There are Americans who could use a one-time, $250 bonus appropriated by Congress and approved by the president. But it's very difficult to argue that Social Security recipients should be at the top of the list. Seniors didn't get their cost-of-living increase for Social Security this year because the inflation rate was negative. Now Washington is talking about giving them an increase anyway. Why? Hard to tell. But, heck, we're handing out billions to everybody else, anyway, so why not pander to grandma, too?

The bonus would cost $13 billion. President Obama has not said how it would be paid for. In any event it's a bad idea. This is the wealthiest generation of senior citizens in history. In addition to providing Social Security, the government covers their medical costs through Medicare. Last year's cost-of-living increase for Social Security was 5.8 percent. How many workers do you know who got 5.8 percent raises last year? Social Security checks automatically keep up with inflation. Many, many workers are falling behind inflation.The senior-citizen poverty rate in the United States has fallen to about 10 percent from more than 30 percent in the 1950s.

Washington needs to stop handing out money like candy. But if it's going to write checks, how about directing them to the 1 in 10 impoverished senior citizens instead of to every single Social Security beneficiary? Or to children in poverty (34 percent of all kids 18 and under in 2007, according to the Census Bureau)? Or to workers displaced by foreign trade?

In a few years, inflation will be back and so will the COLA increases for Social Security. But I doubt seniors or anybody else will think that's a good thing, either.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (29)
Categories: Taxes
        

Congress and the White House are thinking about passing a tax credit for companies that hire new workers, the NYT reports. We keep hearing talk of Stimulus II. This is what it's likely to look like, if it happens. The idea is that, by lowering the cost of hiring, companies will do more of it. Maryland has had a job-creation tax credit since right after the last bad recession, in the 1990s.

The danger with the federal proposal is that it could supress hiring until it gets passed. Companies that are about to staff up for the economic recovery might wait until they can claim the credit. Reports the NYT's Catherine Rampell:

The biggest fear among some, though, is that the proposal might unintentionally reduce job opportunities if it sits in Washington too long without passing.

“Particularly for big employers, if they think a job creation tax credit is in the offing, it could certainly be an incentive to delay hiring,” said Lee E. Ohanian, an economics professor at the University of California, Los Angeles. “That means it could have the perverse effect of actually prolonging the recession.”

Posted by Jay Hancock at 12:43 PM | Permalink | Comments (1)
Categories: Taxes
        

Today's column is on how Gov. O'Malley and the rest of Annapolis have coped with the fiscal crisis. The verdict is: Not bad. I might have been harder on O'Malley for not doing more to pare the government work force during the worst recession in 70 years, except for this statistic: Maryland ranks very well for the number of state and local government employees per capita.

I suspect there is more to the story. Maryland's taxes are high compared with those of other states, which does not imply efficiency. But if we're not spending the money on state and local government workers, where is it going? Two guesses: Government services performed by private contractors. Or entitlements. But I do not know. Anybody got an idea?

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (2)
Categories: Taxes
        

Maryland has started another tax amnesty program, this one from now until Oct. 30. Tax scofflaws -- who owe Maryland as much as $500 million, according to the comptroller -- can pay their arrears without penalty.

This is Maryland's third tax amnesty since the Federation of Tax Administrators began keeping track in 1982. We had one in 1987 and another in 2001. At some point these things are going to stop paying off. Maybe they already are. The 1987 holiday raised $35 million for Maryland. The 2001 one netted $39 million. This time officials are talking about $5 million or $10 million.

It's a great deal for the tardy taxpayer. Not only are penalties waived. This time so is half the interest, which in Maryland is practically at Tony Soprano levels -- 13 percent!

Taxpayers are rational, and they can see that amnesties are becoming more than the one-time deals that they're advertised as. In most states amnesties crop up when recessions hit and comptrollers are hard up for dough. If you owe back taxes and you see the fiscal situation deteriorating, governors and legislatures are sending you a message: Just wait, folks, because we're so desperate that soon we'll change the rules in your favor.

