Why do state legislators enact such dumb laws? After speaking to a group of State Senate Presidents, David Brunori has some thoughts ($link, unfortunately) on why they persist in enacting special incentive breaks for their special friends:
I said that tax incentives are largely unnecessary because business location decisions are mainly determined by labor costs and access to markets (Boeing proved that to some extent). But several senators quickly asked about industries such as filmmaking or high-tech, in which labor costs and market access aren’t nearly as important: Taxes would matter more, yes? I had to fall back on the “government still shouldn’t be picking winners and losers” argument, which I think is a powerful one. But it doesn’t resonate well with those who pick winners and losers all the time — in all aspects of public policy.
My response would be giving tax breaks to one business or industry means screwing all of your other constituents to pay for it. It’s like taking your wife’s purse to the bar to buy drinks for the girls — yes, there are winners, but somebody loses too, and even the winners don’t respect you.
I like this “destroy the village to save it” argument:
One senator asked whether widespread use of tax incentives would eventually make the corporate tax so irrelevant that its repeal would be easy. Again, indignantly, I explained all that is wrong with incentives. The senator said he agreed and was merely pointing out that the widespread use of incentives was a sure way to eliminate the corporate tax.
If that were true, I think we’d have seen at least one corporate tax collapse under the weight of its loopholes. If any state corporation tax were ripe for collapse, it would be Iowa’s. It has the highest rate in the nation, but its loopholes and credits make it pretty much useless, raising less than 5% of Iowa’s tax revenue. Yet it still is going strong.
The best explanation for our bad tax policies are found in the “Public Choice” analysis of public policy pioneered by Gordon Tullock and James Buchanan. They say that public officials, like everyone else, respond to incentives. The incentives for legislators and their executive-branch enablers are to give money to well-connected constituents who will reward them with campaign cash. They understand and appreciate the largesse, and the taxpayers whose pockets are being picked don’t notice the little larcenies that make the largesse possible.
Or, in my Fable of the Wife’s Purse, the girls at the bar know who’s buying, but the wife doesn’t, so the incentives are all in favor of the bar girls.
Christopher Bergin, The State of Our Union: My, My, My (Tax Analysts Blog):
The only thing new about the myRA is that it’s being done by executive fiat, which makes it lamer still. That leads me to a question: Shouldn’t we have the Treasury Department working on reforming our tax code instead of running around placing fig leaves over tough truths, such as the fact that many of us don’t save enough for retirement? A suggested starting point: Treasury should study why the myriad provisions already in the tax code that are designed to provide incentives to save for retirement aren’t working.
Oh, I’m sure the next tax code change will work so much better than all of them so far.
William Perez, Getting Your Name Right on the Tax Return:
If a person changed their name last year, now is a good time to check their Social Security card. The name shown on a person’s Social Security card is the name the IRS expects to see on the tax return. If a person’s name has changed, the person will first need to update their name with Social Security before using their new name on their tax return.
This problem comes up every year. If you get married, or divorced, and you change your name, you need to file under the name that Social Security has if you e-file. Even if you paper-file, using the “wrong” name can delay your refund.
Jason Dinesen,Life After DOMA: Gift Tax
Russ Fox, Tax “Professionals” Behaving Badly. Russ recaps tax pros gone off the rails.
Annette Nellen passes on Tax mistakes to avoid – WSJ article. I wonder if the WSJ will follow up with “Tax mistakes to seek.”
Scott Drenkard, Indiana House and Senate Pass Business Personal Property Tax Reform. ”Taxes on business personal property are more distortive than other means of collecting revenue.”
Ben Harris, Variation in EITC Take-up, County by County:
The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South.
Peter Reilly, Flap About NFL Tax Exemption Seems Silly. Not as silly as Denver’s first play from scrimmage yesterday.
Tony Nitti, Super Bowl Tax Tale Of The Tape: Who Ya’ Got? ”When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious ‘busy season’ work week, this one with a bit of a hangover.”
TaxProf, The IRS Scandal, Day 270
Jack Townsend, Administration Insists that FATCA Will Not Be Further Delayed. We must make personal finance a huge hassle for Americans abroad as quickly as possible.
On Friday Going Concern wished you a Happy First Day of the Tax Filing Season!