The View From 1776

Income Tax Destroyed Connecticut Jobs

A think-tank study documents the destruction wrought by Connecticut’s adoption of an income tax on wages and salaries.

Posted by .(JavaScript must be enabled to view this email address) on 08/25 at 11:14 PM
  1. Ignorance knows no limits and both parties have their disciples of ignorance.

    One only has to look around the world for which policies work and which don't.

    The need for tax revenues is obvious. But, how you collect those taxes make a huge difference. Also, "change" in the tax system can make a huge difference if the people feel it adversely affectes them. Many people live in states with income tax and possibly even "high" income tax. But, if the income tax when combined with other income tax policies puts that state at a severe disadvantage to other states, the people will move.

    This is true of business and even moreso since they have to compete to stay in business and all tax and the cost of paying that tax is part of the prices we pay. That is why NE states are losing business to not only other nations, but other states with lower taxes on business.

    The only time a tax on business makes sense is when it exports and can still compete with the tax added. Then foreign consumers help pay our taxes. But, as soon as that rate puts the price even a nickel higher than another nation's price, we start to lose jobs due to an inability to compete. While the cost of labor, healthcare, litigation, regulation, may all be lower too, we many not want to change those things here. Thus, we may only have one choice to bring prices down, tax rates.

    Fair? No. It is not fair we have to compete with low wage, low tax, low heathcare cost nations. But it is reality and until "we the people" as voters stop demanding socialist tax policies we will lose jobs in the businesses that compete in the world market.

    One reason we are going to a service indrustry nation (waiters, landscapers, construction, insurance agencies, etc.) is that those businesses have to "be here" and the playing field is level since all have to pay the taxes and don't compete with a product that can be imported. You can't import a "haircut" so all the taxes and costs are passed on by all businesses. That might seem like a way to "solve our problems of jobs and wages."

    However, when that "service industry" has to raise their price to cover taxes, healthcare, etc. it lowers our buying power since we have less to spend. It also means we don't export as much which places the entire tax burden on workers. The wealthy can invest in tax free securities or move their wealth to a low tax nation and grow it there an only "pay" themselves what they need to live here while the wealth grows and grows somewhere else that we can't tax. Or, they use shelters, trusts, and foundations. And, of course, they have the money that lets them move to another nation if it gets too bad, as is currently happening in France.

    The sad thing about socialist tax policies that try unsuccessfully to make the "wealthy" and "business" pay more than what they consider "fair," is that compliance costs are often 400% to 700% higher than the tax they actually pay. That means the price has that extra 400% to 700% of compliance cost in the price with the tax too.

    Thus, we, the consumers, the workers, pay 400% to 700% more to have the tax collected from us through business.

    Let's say, I want to buy just one Item in a year from a business that only makes one itme a year. A big widget that the "widget company" wants to make $50,000 after tax profit on. Since U.S. fed and state tax is about 42%, they have to mark the item up $87,000 to get $50,000 after tax profit. But, remember the "wholesale" price includes accounting costs. Thus if the $37,000 in tax they pay has just 400% low end of compliance cost, $148,000 of the "wholesale price" is compliance cost.

    You may not believe that is possible and in a sense you are right. The reason you are right is that the 42% rate usually ends up much lower after loop holes are found and used. So, maybe the final tax wasn't $37,000 but only $5,000 with loop holes but the lawyers that find those loopholes, the accountants that keep the daily records to record what the company does to deserve those loopholes, the audits, the offices, the office equipment, the benefits for the accountants and lawyers all add to the price and so $20,000 is added to the tax and included in the price. However, that $25,000 total is still lower than the $37,000 the company had to pay. Even at the 700% compliance cost, that would be $35,000 and the company made $2,000 it wouldn't have without those lawyers and accountants. And for some, they get the cost down to amost zero but on average the cost is 400% to 700% more than the tax (mid size and small businesses, not big, if I recall the details of the article correctly)

    Posted by .(JavaScript must be enabled to view this email address)  on  08/26  at  01:46 PM
  2. But, remember that isn't all the "compliance cost." There is much more than tax compliance.

    According to a 2001 U.S. government report entitled "The Impact of Regulatory Costs on Small Firms," companies spent roughly $800 billion annually on federal compliance issues before Sarbanes-Oxley was even drafted.,1540,1846782,00.asp
    That is all in the price we pay for U.S. products

    Even if it isn't a "competitive issue" in the world market because the business only competes with similar businesses here, we still pay that cost and reduce our buying power. This is part of the reason an $8,000 a year worker in China has $40,000 in buying power when he buys Chinese goods which we also buy but have all the shipping, middlemen, and U.S. business costs added in that make them almost as expensive (but not quite) as what it would cost to make it here.

    Thus, the state that adds tax burden, in any manner, to its citizens and businesses, that they wouldn't have in another state, they move.

    It is important that you remember "total tax" is the key. Income tax, property, school, sales, energy, phone, gasoline, etc all affect buying power. If you raise one and cut another, it may offset and even have lower compliance cost (like a simple gas tax per gallon)that increases buying power. A sales tax is simple and has lower compliance costs and can, if it replaces a business tax, actually lower prices more than the tax adds to the total cost of an item.

    It is that principle of lowering compliance costs that the Fair Tax people believe makes the repeal of the Income tax, payroll taxes, etc so popular with their supporters.

    Other nations are using flat taxes and VAT taxes to simplify their tax code and reduce compliance costs though so there are other options and State could look at other states to review their options too.

    But, bottom line. Workers pay the tax bill, not business and not even most wealthy who can use tax free securities like Kerry does.
    Posted by .(JavaScript must be enabled to view this email address)  on  08/26  at  01:49 PM
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