States offering tax amnesty this year include Alabama, Arizona, Connecticut, Massachusetts, New Jersey, and Virginia, according to The Tax Adviser. At least some policymakers are starting to worry that enough is enough. A New Mexico fiscal analyst quoted by The Tax Adverser recently warned: "frequent amnesty periods may indirectly communicate a message to taxpayers that they do not need to comply with the Tax Administration Act because, potentially, another amnesty period may be approved."

These days "potentially" is becoming "inevitably."

Posted by Jay Hancock at 6:12 AM | Permalink | Comments (2)
Categories: Taxes
        

Laura Smitherman reports that lawmakers are talking again about an "Internet sales tax" in Maryland that would apply to online merchants not now collecting the 6 percent sales tax that state-based stores must remit.

An Internet sales tax is another proposal that has drawn support. Backers say that such a tax would ensure fairness. Under the current system, some online purchases are subject to state sales tax and others are not. An Internet sales tax could generate an estimated $7.8 million a year, according to fiscal analysts.

Nice try, but the Supreme Court has ruled that under current law states cannot tax Internet or catalog sales when the merchants have no physical presence in the particular state. The case is is Quill Corp. v. North Dakota, 1992. Amazon and other big Internet merchants own zero property in Maryland. (Internet sellers such as Land's End or L.L. Bean, which do have Maryland stores, must collect Maryland sales tax on their Web sales.)

New York, California and other states are trying to get around this by treating independent Amazon affiliates in their states as an Amazon presence, and requiring a tax. (When you buy less-than-mainstream merchandise on Amazon -- say, cookware -- the order often comes from an outside vendor piggybacking on Amazon's software.) Amazon has challenged this in court but is also severing ties with affiliates in California and other states that have made this move. Here is good background from blog.fed.tax.net.

A small state like Maryland probably has few affiliates of Amazon or other Internet sellers, so that route is probably blocked. And an outright attempt to flout the Supreme Court precedent would lead to challenges, bad press and not much revenue. Maryland needs to wait until Congress passes a law requiring Internet merchants to collect and remit sales for customers in every state.

Posted by Jay Hancock at 10:42 AM | Permalink | Comments (3)
Categories: Taxes
        

Bruce Bartlett says it's unrealistic and risky to rule out tax increases. From Ezra Klein's Q&A:

An Interview with Bruce Bartlett

Bruce Bartlett's conservative credentials are impeccable: He's worked for Ronald Reagan and George H.W. Bush, Jude Wanniski and Gary Bauer, Ron Paul and Jack Kemp. But he's also an economic realist: Government spending is growing, he says, and taxes are going to have to grow with it. The question for his party is whether it wants to get to work crafting those tax increases in a responsible way, or whether it wants to let Democrats levy inefficient hits on the rich and strange changes to the tax code. The health-care debate is a perfect example: A VAT could pay for this efficiently. But without Republican support, a surtax on the rich is likely to pay for this inefficiently. We spoke yesterday.

EK: Start at the beginning. Why do we even need taxes? Why pay for anything?

BB: We have a stream of revenue we'll continue to get in the future from the policies in place. But spending is projected to rise much more rapidly. So the question becomes what is the politically and economically tolerable level of the deficit? The Republican position seems to be, as Dick Cheney once said, that "deficits don't matter."

I don't know when we reach that threshold. But I think we were getting close even before the current problems. And federal spending is supposed to rise by about 50 percent over the next 25 years or so, and that was before any of the recent events. I think long before we'd reach the year 2030 we'd have a deficit large enough to create massive economic and political problems. Since the deficit has gotten so much larger so much faster, we're starting to see those problems on the horizon: Weakness of the dollar, increased efforts of foreign countries to diversify, unwillingness of other countries to hold the dollar. Eventually, we'll have a lot more trouble selling our bonds because our foreigners won't want them any longer.

Tyler Cowen says Bartlett is "courageous."

