who live in New Jersey and New York already know that their property taxes are high. But they may not know just how high, that these two states have the highest property taxes in the United States, by various quantitative measures as described below.

New York and New Jersey vie in any given year for first place for highest per capita homeowner property tax burden in the nation. The Tax Foundation recently published rankings of median per capita homeowner property taxes paid and 2008 is no exception. The top 10 counties are nearly split between the two states. Number one is Westchester, NY with a median per capita homeowner property tax of $8,890.

When dividing the median property tax burden by median home value, only New York counties make the top ten. Niagara County is number one with median property taxes representing 2.89 percent of median home value.

I decided to do another calculation using the Tax Foundation’s data and combining it with median homeowner income for each county in the U.S. to calculate another measure of property tax pain: how big a bite it takes out of homeowner income.

Not surprisingly, the results don’t help either state.

New Jersey has 16 out of the top 25 highest property tax counties (among counties with populations greater than 65,000) in the US. New York has six counties, and Illinois, three. For three counties in New Jersey — Passaic, Essex and Bergen — the median property tax represents over eight percent of median homeowner income. As a benchmark, the average for the US is 2.8 percent.

New York has six counties in the top 25 in the eight percent range. It’s only by 21st place that a new state jumps into the rankings: Lake County, Illinois with a ratio of median property taxes to median income of 6.5 percent.

Here are all the top 25 counties:

Highest 25 Property Tax Counties in United States, 2008 (Median Homeowner Property Tax as a Percentage of Median Homeowner Income)

County State Taxes as % of Income
1. Passaic NJ 8.7%
2. Essex NJ 8.3
3. Bergen NJ 8.2
4. Nassau NY 8.1
5. Union NJ 8.0
6. Westchester NY 8.0
7. Rockland NY 8.0
8. Hunterdon NJ 7.4
9. Suffolk NY 7.4
10. Putnam NY 7.3
11. Hudson NJ 7.0
12. Sussex NJ 6.9
13. Camden NJ 6.9
14. Somerset NJ 6.8
15. Atlantic NJ 6.8
16. Monmouth NJ 6.7
17. Warren NJ 6.6
18. Mercer NJ 6.6
19. Morris NJ 6.6
20. Middlesex NJ 6.6
21. Lake IL 6.5
22. Orange NY 6.4
23. Gloucester NJ 6.3
24. Kane IL 6.2
25. Kendall IL 6.2

Note that these are counties with populations of over 65,000.

Assorted Links

According to the Tax Foundation’s ranking of real estate taxes, the top ten counties are in New York (Westchester, Nassau, Rockland, and Putnam) and New Jersey (Hunterdon, Bergen, Essex, Somerset, Morris, and Passaic). The burden ranges from a median of $7,342 in Putnam County, New York to 8,890 in Westchester County.

A Scourge on Long Island:  Residents paid a median of $8,628 in real estate taxes in 2008, and according to Nassau County’s school administrator, it is the school property tax that is “crushing residents.”

The Mapathon: Atlanta will be the most digitally mapped city in the US.

British geographers worry that digital maps are “erasing history.”

One of the biggest commercial real estate venture of the housing bust collides with NYC rent-control: the Stuyvesant Town apartments near default.

Fewer than four out of 10 fourth and eighth graders are proficient in math, according to NAEP results.