Posted by Jay Hancock at 2:05 PM | Permalink | Comments (4)
Categories: Taxes
        

The House plan to finance national health care would tax income of more than $1 million annually at an additional 5.4 percent. The Tax Foundation calculates that would bring the top income-tax rate -- combined local, state and federal levies -- to more than 50 percent in 39 states. In Maryland the top rate would be 55.61 percent, the 7th highest in the nation, according to the foundation. Oregon would be No. 1, at 57.54 percent.

Actually, in some places Marylanders would pay more. The Tax Foundation used the average local tax rate for Maryland, which is 2.98 percent. But taxpayers in many counties pay more than 3 percent. In Howard and Montgomery counties it's 3.2 percent. That gets you to 57.35 percent, just ahead of Hawaii for spot No. 2.

(Math for Maryland: Local tax: 3.2%; top state rate: 6.25%; health care surtax: 5.4%; top federal rate: 39.6%; Medicare tax: 2.9%)

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (8)
Categories: Taxes
        

The Sun's editorial page notes that Delaware, long reputed tax haven, is cranking up taxes to fill an enormous budget gap. Delaware Gov. Jack Markell, it reports, has:

increased the state's gross receipts tax to about 2.1 percent and the income tax on top earners to 6.95 percent. (And when Delaware says "top earners," it means anybody making more than $60,000 a year.) Taxes on cigarettes, alcohol and slot machine proceeds are going up, too. The state is increasing corporate franchise taxes and the public utility tax and is resurrecting the estate tax.

All that still probably won't bring our neighbors to quite the level of Maryland's combined state and local taxation. The Washington-based Tax Foundation ranked Maryland fourth in that measure in 2008, while Delaware came in 24th at 9.5 percent. This new increase would put Delaware in the 10 percent range, still lower than Maryland's 10.8 percent. That difference amounts to about $1,187 less in taxes per person in Delaware. Then again, Marylanders make $7,820 more per capita than their counterparts in the First State, so moving still might not be such a great idea.

I think Delaware may still look pretty good next to Maryland the next time the Tax Foundation does its study. Delaware's gross receipts tax -- a stealth sales tax -- is still far lower than Maryland's 6 percent sales tax. Unlike Maryland, Delaware has no "piggyback" income tax for localities. So even a top income-tax bracket in Delaware of 6.95 percent is far less than what most Marylanders pay even in lower brackets for the combined state and local income tax. That's the first thing taxpayers see.

(Note that the Tax Foundation percentages are not tax brackets. Rather they represent all state and local taxes -- property, sales, income etc. -- paid by people in that state as a percentage of personal income.)

Posted by Jay Hancock at 10:17 AM | Permalink | Comments (1)
Categories: Taxes
        

Tax authorities are really pushing electronic filing these days. Now that the IRS and comptroller's office are well set to receive electronic returns, it saves tons of money. They're getting out the message in different ways. I still file on paper. The IRS found a bogus reason to delay my refund -- on my itemized deductions I had forgotten to distinguish noncash charitable donations from cash donations. In the accompanying letter the agency said -- I'm paraphrasing -- if you had filed electronically, this would have happened to you.

In Maryland, here's a funny video from Comptroller Peter Franchot pushing e-filing with a takeoff on the "real men of genius" beer commercials. The singer fabulously bad. I can't get the video to embed, but the link is here.

Posted by Jay Hancock at 10:19 AM | Permalink | Comments (3)
Categories: Taxes
        

Reaction to Friday's column on how Maryland's estate tax increases the motivation for millionaires to get the heck out of the state.

From a millionaire who changed residence to lower-tax Virginia. He says the estate tax AND the recent income tax surcharge on high earners are pushing the well-off to leave Maryland.

The implication from one of the people you quoted is that people in my position would never ‘move’ for a 1 or 1.5% tax difference [the millionaire bracket for the income tax]. Are you kidding me? I grew up poor. A $32,000 tax difference is VERY real, even for someone in my position. That’s how much we saved in 2008, filing in Virginia and not in Maryland (besides the millionaires tax, base rates are lower here). The bottom line is that Maryland... lost more than $150,000 in [total] annual income taxes from my family alone that would not have been lost if it were not for the O’Malley administration’s confiscatory extra tax grab.

From another millionaire:

Having , in the last two years, acted as an executor for an estate where the deceased could have lived anywhere, I can heartily ratify what Lowell Herman had to say. In fact, I am faced with a residency decision myself. Merely changing residence to Delaware would save my family the maximum.

From Del. Susan W. Krebs:

Great column on the estate tax last week. I agree with you that the estate tax is what’s driving many of these millionaires out of Maryland.

I have put in bills to fix the Maryland estate tax for the past five years, but they have never even gotten out of committee. This year, in an effort to at least get legislators on the record, I tried to amend my bill onto the inheritance tax bill for domestic partners. The amendment would have aligned the Maryland death tax with current federal law. As you can see by the roll call vote, my amendment failed.

UPDATE: And here is the other side of the coin: the rich folks who complain but don't do anything about it, as told by commenter Ruth.

Have listened to two well-off family members bemoan their lives in our state for years. They constantly insist 'they're not staying here' yet, here they are. Ta-Ta, the rest of us will soldier on in the Land of Pleasant Living. Don't let the door hit you on the way out.......

Posted by Jay Hancock at 10:12 AM | Permalink | Comments (11)
Categories: Taxes
        

Reactions to today's column on Maryland's expensive estate tax, which starts:

The millionaires are fleeing Maryland, all right. But not because of the measly tax surcharge on income over $1 million.

They're bugging out because of Maryland's estate tax, which applies to a bigger portion of a dead person's hoard than the federal estate tax or those in other states.

Readers say:

My father never made a lot of money, but he lived long enough to see his 1946 purchase of a small farm and his investments in the stock market accumulate in value to more than a million dollars. We had to pay over $30,000 in estate taxes. I think it is time that someone sheds some light on the negative impact of high taxes in the State of Maryland and Baltimore City. People who accumulate money are spendthrifts: they are conscious of the value of a dollar. While an estate of slightly more than a million dollars may not be cause to relocate: an estate of two or three million dollars would be reason to give serious consideration to relocating to another jurisdiction.

And:

I would like to add that many middle income retirees flee Maryland after retirement. They move to states that do not tax or only tax a percentage of retirement income. You pay your state income taxes for 35, 40, 50 years and Maryland is still there to squeeze you until death. This also contributes to loss in state tax revenue.

And:

I'm too busy and too young (sort of!) to worry about estate taxes, but many sixty-something retirees are doing exactly what you described. As for state income taxes, I never thought my native state of "Taxachusetts" would seem like a tax haven relative to Maryland.

And:

It's not just milionaires that want to flee the Peoples Republic of Maryland. Add me to the list of those who wish to flee. I am not even close to being a milllionair. I have spent 60 of the last 62 years of my life in Marland and I have seen it degrade into a quasi-socialist state under the "fealess" leadership of the Democrats. Democrats who without any fear or sense of responsibility pass any tax law they choose. As a retiree it is cheaper for me to sell my house at a lose and move to Texas or Florida (to name a couple) for a lower cost of living, and lower taxes. And, as a side note, if some "fool" breaks into my house I can use whatever force is necessary to defend myself and my family, without first having to worry about if the cops will arrest me.

Posted by Jay Hancock at 9:56 AM | Permalink | Comments (6)
Categories: Taxes
        

Reader James Smith asks a good question about Laura Smitherman's story last week, Maryland plan to tax millionaires backfires. It shouldn't be that hard, James says, to figure out how many previous Marylanders with a million in income moved out of the state vs. how many just saw their incomes go down.

I have a question about Laura's "Millionaire tax" story. You said that officials say there's no proof yet of millionaires packing up because of the excess tax. Wouldn't that be a very easy thing for the Comptroller's office to ascertain?

Just round up all of last year's tax returns from millionaires. There were only 3,000 right? Then look up this year's tax returns from every one of those people. It will be easy to divide the 2008 millionaires into 3 categories for 09:

Still millionaires, still paying Maryland tax No longer millionaires, still paying Maryland tax Return missing: no longer paying Maryland tax

How many people fall into that 3rd category? Subtract the number of people who died, and that (more or less) is your total of millionaires who have fled Maryland.

I'll ask comptroller Peter Franchot to get a breakdown.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (4)
Categories: Taxes
        

Cornell economist Robert Frank (The Winner-Take-All Society) has a piece in NYT saying the tea party protesters don't know how good they've got it.

... For example, as a Peace Corps volunteer in Nepal long ago, I hired a cook who had no formal education but was spectacularly intelligent and resourceful. Beyond preparing excellent meals, he could butcher a goat, thatch a roof, plaster walls, resole shoes and fix broken alarm clocks. He was also an able tinsmith and a skilled carpenter. Yet his total lifetime earnings were less than even a very lazy, untalented American might earn in a single year. Well-paid Americans owe an enormous, if rarely acknowledged, debt to the social investments that supported their success...

Financially successful tax protesters seem blissfully unaware of how incredibly fortunate they are. To borrow from the late Ann Richards and her description of the first President Bush, they were born on third base and thought they’d hit a triple.

Posted by Jay Hancock at 12:04 PM | Permalink | Comments (6)
Categories: Taxes
        

The Tax Foundation's Bill Ahern writes apropos of my Saturday column on tea parties, taxes etc., in which I criticized the Obama administration's proposal to reduce the charitable deduction for those in high-income brackets. Sez Bill:

Don't be so hard on Obama's suggestion to limit the charitable deduction. We do want the rich to give away their money, but we don't need to pay them for it. Let's say they actually reduced their giving by the amount of the reduced deduction (which probably wouldn't happen, but it's hard to prove either way from the history of the deduction because tax law is such a muck.) Yes, there'd be less money in the hands of charities (many of whom don't deserve their tax status), but the money they'd be missing is the amount that the government is pitching in from other taxpayers.

Some economists would say that even aside from the issue of undeserving charities (heavily endowed universities and "nonprofit" hospitals get the lion's share), we're completely misunderstanding the nature of charitable giving, and if we understood it properly, we would repeal the deduction entirely.

He directs us to a Tax Foundation's blog entry on charitable deductions, which makes these excellent points:

While subsidizing charities with tax preferences might make sense in theory, in practice the charitable deduction does of terrible job of it.

For one, its benefits are shockingly regressive. More than 75 percent of tax benefits from the charitable deduction went to the 12 percent of taxpayers with incomes over $100,000 on 2004. Taxpayers would never stand for that distribution of burdens for a direct spending program.

Second, many charities subsidized by the deduction are charitable in name only. Many look a lot like for-profit firms. Ms. magazine, Harper’s, Mother Jones and many other publications are subsidized as "charitable providers of educational materials.” The National Geographic Society sells videos and maps in direct competition with for-profit companies. The YMCA operates fee-for-service gyms. It's hard to see how these groups deserve a subsidy at taxpayer expense.

Finally, by shifting part of the cost of private giving onto others, it forces some to subsidize gifts to nonprofits with goals opposite their deeply held beliefs—for example, gifts to pro-choice groups end up being subsidized by taxpayers with pro-life views, and vice versa. How is that good policy in a free society?

Posted by Jay Hancock at 11:20 AM | Permalink | Comments (1)
Categories: Taxes
        

The headline for Saturday's column was: "Let's cut spending and raise taxes," which captured what it had to say pretty well. It began:

Thoughts on taxes, tea parties and Washington's looming fiscal disaster.

Call me conservative, but I believe parents who toil and save and accumulate a modest fortune ought to be able to pass it on to their children and grandchildren.

Vanishing savings largely caused this financial crisis. We save so little we need the Chinese to finance our deficits. Let's not discourage Americans from saving by seizing big chunks of their nest eggs when they die.

A Republican proposal to exempt estates worth less than $10 million for couples and $5 million for individuals sounds about right.

Call me liberal, but I believe high earners should pay a bigger portion of their income in taxes than everybody else.

Taxes are user fees for The System - the laws and safeguards that keep the country running. Nobody benefits from The System as much as high earners and the wealthy.

Read the whole thing here.

I expected more critical comments, given that even discussions of raising taxes often prompt allergic breakouts. But I was happily surprised. Here is a sampling of my email inbox this morning.

Thank you for the column you wrote on Sat., 4/18/09. Since I no longer know where I stand on the political spectrum, and get very discouraged by the left vs right dialogue, your sentiments hit home for me, and I'm sure those of many other people.

AND:

I rarely respond to any opinions but felt compelled to in this instance because I agreed with almost all you wrote. But to say only the wealthy are the benefit of the taxpayer bailout of Citicorp etc is just not right. We all may or may not benefit if the Chrysler bailout of 20+ years ago is any historical precedent this so called bailout will cost the taxpayers nothing. But whatever happens we all will either benefit or be hurt. It is just not right to put it on the so called wealthy as the only beneficiaries of this.

AND:

This morning’s work is exceptionally well done. I enjoyed reading it. Thanks for the logical analysis. It is refreshing.

AND:

First let me say, I appreciate the fact that you addressed the subjects today. That is a great start. Where we depart is that some people should pay more and others should pay less. Who gets that power? That’s why this country started by resisting the few that held all the power with no say whatsoever.

Everyone should pay the same percentage. Period. If you make $10,000 or $10,000,000,000. It’s the only fair way to assess people equally. Is that so hard for everyone to understand?

So simple. But our politicians want everyone to be jealous and confused and angry so that we don’t see all the other things they do that really screw us up. But I’m sure you know that already.

Continue reading "Bulletin: Tax column prompts little hate mail" »

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (1)
Categories: Taxes
        

From the Maryland Comptroller:

Are you ready for April 15th?

No? You're not alone. Thousands of Marylanders are in the same boat. That's why I'm inviting you to join me for an online chat.

Visit my official Comptroller's website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

I will be available to answer any questions from last minute filers and to make sure that you don't fall victim to any last minute tax scams. Come, ask your questions and make sure that you don't miss out on your refund!

If you have any tax questions, have any problems with the process or have any questions for me, please visit my official website, www.marylandtaxes.com, this Thursday, April 9th from 2-3 pm and click on the chat icon to join in.

Posted by Jay Hancock at 11:10 AM | Permalink | Comments (0)
Categories: Taxes
        

Massachusetts's present gas tax is 23.5 cents a gallon, same as Maryland's. From the Boston Globe:

Governor Deval Patrick is considering raising the state's gasoline tax by as much as 29 cents per gallon, which would at once give Massachusetts the highest state gas tax in the country while generating enough revenue to potentially rid the Massachusetts Turnpike of tolls.

But administration officials, responding yesterday to a leak reported in the media, said the governor also was considering a gas tax increase as low as 5 cents and that no decisions have been made.

The gas tax in Massachusetts is 23.5 cents per gallon, which has not been substantially increased since 1991. A 29-cent increase would bring the state's tax to 52.5 cents per gallon. New York currently has the nation's highest state gas tax, at 41.3 cents per gallon.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (1)
Categories: Taxes
        

Greg Mankiw, former chairman of GW Bush's Council of Economic Advisors, repeats his call for a gas-tax increase. From Steve Mufson's and Lori Montgomery's story in today's Washington Post.

N. Gregory Mankiw, a Harvard University economics professor who was chairman of former president George W. Bush's Council of Economic Advisers, supports cuts in payroll taxes partially offset by gradual increases in gasoline taxes. He says more time should be taken to craft spending programs that would not be wasteful.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (0)
Categories: Taxes